管理層發言
Good day, ladies and gentlemen. Thank you for standing by. Welcome to Cognyte's Fourth Quarter Fiscal Year 2024 Earnings Conference Call. 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. 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 short- and long-term remaining performance obligations (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 million 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 and profitable growth. During Q4, we continued to win deals with both new and existing customers.
We recognized the strength of our innovative technology and Cognyte's ability to deliver value. Looking at the full year, we signed contracts with 29 new customers, which is up 70% year-over-year. These new customers present a meaningful opportunity to drive growth. In most cases, new customers start small and we believe that our lending expense strategy will drive incremental revenue growth, profitability and cash flow over time. As we look across our addressable market, North America represents a meaningful near-term opportunity for expansion. As previously shared, we are allocating resources to increase our presence in North America. These investments have already started to drive results with several important wins over the past fiscal year. Our strategy to start with state and local has been successful as our new customers are pleased with the value our solutions deliver and have been providing references to potential new customers throughout the region.
Regarding federal customers, we are working with an established partner to penetrate this market and we believe that we have the right sales approach and superior technology to allow us to win. Initial progress in North America has reinforced our confidence that our strategy is sound and we have increased our sales efforts further to leverage this momentum. We believe we'll be able to win more new customers and simultaneously increase wallet share with our existing customers over time. We continue to innovate and deliver solutions that we believe demonstrate our technological leadership and generate unique value for our customers. Our customers view us as domain experts and we have decades-long relationships with many customers. Our advanced technology, including innovative analytics and AI, allows faster and more effective investigations by fusing data at scale, creating digital twins, and detecting patterns, relationships, and other hidden insights that would be nearly impossible to find otherwise.
This helps prioritize risks and maximize the productivity of investigators and decision-makers, enabling faster decision-making and creating incremental value for our customers in important missions. Our investigative analytics solutions are sold to national security, law enforcement, national intelligence, and other security organizations to enable them to perform more effective investigations. We believe customer references and field trials are very effective ways for us to win deals with both new and existing customers. The first win I would like to highlight is for more than $20 million with an existing national security customer for its mission to combat terrorism. We recently released a new version of our solution with advanced and differentiated capabilities. These capabilities solve challenges brought on by emerging technologies that create new needs for our customers. The customer recognizes the value we deliver and continues to select our solutions to support the evolving needs.
We believe we won because of the demonstrated superior performance of our advanced technology. The second win is for approximately $10 million from an existing national intelligence customer to address broader security threats. This is an additional win from this customer that is highly satisfied with our solutions they are using for other use cases. For this use case, we were able to demonstrate the effectiveness of our solution through field trials. The third win is with a new national intelligence customer to help them safeguard their forces. The deal is for approximately $3 million. Previously, we sold solutions to another agency in the country and these agencies served as a reference for us, affirming both the performance and the value our solutions generate. This strong reference played a significant role in our ability to sign this new deal. The customers already deployed their new solution and it is generating value for them.
I would now like to discuss what's driving demand. Customers view Cognyte as a strategic trusted partner providing innovative solutions that help them to improve the speed, accuracy, and success rate of the investigation and make timely decisions. In general, customers range from organizations focused on relatively small geographies, like law enforcement agencies, all the way up to security and intelligence agencies responsible for combating threats on a national level. Our customers are dealing with a wide variety of challenges. The level of sophistication of bad actors continues to increase as they leverage technology for their activities. It has become increasingly difficult to connect entities to their digital footprint. In addition, the volume and diversity of data our customers are working with has grown dramatically. Our customers face a challenging situation. More digital data in more places, much of it unstructured, makes investigating bad actors more difficult.
Cognyte addresses this challenge using advanced analytics and AI-enabled solutions to analyze multiple data streams, creating a holistic picture of bad actors on digital footprints. These new emerging and evolving challenges, coupled with increased geopolitical unrest, require our customers to continue investing in the technology to keep them ahead of these threats. We continue to leverage R&D to bring innovations to our customers so that we can maintain our differentiation. Cognyte utilizes advanced data capabilities to rapidly analyze the various desperate and growing data assets to enable our customers to make quick decisions and execute important missions. We believe the strength of our technology, together with our domain expertise in investigative analytics, will continue to enhance the value we provide to our customers, increase our differentiation, and drive demand. The technologies bad actors are utilizing continue to evolve rapidly.
