Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cognyte Fourth Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be advised today's conference may be recorded. I will now 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 Upcoming Events then the webcast link for 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 as 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 and 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, 2026, being filed 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 would like to turn the call over to Elad.

Thank you, Dean. Hello, everyone, and thank you for joining us today. Before we begin, I want to acknowledge and thank our employees, customers, partners and investors for their continued support over the past month. Cognyte's mission is to help make the world a safer place. That mission is constant and our teams continue to execute. We delivered strong results in the fourth quarter and closed fiscal '26 with another year of consistent execution. Revenue grew by double digit with strong gross margin, profitability improved significantly, and we continue to generate solid cash flow. Fiscal '26 played out largely as we expected with strong repeat business from our installed base, continued new customer momentum and strengthening profitability. We expect this growth to continue into fiscal '27 and today provided revenue guidance of $448 million at the midpoint of the revenue range, and we are on track to achieving our targets for the fiscal year ending January 2028. We'll share more details later in this call. We operate in a market environment where the underlying drivers continue to strengthen, threats are becoming more complex, adversary is more sophisticated and the volume of data continues to grow exponentially. At the same time, decisions need to be made faster than ever. This is driving sustained demand for mission-critical intelligence technology, exactly where Cognyte is positioned. Our solutions operate in extremely demanding environment across national security, military intelligence and law enforcement. In these environments, performance is not optional. Our customers are not experimenting. They are deploying systems that must work consistently in real operational conditions. Over time, our value becomes deeply embedded in our customers' workflows and operational systems. This creates durable relationships, high switching costs and a strong competitive position. Over the past year, we executed against our 3 primary growth pillars. First,…

Thank you, Elad, and hello, everyone. As Elad outlined, Q4 ends a year of continued strong execution across the business. Our results this quarter and throughout FY '26 demonstrate our durable business proposition, the value of our differentiated solutions and the operational discipline that all drive these strong results. Let me begin with our fourth quarter results. Revenue for Q4 FY '26 was $106.2 million, up $11.7 million or 12.4% year-over-year, reflecting a healthy demand environment and the value of our solutions. Breaking down the revenue mix. Software revenue was $45.9 million, an increase of $8.5 million or 22.6% year-over-year. Software revenue is comprised of perpetual licenses, appliances and some term-based subscription licenses. Software services revenue grew by $3.4 million to $49.3 million. Software services revenue comes mainly from support contracts and to a lesser extent, cloud-based SaaS subscriptions. Total software revenue, which includes the combination of software and software services revenue, grew by $11.9 million year-over-year or 14.2%. Professional services revenue was similar to Q4 of the prior year. Fluctuation in professional service revenue between quarters is expected and are a result of revenue recognition timing. Recurring revenue increased by 5.6% to $50 million, representing 47.1% of total revenue. Note that recurring revenue is calculated from GAAP revenue, driven primarily by support contracts and sub time-based and SaaS subscription offerings that enhances our visibility in both the near and long term. Looking at gross margin, we continue to make significant improvements. Q4 non-GAAP gross margin reached a record of 74.7%, an expansion of 320 basis points year-over-year. Non-GAAP gross profit grew much faster than revenue and increased by $11.8 million or 17.4% year-over-year to $79.4 million. It's important to mention that all the incremental year-over-year increase in revenue flow through to gross profit. This again demonstrates how our differentiation…

[Operator Instructions] Our first question comes from Taz Koujalgi with ROTH Capital.

A couple of questions from my side. So if I look at -- if I'm doing my math right, very strong bookings growth this year based on RPO, the RPO number that you disclosed. Can you just give us some puts and takes on the bookings number being so strong? How is the duration? Were there is some large contracts that closed early in this quarter?

