Cognyte Software (CGNT) 28 Jun 222023 Q1 Earnings call transcript

Welcome to Cognyte First Quarter FYE 2023 Earnings Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions]. [Operator

this the being Ridlon. call reminder, will And call turn now over conference a recorded. is I As to Dean

you, for I'm Investor everyone. Cognyte's CEO, here operator. Cognyte's Abadi, Sharon, Thank of Cognyte's David Head CFO. with Dean Elad Relations. us joining Ridlon, you and today. I'm Thank Hello,

a would I started, that getting to mention accompanying presentation. our Before like call today is

are statements and could of on laws. at these undue securities based I the Reform management's cognyte.com, by on forward-looking attention view today's call, to are like on forward-looking federal from statements. link this Act materially other Cognyte you to provisions differ these of performance. of slides would our real-time expectations the current webcast cautioned within or statements. no the future made section expressed would tab, discussed call contain to draw may website of of The those date These matters implied statements Investors obligation them. or visit XXXX reliance place law, on please update conference revise these not assumes Investors forward-looking and certain during as click the the also the except the click Investors like If in call in call. the by to on guarantees select as not Actual forward-looking of to are Litigation the statements and, are of results fact required Securities your this meaning that forward-looking and Private

management materially uncertainties statements, peer results among and results measures. SEC. financial release periods how GAAP is XX, see financial XXXX risks financial believe of presentation Please and in of not isolation website Non-GAAP a our information Investors to in information discussion about the because actual GAAP be the discussed we non-GAAP substitute other but January performance provides non-GAAP measures reconciliation our similar from non-GAAP to for the comparing measures with included ended and from, for more useful and differ report earnings is investors of may year please that make between annual measures. include publish Form on companies and considered We see those Cognyte's for, cause uses our The forward-looking on purposes. should XX-F measures at measures. from indicated fiscal limitations and non-GAAP comparative a focus the other our financial by it For as meaningful business those a used other the or these our to today's measures could have and for today financial superior of section information, to investors in financial non-GAAP financial detailed differ The slides, companies. these believes filings and informational company cognyte.com

like to turn to Elad. I'd Now over the call

Dean. Thank to first call. conference quarter you, everyone our Welcome

reflect results earnings during QX discussed call. last the Our we our challenges

steps to our temporary the emerge taking structure, environment, and cost the conditions nature but navigate we're challenges in believe disappointed facing clearly and execution are are We once current in our improve. result, improve are stronger we and

Today, on margin what and decline came to we in an further gross significant overall provide we're on and I the during $XX update provide Our market a created like at our on, it David non-GAAP year-over-year. Later on responding. would impact will QX in QX million, and the details how the revenue profitability. saw revenue

how the to evolving them customer QX In demonstrate of booking customers view continue threats. address relationships, help our strength need us win deals look a activity. with QX, start large and we the to that from technology, security existing me Let customers for to of

National Security $XX another deal is existing a platform. from to its First million Agency expand

data the in good increase to customers an to scale with they dealing of help address is expand example This is volume, a we to is why solutions the how which customer us evolving platform. turn Our threats. security

The the deployment $X a our was of law a trafficking second with activity. to follow-on last combat criminal This our drug is is agency enforcement million order and operational of customer solutions order for from over the results solutions a after pleased of previous year.

have additional is address to large borders. complex orders the a technology solutions. These unit million our large in their to The for order intelligence third our $X and ability activity confidence solutions along also national terrorist that customers highlight deploy our purchased

trends obligations, In terms sequential to of I RPO, look performance in overall QX the QX at revenue useful QX. from bookings or believe the is our it activity, to

even you, remind We and a contracted million RPO total that total with RPO finished RPO last dollars for yet proxy to we has this use few the with recognized. if $XXX year note given QX important revenue million is finished increase higher. not that in sequential time. A of that year revenue. represents as of We year-over-year backlog a backlog Just an for a deployment is RPO small been decline in available to over is

usually backlog, expected and RPO. This in booked a good the Regarding visibility. included provides near-term typically we with already know, enter quarter revenue you as us our majority of

on quarterly in However, ability chain uncertainties challenges to deliver expectations. supply QX, presented our our to

point. to help separately QX. ordered backlog software vendor customer deploy this had software. Let that explain another multimillion Cognyte me hardware to In run ordering ordered in We our our a case, share from to we an from expected example dollar this and

impact had Cognyte that The customer informed deployment customer the until arrived. and software QX the per not this deliver delayed. could delivery reschedule to us hardware During the of QX, the this The was the recognize software was in schedule. requested original the that Cognyte of customer their revenue delay after hardware

related two like are to we conversion chain discussed reasons on actual to lower the supply pipeline to cause addition for In the of our issues details more slow combinations to that following orders. quarter, delays, We experienced I would continued the last other the to conversion we believe pipeline provide factors.