For example, advancements in generative AI and cryptocurrency have added significant complexities for our customers. Generative AI has provided bad actors the ability to create fake identities and generate harmful content on open-source channels. Customers using our solutions can investigate and reveal with high confidence the potential identity of the bad actor and better understand the intent and risk of their actions. Similarly, the use of cryptocurrency has made it easier for bad actors to transact anonymously. Crypto requires no physical space and it can be swiftly transferred across borders without currency controls, regulations, or other barriers, making it an ideal asset for illegal transactions. Our decision intelligence platform enables authorities to construct a picture of suspects, organizations, companies, and financial accounts involved. Ultimately, this picture allows authorities to limit the ability of organized criminal groups to fund their operations.
These examples illustrate the continually evolving landscape our customers need to address. We expect these trends to continue to generate demand for our solutions and drive long-term growth. Turning to our outlook for FY '25. Demand for our solutions is solid, and we entered here with a very strong short-term RPO. We expect to drive operating leverage this fiscal year and at the same time, we're investing in advancing our capabilities in our go-to-market infrastructure with the aim of creating sustainable and profitable long-term growth. We are expecting revenue for fiscal '25 to be $340 million plus or minus 2%, representing approximately 8.5% year-over-year growth at the midpoint. We also expect gross profit to grow faster than revenue. As a result of continued expansion in gross margin, we expect gross profit to grow by more than 10% year-over-year. Given the leverage in our financial model, we expect adjusted EBITDA for the year to be about $19 million, more than double what we've generated in fiscal '24, reflecting our ongoing efforts to drive margin expansion.
David will provide more detailed guidance during his remarks. To summarize, we believe the market is healthy. Our customers continue to face significant growing and evolving challenges across many use cases and look to us for solutions that help them accelerate investigations, make decisions faster, and mitigate various threats. Cognyte is well-established as a domain expert and a trusted partner. Our customers frequently tell us that our solutions significantly improve their results, enabling them to effectively perform their missions and make the world safer. Our established long-term customer relationships continue to be a significant asset for us. We are pleased with our execution of financial results for the fourth quarter and full year, and we believe Cognyte is well-positioned for sustainable growth and continuing improvement in profitability. Before I turn the call over to David, I want to take a moment to thank Cognyte Board of Director members, Karmit Shilo and Zvika Naggan, for their significant contributions to Cognyte leadership and their strong commitment to our mission over the years.
And I would like to welcome Sarit Sagiv and Ron Shvili, two accomplished executives to our Board. Sarit is a seasoned executive with deep financial and software industry experience in publicly traded companies. Ron brings extensive industry knowledge, including relevant experience from the Israeli Defense Forces, where he was Head of Research Division specializing in the fields of advanced communications, cyber, and AI, and head of an elite technology unit. I'm confident that Ron and Sarit will each provide important additional strengths to our board. Now let me turn the call over to David to provide more details about our results and fiscal '25 outlook.
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 a large and loyal 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 a $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 of 12 new customers compared to last year.
Let me now share with you how we performed against each of our major KPIs. Our short-term RPO continues to be strong, a result of healthy demand for our solutions and deals we have won. We ended the year with a short-term RPO of $302.5 million. Total RPO at the end of Q4 was $591.9 million. As a reminder, RPO, or remaining performance obligations, represent contracted revenue that is expected to be recognized as revenue in future periods. Q4 revenue grew by 17.6% year-over-year and was $83.7 million. Our software revenue in Q4 grew by 14.9% year-over-year and was $73.8 million. We were also able to improve our gross margin significantly. Q4 gross margin was 69%, an improvement of more than 420 basis points year-over-year. Our gross profit continued to grow meaningfully faster than revenue. In Q4, gross profit was up 25% year-over-year. We've been focused on executing our goals to improve our financial model further and drive margin expansion.