If you look at the market, one way to think about this is actually to see firsthand what our customers told us during the Intelligence Summit. We had 2 weeks ago. Actually, we do see that across geographies and customer segments, the demand drivers are very consistent. And actually, we give answers to all of those, which is increasing sophistication of the bad actors, growing volume in fragmented data, AI and also the need to move much, much faster. And given the demand drivers are significant and growing and healthy across domains and across territories, we do see that actually the demand is very healthy. In terms of the large deals that you've mentioned, we had a few of them. I gave an example earlier this call. We had a few more multimillion dollar deal. One example is $10-plus million deal with Tier 1 national security customer in EMEA, which is an expansion and upgrade with functionality. We have these customers with us for over a decade. We had another $5 million order from top NATO member, military organization. So you can see that one national security, the other one is military intelligence, and we had another one in APAC of $5-plus million subscription deal, another customer that is with us for [ 2 ] decades. So actually, what you see is that the need is there. Customers are going to the same direction globally and across segments, law enforcement, national security and national intelligence. And actually, this is what drives the demand. And as you mentioned, the RPO is strong. The cRPO is nearly $370 million. The total RPO is over $0.5 billion, and this gives us the visibility into fiscal '27.

Got it. Very helpful. And then you mentioned about the strong -- the addition of new partners in the U.S. market. As you think about your goals going forward from $400 million this year to $448 million and then $500 million in fiscal '28, maybe some more color on what is the mix of the U.S. business today, either from a revenue or bookings perspective? And then what are you expecting, I guess, for the next 2 years for the U.S. mix to be to reach that $500 million target in the next 2 years? What is assumed in the guide of the $500 million? How much should the U.S. be, broadly speaking, of that $500 million in the next 2 years? What is assumed in the guide for U.S.?

Yes, sure. So U.S. is one of the largest and most advanced intelligence and law enforcement agency market globally. They face actually similar problems. We had some customers joining us for the Intelligence Summit. So we actually do see that they suffer same problems and they need similar technology. And actually, we do believe that we have a very strong fit into their needs. In terms of fiscal '28, between fiscal '26 and '28, we need incremental $100 million. We do believe that about 50% of it will come from expansions and upgrades of existing customer base. About 25% will come from new customers outside of the U.S. And we believe about 25%, the rest 25% should come from the U.S., and we are taking actions in order to continue and expand presence in the U.S. Including partners, including hiring a new general manager for North America that came from Cellebrite. He was leading the federal sales in Cellebrite, including a lot of sales and marketing efforts. So generally speaking, they do believe that we take the right actions, and that's the assumption. The 25% incremental out of the $100 million will come from the U.S.

Got it. Very helpful. Just one for David. So David, you've seen -- you've shown strong leverage in the model. Your adjusted EBITDA margin this year was 12%. You outperformed your guidance. I think there's a little bit of a -- if I'm looking -- if I'm doing the math right, the free cash flow seems a little bit, I guess, lighter than the guide. So maybe just help us understand the gap between the EBITDA and the free cash flow number this year.

Yes. Thank you, Taz. We had a strong year with the cash collection and cash from operation and free cash flow. During this year, we were able to generate $40 million of cash from operations and $30 million of free cash flow. We came short versus our initial expectation of $45 million, mainly because of certain collection that took place early in this quarter. But if you look at the overall picture, we were able to generate $40 million on a $36 million of non-GAAP operating income. So actually, we were overachieving the operating income. And obviously, you have more things under the line like taxes and things that you paid. So in general, we are pleased with where we are from a cash from operation and free cash flow. And going forward, we guided for next year for $45 million.

Got it. Very helpful. And then if I look at the adjusted EBITDA guide for next year, you're guiding to 15% and I think that jumps to 20% in fiscal '28. Maybe just remind us what are the sources of leverage. You're guiding from 12% to 15% for next year, but then the guide goes from 15% to 20% in fiscal '28. So maybe just some remind us on what the sources of leverage are for the next 2 years?

So actually, we are very pleased with the leverage that we had with the gross margin. As you saw, we achieved 73% gross margin 2 years ahead of our initial plan. So this is one of the area that we believe that we'll continue to create leverage. We guided for FY '27 to 73.5% -- so this is an area -- the gross margin itself, it's a place that we think that will create -- continue to create for us leverage. And obviously, we have also some OpEx leverage. We -- OpEx will grow this year at 7%, while top line will grow 12%. So that creates for us the leverage. And we believe that it will continue with us into FY '28.

Our next question comes from Matthew Calitri with Needham & Company.

