Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cognyte First Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the conference over to your 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, 2024 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 would like to turn the call over to Elad.

Thank you Dean. Welcome everyone to our first quarter conference call. We delivered a strong start of our fiscal year, as we continue to generate consistent and profitable financial results. Q1 revenue and gross profit both grew by double-digit year-over-year. We delivered Q1 revenue of $83 million, up approximately 13% year-over-year. Gross profit increased 17% year-over-year, growing faster than revenue, consistent with our focus on margin expansion. We also generated $5 million of positive adjusted EBITDA in the quarter along with about $21 million of positive cash from operations. We remain focused on delivering sustainable and profitable growth. We have a lengthy track record of delivering powerful investigative analytics solutions to hundreds of customers in more than 100 countries around the globe. Our customers view us as domain experts and we have ongoing dialogs across our global customer base about their growing needs and how our solutions can help them. We continue to innovate and build on our technology leadership. We believe our advanced technology, including artificial intelligence, enables faster and more effective investigations across a wide variety of use cases by fusing data at scale and detecting patterns, relationships and other hidden insights that would be nearly impossible to find otherwise. These capabilities generate unique value for our customers and are generating increased interest in our solutions. We continue to expand our presence in North America, securing competitive deals and displacing incumbent providers. Our ongoing investment in sales and marketing include growing our demonstration and proof-of-concept capacity. Our experience shows that when customers use our solutions in real world settings, they recognize the high value our technology delivers. Further testament to our solutions high value and customer satisfaction is evident in the repeat business from customers who signed deals in previous quarters and have returned to place follow-on orders.…

Thank you Elad, and hello, everyone. Our momentum has continued, and our first quarter financial result came ahead of our expectations, reflecting solid execution. Our balance sheet remained strong with $107 million of cash, up $24 million from year end and no debt. The increase in our cash balance was primarily due to $21.5 million of cash flow from operation we generated during the quarter. We've continued to execute and drive revenue growth. Q1 revenue was $82.7 million, an increase of approximately 13% year-over-year. The vast majority of the revenue growth was driven by a $9.2 million increase in software revenue. Recurring revenue is a contributor to visibility and long-term growth and represent many support contract revenue and some subscription offerings. We continue to grow our recurring revenue quarter-over-quarter, and in Q1, we generated $45.8 million, or 55% of total revenue. We expect to continue to deliver long-term growth in recurring revenue. That said, support contract revenue may fluctuate between quarters due to some customer descoping support on their older solution so they can free-up budget to invest in upgrades and respond to evolving needs and technology changes. We delivered revenue growth and were able to drive gross profit growth even faster. Gross margin for the quarter was 71.1%. Our gross profit for the quarter was $58.8 million, an increase of $8.6 million, or 17% year-over-year. The margin expansion and the resulting cash generation demonstrate the leverage we have built into our business model. This leverage is largely driven by higher software revenue and the improved cost structure of our professional services organization. Our strong gross margin reflects the value our customer recognize in our innovative technology and our competitive differentiation. The leverage we have in our model help us generate meaningful improvement in profitability year-over-year. Let me now share…

Thank you.

Operator?

[Operator Instructions] And our first question is going to come from the line of Mike Cikos with Needham. Your line is open. Please go ahead.

Great. Thanks for taking the question guys, and great quarter here as far as the execution. I wanted to come back to some of the prepared remarks and I think, David, it might have been you who was talking about the recurring revenue contribution. Really appreciate the 55% of total revenue statistic which I think is new for investors. Can you just help give us a better sense as far as the sources for the recurring revenues? And then I know that we have the 55% of total revenue today. Can you help us think about how that 55% was maybe a year ago or a quarter ago, just so we have something to compare it to for maybe a bit more of an apples-to-apples comparison?

Yes. Thank you, Mike. Recurring revenue is an important contributor for our growth and the main pillars that generate this revenue are support contracts and some offering of subscription. And the majority, I would say even the vast majority of the -- of this revenue is coming from support contracts which our customers renew on a regular basis. If you look about the numbers, actually we shared it on the dashboard that we presented and the number were increasing from -- correctly from $42 million in Q1 last year to $45.8 million this quarter. So you have the trend quarter-over-quarter and web secrecy growth. And in the long term, we think that it will continue to grow. It provide us good visibility and it's another indication of the repeat business from existing customers.

Got it. Thank you for that. And I wanted to just highlight two other pieces here. So first, the CRPO remains strong for the organization, right? And I think that's -- if I'm reading the tea leaves here, that's probably what gives you the confidence to be taking up the full year guidance. I guess the question that I have is more around the RPO and the sequential decline we saw. So first, the sequential decline, can you remind us, is that more of a -- based on seasonality for the business? And then the second piece on RPO. So first, is it tied to seasonality? And then second, with RPO, are you seeing customers maybe increasingly shift towards shorter term contract durations? Did that in any way come into play when we think about that RPO metric?

Yes, hi Mike, this is Elad. So as David mentioned in the call, the RPO is a proxy for backlog and factors that impact RPO are primarily sales cycle, deployment cycle, length of contracts, renewal timing and seasonality. And RPO may fluctuate due to those reasons. And you've seen similar behavior in the past of RPO going up and down. In Q1, it was mainly related to three out of the five factors. It was related to renewal timing, sales cycle and seasonality. And yet both RPOs, the short and total RPO are very strong. And in addition, given what we hear from customers on the evolving challenges, the demand is very solid, the market is healthy, and RPO may reflect, may be fluctuated from quarter-to-quarter, but the overall market conditions are very healthy and we believe we can continue and grow the business in a healthy manner.

That's great. Really appreciate the color from both of you today. Thank you. I'll turn it over to my colleagues.

