Verint Systems, Inc. Q4 FY2024 earnings call

Fourth Quarter Trends

• Revenue grew 12% year-over-year, driven by 28% SaaS revenue growth. Non-GAAP diluted EPS was $1.07, $0.08 ahead of expectations.

Open Platform Differentiation

• Verint's open platform enables delivery of tangible AI business outcomes. The Verint open platform, including DaVinci, allows combination of latest AI technologies, continuous training on real-time data, and leverage of customer workflows. Bots like TimeFlex Bot solve specific business problems and deliver ROI, such as reduced employee attrition and annual savings.

Fiscal '25 Outlook and Three-Year Targets

• Raised current year outlook due to market demand for AI-powered CX automation. Revenue outlook for fiscal '25 is approximately $930 million, reflecting 5% growth. Bundled SaaS new ACV bookings growth is expected to accelerate from 16% in Q4 to 20% in fiscal '25. Expect free cash flow to grow over 40% this year and faster than revenue over the next three years. Aim to be a Rule of 40 company in fiscal '27.

In Q4, revenue grew 12% year-over-year to $265 million, a couple of million dollars above guidance. SaaS revenue grew approximately 28%. Non-GAAP diluted Q4 EPS was $1.07, up 42% year-over-year, $0.08 ahead of expectations. Bundled SaaS new ACV bookings increased 16% year-over-year in Q4, and the 12-month pipeline for bundled SaaS increased over 20% year-over-year. Revenue contribution from SaaS was significant due to strong growth, and bundled SaaS bookings were a key driver of momentum.

• Revenue outlook for fiscal '25 is approximately $930 million, plus or minus 2%.
• Bundled SaaS new ACV bookings growth is expected to accelerate from 16% in Q4 to 20% in fiscal '25.
• Free cash flow is expected to increase over 40% this year and grow faster than revenue over the next three years, with about $600 million of free cash flow expected over three years, mainly used for share buybacks.
• Perpetual revenue is expected to be flat in fiscal '25, eliminating prior headwinds from the perpetual to SaaS transition.

• Forward-looking statements are based on current expectations and actual results could differ materially. For a more detailed discussion of risks and uncertainties, please see Verint's Form 10-K for the fiscal year ended January 31, 2024, and other SEC filings.

Q: What has been driving the recent momentum and what is likely to continue and drive healthy demand trends? Any changes within the competitive landscape, especially in light of the changing AI environment?

A: The momentum is driven by strong demand in the market for CX automation. The open platform announced last year is resonating well with customers, driving new logos, customer expansions, and renewals. AI differentiation is key. In the competitive landscape, Verint's open platform and ability to deliver AI business outcomes now differentiate it. For example, customers can avoid long, risky, and disruptive rip and replace projects by using Verint's hybrid cloud platform for AI innovation now.

Q: Help us understand the monetization of these bots. What are you charging? Is it usage? Is it per seat? Any uplift to ACV from the adoption of these bots?

A: The pricing of the bot is aligned to the outcomes the customer is expecting. They can see the ROI and increase usage based on measured results. Many new logos' bundled SaaS ACV in Q4 was about AI and bots. The unit of measure for bots depends on what the bot is doing. For example, the TimeFlex Bot's pricing is aligned with the business outcomes like avoiding employee attrition. It's not about a one-size-fits-all pricing model but about delivering ROI that customers can measure.

Q: How are you making the direct sales force successful at selling the AI bots when the competitive landscape for some of these bots is complex?

A: The sales force has enabled them on the open platform to explain the benefits of being open and modular approach of bots. They shifted discussions from technology to business outcomes. For example, when a customer had a big investment in Gen AI platform, the sales force explained the open approach of Verint to import their LLMs into the platform, mutualizing the discussion and focusing on providing ROI now. The sales force focuses on prioritizing business issues and solving them through bots that provide value immediately.

Q: Can you give a sense of how big the bundled SaaS is and what percentage of revenue that is? Secondly, can bookings see faster growth leading to earlier 10% growth?

A: Bundled SaaS made up about 28% of revenue in fiscal '24 excluding divestiture. It's expected to grow to around 32% of the $930 million revenue in fiscal '25 and continue increasing towards 40% by fiscal '27. Bundled SaaS bookings drive revenue growth. The bookings growth trajectory as discussed in Investor Day is expected to lead to the 10% growth in '27, with bundled SaaS bookings being the key driver to accelerate towards that target.