Matt Calitri over at Needham here. I'm curious on what the puts and takes are to the initial FY '27 guide, particularly as it relates to the ramp in the U.S., but I would also love to hear any color on why you widened that range by a point versus previous guides and then expectations on new customers versus expansions, group sense contribution, AI, anything of that nature?

So fiscal '27 guidance actually presents double-digit top line growth, 12% with an adjusted EBITDA growth of 40%. So it means that we expect another strong year in terms of leverage and top line growth. In terms of the range, we added plus/minus 1% to each side, given the volatility and uncertainty in the market, it can grow in both directions, upside and downside, but we feel comfortable with the midpoint. But the reason for the plus/minus 3% is related to the market environment. In terms of what drives the guidance, the way we look at it is we look at the cRPO, we look at our performance, we look at the market environment. We also look at the anticipated conversion timing of the cRPO to revenues. And taking all of those together, we have a very good visibility into the year. So overall, I think that we should expect another strong year. And we're also on track to meet the target for fiscal '28. So we are on track.

Okay. Great. Sticking there for a second, how would you categorize the size of the cohort of customers you expect to renew or expand this year compared to prior years? I know there aren't set dates with the perpetual model, but what are your assumptions based on what you're seeing for pipeline or historical customer trends?

Yes. So the history shows that unlike commercial stuff that you buy and you stick with it in our domain, the challenges are much, much higher and the pace is very fast. Just a few examples, customers that have a certain deployment today, they'll have to support data that is growing. They'll have to support more functionality. They'll have to catch up with technology, including AI-powered analytics and Gen AI. They'll have to address new use cases that are coming, whether it's financial crime or others. We do see that in military intelligence, there are new concerns related to border control and others. So generally speaking, this is a very dynamic environment and customers have to continue and upgrade and expand. And we expect that the upgrades and expansions are actually what we call repeat business, or leverage of our customer base will continue to be strong also going forward. So this is something that is a significant, I would say, baseline for our business. On top of it, we have, of course, the new logos, which is primarily land and expand strategy. Usually, they start small and grow over time with us and the U.S. business, which I discussed earlier, which is a strategic and important market for us and another growth pillar. So overall, I do believe that the repeat business will continue to be very strong, given that the environment is changing and customers have to adapt and run and catch up with this.

Awesome. Great to hear. And then, David, on the cash flow from operations, what caused the delay in collections? And how are you thinking about that conversion rate of adjusted EBITDA to cash flow as you scale towards the '27 and '28 targets?

So actually, we had certain delays that took place due to, I would say, customer delays, and we collect everything in the beginning of the quarter. So this is something that may happen. And then you are relying on customer when they pay. And if we look ahead, you need to take into consideration that on top of the adjusted EBITDA, you need to take other items like tax payment and other expense below the line that may take a place. For this year, we guided for $45 million of cash flow from operation, while the guidance for the adjusted EBITDA is $68 million. I think this is something that you can take as a going-forward view about how it will convert over time.

Okay. Great. And then -- it was also cash flow in '26, the cash flow from operations was very heavily weighted towards the second half. Is that seasonality expected to repeat or any commentary on that?

So actually, there is some seasonality in cash flow from operation. Usually, Q2 cash flow operation is negative due to actually expenses and less about collection. You may have some seasonality related to the size of the deal. So meaning that if there is a large deal that's taking place in a certain quarter, you will see an impact on that quarter. But it's not a given part. It's not seasonality on the nature of between Q1 to Q3. It's more about the specific deal and the mix of the deal in a given quarter, except for Q2, which usually is impacted by certain expenses that are taking place in Q2.

Our next question comes from Eric Martinuzzi with Lake Street Capital Markets, LLC.

Congrats on the good finish to FY '26. Your comment about the seasonality of the Q1 revenue would point towards kind of the lower end of the overall full year guided growth range. Just curious to know, if you expect that to reverse? Is that more of a second half reversal to get to the midpoint? Or is it maybe Q2, Q3, Q4 will kind of grow to offset that slightly lower growth rate in Q1?

So usually, from a seasonality perspective, Q1 is slightly below Q4. It really depends on certain things that are taking place, certain dynamics that usually takes from Q4. If you look year-over-year, it may create some fluctuation between the quarters from a growth perspective. But when we look at the overall year and the pattern of the year, usually, you start in Q1 slightly below Q4 and then growing over quarters. This was a typical year. It's not different versus other years.