The combination of revenue growth, better margins, and an effective cost structure drove improved profitability. During Q4, we delivered $4.3 million of adjusted EBITDA, bringing full-year adjusted EBITDA to $9 million. We have delivered positive adjusted EBITDA for each of the last three quarters, and we expect to continue delivering positive adjusted EBITDA going forward. All the metrics I have discussed so far are on a SAS-adjusted non-GAAP basis. For fiscal '25, we expect full-year revenue of approximately $340 million, plus or minus 2%. This presents approximately 8.5% year-over-year growth at the midpoint of the revenue range. We believe that our strong short-term RPO of $302.5 million and the positive demand environment support this outlook. We also believe that the seasonality of our revenue will be similar to previous years. We expect Q1 revenue to be slightly below the Q4 level we are reporting today and to increase sequentially each quarter throughout the year.
We believe that our outlook of top-line growth and continuing improvement in our gross margin will drive more than 10% year-over-year gross profit growth. We expect the non-GAAP gross margin to improve year-over-year and to be about 70.5%, an improvement of 130 basis points year-over-year. Gross margin may fluctuate between quarters based on our revenue mix. For the full year, we expect our non-GAAP operating expenses to grow meaningfully slower than revenue and be approximately $233 million, an increase of about 5%. Our quarterly OpEx may fluctuate slightly throughout the year. Because of the leverage we have in our model, we expect adjusted EBITDA to be about $19 million, more than doubled compared to last year. We expect our cash taxes to be about $10 million and non-controlling minority interest to be about $5 million. As a result, we expect annual EPS loss to come in at $0.13 at the midpoint of the revenue range.
For share count, we assume about 72 million weighted average fully diluted shares in FY '25. Turning to cash flow. In a typical year, cash from operations is similar to adjusted EBITDA. This year, we plan to generate about $34 million of cash from operations, significantly higher than the expected adjusted EBITDA. We have recently extended our lease agreement in our headquarters facility in Israel for an additional 10 years. We decided to renovate and change it to a more open work environment and reduce the amount of space we occupy. The renovation is expected to drive an incremental CapEx investment of about $6 million and will result in future OpEx savings. We also expect additional proceeds of about $5 million from the divestiture of SAS related to price adjustment. For the full year, we expect a total CapEx net of SAS expected proceeds of approximately $12 million. To summarize, we executed well during FY '24 and produced strong results.
The market has stabilized and new and existing customers recognized our advanced solutions and the value we generate for them. We continue to add capabilities and increase the value our solutions deliver to our customers by leveraging the latest technologies, including AI. As a result, we expect FY '25 to be a year of continued growth, significant profitability improvement, and strong cash flow from operations. We believe we are well-positioned for sustainable growth and have leverage in our model, so we can generate additional improvement in profitability and cash flow in future years. With that, I would like to end the call and open the line for questions. Operator?
分析師問答
Our first question comes from Mike Cikos with Needham. Your line is open.
Great, thank you for taking the questions. My first question is about this past quarter or the year. I know the company reported landing 29 new customers, which represents a 70% increase year-over-year. That’s impressive. I’m curious if these new customers are bringing in larger deals or if the initial deal sizes have remained relatively constant when comparing customers who came to Cognyte this year with those who joined 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, geographically, it spreads 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. 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 usually grows over the years. And this is the case also here.
That's great to hear. I want to expand on your comment about the land and expand strategy. In your slide deck, you mentioned three customers; two of them are existing clients who have renewed or increased their spending with Cognyte. It would be helpful to discuss the National Security customer that signed a deal over $20 million. Could you share some details about what the deal size was previously compared to the $10 million national intelligence deal? How are these customers expanding? Are they increasing their usage at a rate of 3% a year or 5% a year? I'm trying to understand the speed at which they are expanding their use of Cognyte over time when they 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 the 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. 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. This happens 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 they have large borders and different concerns and challenges in different areas of the border.
They actually expanded with capabilities that they didn't have before for a different border challenge. The last one is actually a result of reference of an existing customer that worked with us, was very happy, and 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 can engage with them frequently and understand their current and future needs, helps us a lot to be prepared with the technology they need to upgrade and address their new challenges, which happened in one of the examples I gave earlier. So the lend and expand strategy 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.
