Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cognyte's Fourth Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Please note that today's conference may be recorded. I would now like to hand the conference over to your speaker, host Dean Ridlon, Head of Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, I'm Dean Ridlon, Cognyte's Head of Investor Relations. Thank you for joining us today. I'm here with Elad Sharon, Cognyte's CEO; and David Abadi, Cognyte's CFO. 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 cognyte.com. Click on the Investors tab, click on the webcast link, and select today's conference call. 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 1995 and other provisions of the federal securities laws. These forward-looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements. The forward-looking statements are made as of the date of this call and except as required by law, Cognyte assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of how these and other risks, uncertainties, could cause Cognyte's actual results to differ materially from those indicated in these forward-looking statements, please see our Annual Report on Form 20-F for the fiscal year ended January 31, 2023, and January 31, 2024, which we expect to file today and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP measures. Please see today's presentation slides, our earnings release, and the Investors section of our website at cognyte.com for a reconciliation of non-GAAP financial measures to GAAP measures. 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 is useful to investors for informational and comparative purposes. The non-GAAP financial measures that the company uses have limitations and may differ from those used by other companies. Now, I'd like to turn the call over to Elad.

Thank you, Dean. Welcome everyone to our fourth quarter conference call. The fourth quarter was a strong finish to a productive year for Cognyte. The market remains stabilized and continued to improve as bad actors utilize new ways to conduct their business and the need for advanced technology and actionable intelligence continues to grow. We executed well in fiscal '24, delivering top-line growth of approximately 11%, and we entered the new year with an improving momentum that is supported by strong and short- and long-term RPOs, which give us confidence in our outlook. Importantly, we have reached an inflection point, where we are growing gross profit more rapidly than our revenue and we expect fiscal '25 to be a year of operating leverage. To be clear, we will be investing in R&D and our North America expansion efforts to accelerate future growth, but the pace of our operating expense growth is expected to be slower than our revenue ramp, leading to improved profitability. For fiscal '24, we generated non-GAAP revenue of $313.5 billion and increased our SAS-adjusted non-GAAP gross profit by more than $39 million on $30 million in increased revenue. Our improving gross profit, expense management and growing operating leverage enabled our third consecutive quarter of positive adjusted EBITDA at $4.3 million. In fact, we delivered $9 million in positive adjusted EBITDA for the full year along with $35 million of positive cash from operations and $25 million of free cash flow. Cognyte is again generating operating income and we expect not just to maintain our profitability, but meaningfully expand it in the next year. We believe we now have a stable platform to execute and expect the coming year to be one of further operational improvement as we aim to build on this strong foundation to deliver sustainable…

Thank you, Elad, and hello, everyone. We delivered fourth quarter financial results that exceeded our expectations, reflecting stabilized market demand and solid execution. With a combination of highly co-differentiated solutions, healthy demand and the large and lower customer base, we were able to overachieve our expectations each quarter in fiscal '24, and we entered fiscal '25 with positive momentum. We ended the year with a strong balance sheet and a solid foundation for profitable growth. Our cash balance increased significantly during the year, primarily due to the $34.6 million of cash flow from operations and $25.5 million of free cash flow we generated during FY '24. At the end of the year, our cash balance was $83.3 million, and we had no outstanding debt. During Q4, we extended our credit facility and we now have $65 million available to borrow until the end of January 2026. Revenue for the full year was $313.5 million, an increase of approximately 11% year-over-year. The vast majority of the revenue growth was driven by $28 million increase in software revenue. Our Software revenue was 89% of total revenue, close to our long-term target of 90%. Recurring revenue for the full year was $168 million, representing 54% of total revenue. Gross margin for the year was 69.2%, up about 650 basis points year-over-year, and full-year gross profit grew twice as fast as revenue and was $217 million, an increase of 22% year-over-year. The main drivers for our gross profit improvement are the value our customers see in our innovative technology, our competitive differentiation, and improved cost structure. As Elad mentioned, we continue to win significant deals from both existing and new customers, reflecting the demand for and the value of our cutting-edge investigative analytics solutions. During fiscal '24, we won 29 new customers, an increase…

[Operator Instructions] Our first question comes from Mike Cikos with Needham. Your line is open.