Okay. And then the -- you talked about a slight preference for subscription versus perpetual. Is that also part of the slightly wider guided range for FY '27, just not being able to predict how customers are expecting to buy? Are you -- are bids being responded to with both a subscription and a perpetual and you just don't know, which the customer is going to choose?

So obviously, when you convert certain deals into subscription, it do have an impact on revenue and over time. But given the fact that we have such a strong cRPO, it gives us more confidence about how the year will look like. So you need to remember that we have $370 million of cRPO. So a big portion of our guidance is covered already. Subscription can play a role, but given the plus or minus of 3% that we gave, it's more about what we see in the market and there is upside and downside that can play a role given the geopolitical situation and what we see in the overall environment, and we thought that this is the right approach for this year.

Okay. And then lastly, more of a macro question. But historically, you have talked about pipeline or top of funnel activity increasing with increased global conflict. Any signs with regard to the Iran war impact on pipeline?

Yes. So actually, if you look at the market, generally speaking, when there are security concerns, usually, it will translate into demand in certain areas, certain territories, certain use cases. It takes time because it's government agencies, it takes certain time to respond. But what I can give you as an anecdote for this question today is for the example, the military intelligence. We do see demand growing in military intelligence, including in NATO countries. The reason is that they have to use this technology with their special forces and also have to improve their broader security. Usually, it's military intelligence. So we do see that certain areas with certain use cases have tailwinds related to the geopolitical situation today in the Middle East. So the answer is that usually security concerns, it create some more demand. Of course, it depends on the territory and depends on the use case. But generally speaking, the answer is yes.

Our next question comes from Charlie Zhou with Evercore ISI.

This is Charlie for Peter, Evercore. I have 2 questions for you guys. Firstly, with the incremental buyback authorization now in place, how should we think about the cadence of buybacks in FY '27? And then maybe just walk through how are you balancing buybacks relative to ongoing investments in growth and expansion?

Thank you, Charlie. So actually, we are very pleased that early this March, we were able to announce additional $20 million, which gave us a total plan since November '24 of $60 million. The remaining capacity under this plan is around $33 million remains for us to execute. Looking in the overall picture, we ended the year with $117 million of cash with a very strong balance sheet and continue to generate cash. What we are trying to do is to take a balanced approach between investing in our value creation for our shareholders and creating a buyback. And this is why we are placing all these plans. Actually, the Board ongoing commitment to long-term shareholders value creation and confidence in our growth prospects allow us to do that. Going forward, we will continue to assess on a regular basis. Now we have enough capacity for the upcoming quarters, and we'll continue to execute that. We are executing it technically under -- we have 2 ways to do it, regular purchase in the market when we are not black out and using a 10b5 plan during the blackout period. So by doing -- using these 2 tools, we're able to execute.

Got it. That makes sense. And second one, maybe for you, David. Both gross and operating margins came in very nicely this quarter. And as you mentioned on the call, the incremental gross margin this quarter came in at around 100%. And based on your gross margin guide, it seems that the incremental gross margin will be around 83% for next year. And maybe can you just help us think about the key drivers of that outperformance first and then how sustainable are those benefits as we move through FY '27?

So we are very pleased with the gross margin improvement. If you look at the last few years, we improved on a regular basis our gross margin, it's a continued improvement. It's actually another indication and validation for us about the value perceived by our customers. Our customers are buying premium solution and willing to pay for that, and we invest a lot on R&D. And the way that you get a return on that is by being able to sell our solution to Tier 1 customers that appreciate this value that we provide them. Looking at the overall trend, you can see that the total software is crossing the 80% gross margin and the professional service continue to increase above 20%. The combination of the 2 of them allow us to improve more margin when the scale is coming. So overall, we believe that this trend will continue. We already guided for this year to be at 73.5%. And we believe that in the long run, we leave more room for improvement on gross margin.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Dean for any further remarks.

Thank you, Kevin, and thank you all for joining us today. Should you have any questions, please feel free to reach out to me, and we look forward to speaking with you again next quarter.

Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.