The coverage of the RPO for the year is similar to last year, so it's not significantly different from what it was previously. This gives us high confidence in our ability to meet our outlook. Additionally, the mix of deals in the RPO leads us to believe that we will see improved profitability. Therefore, our confidence level in our outlook remains high.
If I could address that briefly, let's reflect on a year ago when Cognyte had a CRPO balance of $281 million and projected full-year revenue of $300 million, indicating a $20 million increase. Currently, we have around $303 million in CRPO and a revenue guidance of $340 million. This signifies that the incremental amount exceeding the CRPO balance has risen from $20 million to nearly $40 million based on our present guidance. I'm looking for clarity on this increase in incremental dollars above the CRPO balance.
Yes. The current remaining performance obligation is $280 million, compared to our initial guidance of $300 million, reflecting a different environment from our perspective. Throughout this year, we experienced significant demand, and the RPO has been growing quarter-over-quarter, which has bolstered our confidence and allowed us to adjust our guidance. Looking ahead to next year, we are starting with $302.5 million in short-term RPO and are guiding for $340 million. The coverage percentage is similar to what we guided last year. The key difference is that we have worked closely with our customers over the past few quarters, and we know our short-term RPO is strong, helping us to predict our outcomes. We are also pleased that we've been able to consistently exceed our targets quarter-over-quarter. Does that address 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. Good afternoon, everyone. Congratulations on the continued strong performance. My question is about AI, specifically GenAI, which has been a hot topic in recent quarters. Elad, you mentioned the recent AI advancements as a key factor for the market and the company. Could you elaborate on this and provide some insights? How should we consider the impact of GenAI on Cognyte in the short and long term? Thank you.
Hey. Sure. Hi, Shaul. So AI is becoming more important for customers over time. Actually, it's a race, and 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. The bad guys are using GenAI and advanced technology to hide their identities. I gave an example earlier about GenAI and using fake identities and cryptocurrency that they use in order to anonymize who they are. This makes our customers' challenges much more complicated and difficult to address. In order to investigate bad actors, first, they need to identify who they are, which is a growing challenge. Our customers have more data coming from structured and unstructured sources. They need more capabilities in analytics and AI to uncover hidden insights accurately and quickly. We view AI as integral to our present and future products, and we implement it into the process and the workflow of our customers, which is highly important. We leverage AI to generate incremental value for our customers. We have a dedicated AI research team that focuses on giving more value from existing data sets to unhide insights in a more timely and accurate manner. We see this as a demand driver for the short and long term. It's something that is continuously evolving.
Thank you for that. Appreciate it.
Thanks, Shaul.
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. The data customers have is their own data; it's not data that we deliver to them. Given that they are government customers and regulated customers in their countries, it's their responsibility to put their hands on the data that they are allowed to and conduct the investigation process themselves without our interference. We are not exposed to customers' data.
Okay. And then if you think about it, can you hear me?
Yes, please.
When considering the guidance, let me clarify what is included. We expect 17 net new customers in fiscal year 2024. For fiscal year 2025, what are your assumptions? Is it likely more focused on upselling? Are you anticipating net new customer growth to exceed 17 compared to fiscal year 2024? Please provide insight into the assumptions behind the guidance and what they involve.
Yes. So you asked about the direction of the guidance. The guidance is built primarily on the existing view. 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, primarily in the U.S. market. 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. 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 to buy from us repeatedly. Actually, I can tell you that I was in the U.S. in January this year, meeting customers. We received a follow-on order from one customer after the meeting and have another customer that already put a 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. For the U.S. market, we started with state and local and have developed a local sales team equipped with everything needed, including POC capabilities, marketing efforts, and participation in relevant conferences. Given that it's a penetration mode, the investment in sales efforts in the U.S. is disproportional to the current business level. For Federal, we are using an established partner who has the relevant clearance, market access, and relationships with relevant federal customers. So state and local is primarily direct, while federal is primarily through an established partner.
Great, thank you for the color.
Sure, 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%.
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.