Great. Thank you, guys. Thanks for taking the questions here. I think the first question I wanted to ask you about was with respect to this past quarter, or the year, actually. I know the company said that you landed 29 new customers, which is up 70% year-over-year, which is a great statistic. Just trying to see, are these new customers when they land -- are they actually landing larger or has the initial land remained relatively unchanged if I look at customers coming to Cognyte this year versus the customers, who landed with Cognyte last year?

Yes. Hi, Mike. So, yes, it's a good number of new customers for the year. Maybe I'll give you some more color. It's a variety of customer types. It's coming from different areas, law enforcement, national security, national intelligence. Also geographic wise, it spread globally. So it's a good indication that demand across the world is healthy. Usually, new customers start small, and this is the case also now. We had one large deal last year with a new customer of more than $20 million. But the other deals, most of them are small and actually grow over time. And this is actually the lending expense strategy that we are following, acquiring new customers, starting small with either a few use cases and relatively limited capacity. And when they see the value, they go with us with expansions, upgrade more functionality and the wallet share is usually growing over the years. And this is the case also here.

That's great to hear. And if I could just build on that comment around the land and expand, I know that you guys have the -- in your slide deck, those three customers that you're citing, two or existing customers, who decided to renew or increase their spending with Cognyte. I just think it might be helpful. But let's say, for that National Security customer, who signed over a $20 million deal. Is there any way you could provide some additional color as far as what the deal size was before that we're seeing for the $10 million national intelligence deal that you guys signed like, are these customers expanding at a rate of -- is it 3% a year or is it 5% a year? I'm just trying to get a sense of how quickly they're expanding their usage of Cognyte over time when they come to renew with you?

Yes. So maybe I'll give you some more color about each one of them and then I'll answer the quantification side because quantification side is quite difficult because it's varying a lot between one customer to the other with one deal to the other. But the first customer actually faced new technology that came in their territory and created more data that they need to address, which they didn't have the capabilities before. And given that we have this solution and this customer is with us for many years, actually more than two decades, they came to us and they actually upgraded their capabilities with the new solution. And this happened a lot over the years with this customer. The second one is related to a use case. It's a border control solution for an existing customer that we had before. Actually, we sold already to this customer for border control also. But actually, they have large borders and different concerns and different challenges in different areas of the border. And they actually expanded with capability that they didn't have before for a different border challenge. And the last one is actually a result of reference of existing customer that worked with us was very happy and actually was a very strong reference for us to another organization in the same country. About the quantification, it's very difficult to quantify because, you know, it might be that customers start very large, like the other one that I mentioned earlier, $20 million plus new customer, that can fit into the capacity and functionality for a few years and not upgrading, or it could be small deals that can come and grow quickly. So it really varies between one deal to the other, between one customer to the other. So statistics is not something that would be helpful here. And also I believe that given that we have hundreds of customers in many countries and that we are able to actually engage with customers frequently and understand their current and future needs. It helps us a lot to be prepared with the technology they need in order to upgrade and address their new challenges, which happened in one of the examples I gave earlier. So lend and expand is very important for us.

Great. Thank you for that. And then just one final question if I could. But, I'm just trying to get a better understanding. I know that you guys gave some great color around CRPO exiting fiscal '24. If I look at the fiscal '25 revenue guidance that we have this outlook, it looks like there's a decent amount of incremental revenue you guys are looking to add in this coming year in comparison to the CRPO growth. And I just wanted to get a better understanding of what's driving the confidence in driving that incremental dollar to Cognyte above and beyond the CRPO balance that we have today.