Thanks, Mike.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Peter Levine with Evercore ISI. Your line is open. Please go ahead.

Thank you guys for taking my question. Elad, you made a comment earlier on in your script around investments in North America. Maybe just help us understand who are you replacing? What is the go to market? Is it any different in North America than it would be another market that you compete in? Just kind of give us an understanding of the investments you're making today in North America. The replacements and or the sales cycles buying process is any different?

Yes, sure, Peter. So, we continue to invest in that to extend presence in North America. The incremental investments this year primarily related to the sell side, which means that sales force capacity for the most POCs and marketing and we see a lot of interest in our product. We continue to win competitive deals. We are placing incumbents, customers that already use our solutions operationally are generating high value. And we were able -- first of all, to get very good feedback. Second, some customers became a very good reference for us. And also we got already follow-on orders. This quarter in Q1, actually we got a new seven deals from North America. Two of them were from new customers, the others were follow-on orders. So overall we continue and making good progress. In terms of the go-to-market, yes, it's a little bit different. In North America, we are focusing on two different markets. state and local, and federal. For the state and local, we approach directly with our own sales force. For the federal side, we approach with an established partner. The deals we won so far and we started first was with state and local. Later on, we initiated the go-to-market for the federal. For the federal it takes -- we expect it to take a little bit longer. In terms of sales cycle, given that we are a newcomer into this market and almost in each and every deal we have to replace incumbents, we have a longer sales cycle compared to other territories. When we have follow-on orders, it may take about four to five quarters to acquire a new customer. And follow-up orders came so far after two to three quarters. So when we acquire a new customer, actually the follow-on orders come much faster. It's a journey and we continue to make progress.

I don't know if you could, maybe it's a two part question is can you share with us what your net retention rates look like? And then second, on the investigative analytics side, in terms of AI, help us understand how are you monetizing AI. Is it more -- is it an upsell? Is it a retention tool? Just kind of walk us through with the new AI innovations that you're coming out with, how you're pricing that? And then second, if you could share with us net retention rates?

So about net retention, it's -- this KPI is more relevant for subscription model in SaaS companies. We sell our solutions primarily in perpetual license and support contracts. In terms of AI, AI is an incremental demand factor for our customers. There are a few reasons for that. The first one is that AI is used by bad actors as well. They are better hiding, they create fake identities and it's more complicated and difficult to find them. So our customers have increasing challenges in this respect. In terms of our customers' benefits, AI is the contributor for accelerating investigations and make it more successful. And there are two dimensions or areas where AI helps our customers. The first one is Gen-AI. Gen-AI helps customers to utilize the system in a more efficient way. They don't have to rely on technical experts and data scientists. Actually, every user can ask simple question in natural language and get much faster and high quality answers. So the benefit here is efficiency and quality. And the second area where AI can help is with a stronger analytic engine. For example, if customers have to uncover hidden insights or hidden relations, AI makes it much faster and actually can uncover more hidden insights and actually increase the value of the customers. So AI is an incremental demand generator and I expect it to continue and be that way along the way.

Thank you guys for taking my question.

Thank you.

[Operator Instructions] And our next question comes from the line of Shaul Eyal with TD Cowen. Your line is open. Please go ahead.

Thank you. Hi, good afternoon guys. Congrats on the execution and improved results. Elad, we have seen the majority of companies under coverage, those that are slightly more cybersecurity focused, really reporting healthy government and federal related vertical results. And I'm translating that to your improved results. Seems as if we're seeing a little bit of the spending coming ahead of the seasonally strong September federal quarter. So just maybe help us understand how is it that you're seeing the market and what has been driving what seems to be an across-the-board healthy federal spending thus far?

Yes, thanks, Shaul. So, first of all, I will start and say that our engagement with our customers is very high and we get insights into their evolving needs on ongoing basis. About the demand drivers, there are a few of them. The first one is that investigations become more difficult and more complex for our customers as the bad guys are also using technology better, hiding, creating fake identities, hiding their relationships and networks, and hiding their ideas and plans. So this becomes more difficult to put your hand on them and to neutralize threats before they unfold, this is one second. In order for customers to be very effective, they have to deal with more data volumes and diversity. So actually they have to analyze more and more and more data. And this requires, first of all, strong fusion capabilities. And the second is more analysis and AI capabilities in order for them to convert it into insights quickly. And this continues and grow dramatically. And the next driver is related to technology disruption. Technology disruptions work both ways. If you have it, you're winning. If you don't have it, you might lose. And technology disruption. One example is AI. As I mentioned earlier, AI helps with efficiency with Gen-AI and also with sophisticated machine learning engines. So those demand drivers reflected in many engagements we had with our customers. One example is, in ISS, the conference in Europe that I discussed earlier in the call. We had customers talking about exactly those demand drivers. And we also actually demonstrated our copilot capability, AI driven Gen-AI capability in co-pilot. We also heard it in the LEA survey results. I also mentioned it earlier in the call. And we hear it also from other customers, not only law enforcement, we hear it from national security and intelligence customers that we have -- that we are engaging and having them as our customers for many, many years. So overall we feel the same, that the market is healthy, demand drivers are solid, and the need for technology is going to continue and grow over time. We continue to make investments, of course, to keep pace and to maintain leadership and to expand presence in certain territories, including the U.S. And we feel good about the growth opportunity ahead of us.

Thank you very much.

Thank you. And I'm showing no further questions, and I'd like to hand the conference back over to Dean Ridlon for any further remarks.

Thank you, Michelle. And thank you, everyone, for joining us on today's call. Should you have any questions, please feel to reach out to me. And we look forward to speaking with you again next quarter. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.