Actually, the coverage of the RPO -- the short-term RPO for the year is similar to last year. So it's not far from what it was before in terms of the coverage. And this gives us high confidence that we can deliver on the outlook. And also we have the confidence, given that we have the mix of the deals in the RPO, that we are going to see improved profitability. So the confidence level in our outlook is high.

Well, if I could just push back on that for one second. But if we go back a year ago, you guys -- Cognyte had a CRPO balance of $281 million and then guided the full year to $300 million in revenue. So you're talking about $20 million increase. And I look at where we are today, we have $303 million or so in CRPO and then a guide of $340 million. So the incremental dollars above and beyond the CRPO balance has gone up from $20 million to almost $40 million if I look at the guidance that we have today. And I'm just trying to get a better understanding of, again, that doubling of the incremental dollars above the CRPO balance. Does that make sense -- I just want to make sure I'm clear on that.

Yes. So if you look at the previous -- current RPO of the $280 million versus the initial guidance of the $300 million, we were like, in that period, in a different environment from our perspective. During this year we saw significant demand and we saw that the RPO is growing quarter-over-quarter, which first increased our confidence and second, allow us to increase the guidance over the year. When you look at next year, we are starting the year with $302.5 million of RPO -- short-term RPO, and guiding $340 million, which is from a coverage perspective, it's the same percentage that you will see a very similar percentage versus the $280 million and the $230 million that we actually guided. The main difference that we have, if you compare this year versus last year is that, over the last few quarters, we worked closely with our customers and we know that our short-term RPO is very strong and allow us to predict in a good way where we're going to land. And actually, we are very pleased from the last few quarters that we're able also to overachieve quarter-over-quarter. Does that answer your question?

No, it does. It does. I really do appreciate the incremental color from both you and Elad. So thank you very much. I'll turn it over to other analysts on the line. Thank you.

Thank you.

Thanks, Mike.

Thank you. Our next question comes from Shaul Eyal with TD Securities. Your line is open.

Thank you. Hi. Good afternoon, guys. Congrats on the ongoing consistent outperformance. My question is around AI -- GenAI, which has been the topic de jour in recent quarters. Elad, in your prepared remarks, you did mention latest AI developments as a driver for the market and the company. Can you maybe double-click on this point, maybe provide us with some insights? And how should we be thinking about GenAI impacting Cognyte's near and long term? Thank you.

Hey. Sure. Hi, Shaul. So AI is becoming more important for customers over time. And actually, it's a race, and maybe it's important that we understand that it's a race between our customers, who are trying to make the world safer and the bad guys, who are trying to hide better. So if you look on the bad guys, they're using GenAI and advanced technology to hide their identities. I gave an example earlier in the call about GenAI and using fake entities and cryptocurrency that actually they use in order to anonymize, who they are. And actually, this makes our customers' challenges much more complicated and difficult to address. If you want to put your hands on the bad guys or investigate them, you need first to know who they are. And this is one challenge that is growing over time. On the other hand, our customers -- they have more data coming in structured and unstructured from different sources. And in order for them to be able to actually unhide, uncover hidden insights, they need more capabilities in the analytics and AI areas in order for them to be able, in high probability to identify, who is actually the identity behind something that happens. So it's a race between those two. And it's important to remind everyone that AI has been part of our solutions for quite a long time. We view it as an integral part of our present and future products. And it's important to note that actually when we implement AI into our solution, we implement it into the process and the workflow of our customers. So it's part of the overall investigation process. It's not a standalone solution, but its part of the workflow of our customers which is highly important. And also some of our customers or most of our customers are government customers and they have a unique environment. So we feed the AI into the environment. So we give them actually a holistic benefit of using our AI technology. So we leverage AI to continually generate incremental value for our customers. And for this purpose, we have a dedicated AI research team that we established long ago. And that's all they focus on to give more value out of the existing data sets that customers have in order to be able to unhide insights in much quicker and accurate manner. And you view it as one of the demand drivers for the short and for the long term. It's something that is evolving over time.

Thank you for that. Appreciate it.

Thanks, Shaul.

[Operator Instructions] Our next question comes from Peter Levine with Evercore. Your line is open.

Great. Thanks, guys, for taking my question. Maybe, just one follow-up to that AI question. You know, given the privacy of your customers, the governments you work with, are there any restrictions in terms of maybe the data pools that you can pull from. Just curious how you guys navigate that, given the secrecy of some of your customers.

So I want to remind you that we do not provide managed services to our customers. And the data customers have is their own data. It's not data that we deliver to them. So given that they are government customers and that they are regulated customers in their countries. It's their responsibility to put their hands on the data that they are allowed to and do the investigation process themselves without our interference. So we are not exposed to customers' data.

Okay. And then if you think about -- yes, can you hear me?

Yes, please.

Yes. And then maybe, you know, if you think about the guidance, let me help us with what's baked in there. Obviously, 17 net new customers in fiscal '25. You know, what are the assumptions for fiscal '25? I'm sorry, 17 for fiscal '24. And then you think about fiscal '25, what are your assumptions meaning, is it more of an upsell motion? Do you still need to -- are you assuming that you're going to be hitting, call it net new customer growth north of 17 versus what you saw in '24? So just give us an idea of kind of the assumptions behind the guide and what that entails?

Yes. So you asked about this in the direction of the guidance. So if you look at the guidance, the guidance is built primarily on the existing view. So we are not relying much on new customers for the guidance. But if you look at new customers, we do have investments in order to accelerate growth over time, including acquiring new customers. One example is the U.S. market that we are focusing on. Actually, most of the customers that we'll acquire, they will be new customers. I mentioned earlier in the call that we focus on state and local first and started recently with the Federal. So we do expect new customers to land for us. And also, as I mentioned earlier, about the land and expand strategy, we expect those customers to stay with us for quite a long time and continue and buy from us again and again. Actually, I can tell you that I was in the U.S. in January this year, meeting customers. And I can tell you that we already have a follow-on order from customer after the meeting and actually one customer that already put the second deal with us. So it's important for us to continue and win new customers, and we are focused on that, primarily in the U.S.

And if you think about the expansion into the U.S. is that direct? Is that new partners? Help us understand the investments that you're making today to expand further in the U.S.? Thank you.

Sure. So for the -- we started with the state and local. We started direct. And actually, we have a sales team, a local sales team with everything it needs, including them on POC capabilities and marketing efforts and participating in relevant conferences. And the investment, given that it's a penetration mode, the investment in sales efforts in the U.S. is disproportional to the current business level. As of Federal, we are using established partner who has the relevant clearance and market access and know-how and relationships with relevant federal customers. So state and local is primarily direct, and federal is primarily by an established partner that we have.

Great, thank you for the color.

Sure, thanks, Peter. Thank you.

Our next question is a follow-up from Mike Cikos with Needham & Company. Your line is open.

Not a follow-up question here, more of a comment just to make sure everyone was clear, at least based on what I heard. And management if you guys, Elad and David just said he checked the numbers I have on my side because I know Peter had referenced 17 incremental new customers. Just for perspective, the numbers I have, and I know we're all digesting this in real time, stated 29 new customers in fiscal '24, which is up from 12 in fiscal '23. And so there's a 70% year-on-year increase from 12 to 29 from fiscal '23 to fiscal '24. Is that correct?

It is from 17 to 29. So 12 new --- from 17 to 29.

12 small, which is up 70%.

Yes. Got it. Thank you for clarifying. I appreciate that.

Sure, no problem.

There are no further questions at this time. I'd like to turn the call back over to Dean Ridlon for any closing remarks.

Thank you, Michelle, and thank you, everyone, for joining us on today's call. We will be attending several conferences in May and hope to speak with some of you then. Should you have any questions in the meantime, please feel free to reach out to me, and we look forward to speaking with you again next quarter. Thank you.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.