could delays that the of customer orders and environment. overall to impact internal second be and is First the macroeconomic related geopolitical execution in placing is

CRO improve to our hired we five internal call, As ago, new our discussed execution. on months last a we

already we've on the teams customer the actions sales our sales we product taken and pressing highest pipeline of points, more most teams. stronger increasing the of focusing potential, approach, our see and include coupled consultative sales territories between pain collaboration using identifying where the frequency Some a inspection, with and

slow customers few better many last team the to conversion. behind Over pipeline met his months, CRO the has our and understand the reasons individual

early interviews, too would it's his will find from to some I you to hope share conclusions I While which like anecdotal useful. examples, reach customer

for that this as a and example they has believe process budget their a to The decreased, delays agency, have of the the government is year operating told first which are a result to we their process with their customer result, their We begun reconsider project the experienced plans. us agency's priorities. adjust

but QX, yet. for we this order delay. agency, last what discussions clear for not expected the order. which pledged has in year not continue reasons customer, expect to the order. Second example are In landed government process It's is sales the multi-million But during to we the case, the on we with completed the another based QX a dollar with the order be

a across for important had QX to very in observations of example where not it. low It Third in customers conversation concluded This we pipeline and be may to Europe other conversion Europe. note to how the QX may and react we Ukraine healthy in the is related pipeline or experienced conversion data. to two additional we Europe is with pipeline our countries crisis related analyzing

maintained that our we key we not deals competition, First, due differentiated lost we position. and to have believe product

conversion Second, not our remain dissatisfaction was with pipeline strong with caused customers slow by customer we Cognyte or believe solutions that relationships this services. our and

Given sufficient is limited. the to ability our chain this conversion, year supply pipeline and with still slow position focus

and activity We issues potential of the are and customers $XXX bookings practical. are time. total but we that facing guidance QX resulted the that range soon million, are will the as north going broad resume environment maintaining still unable this we and at guidance to in outcomes and are to believe temporary monitor provide encouraged nature, continue as our are of facing in We we a RPO forward

Given taken to results, our structure. we reduce specific have the disappointing QX steps cost

our year. headcount current X% headcount around the approximately of Our lower than the at is X,XXX, beginning

on environment. customers we have a priorities to taking pipeline wherever summary the can key address top of steps We focus the I they would helping remarks improving our current for with to my like opportunity. also are conversion in by the prepared drivers to conclude long-term

pervasive governments security threats. continue threats and address to First, to are innovative these solutions seek

history customers and around market. And long Second, reputation market the relationships with track leader and innovation. have strong in a developed our world third, analytics in of a and investigative are have growth record security we deep with the a we

color to over David me QX let Now the results. to about more our turn David? provide call

everyone. hello, And Elad. Thank you,

financial discussion non-GAAP as section measures. our and website. Our GAAP measures of today available, Investors release include reconciliation the earnings Dean in will our mentioned, A is our and financial between in non-GAAP

Elad not As our QX significant happy QX results. a came last at million, said, year. in $XX.X from for we're decline Revenue with

mix services last Our revenue professional as to In mix experienced and year – QX, software, and software relative other. streams services change we includes follows. three a QX

and Software revenue conversion. was $XX.X slow due year-over-year customer decline pipeline deployment to sharp delays million, a

then converting customer quarter. continued the delay slow our book-to-ship impacted their which conversion, to own impacted we revenue. start With customers had revenue orders, delays, to for me chain pipeline that regards our mentioned, experience Let which supply the deployment Elad as our in issue, with pipeline with to

Regarding results. This and gross in change $XX.X margin primarily subscription at customer software to service impacted reducing it year-over-year, due federal million, down revenue mix support million $X.X revenue, came by our spends.

to $XX.X Our million decline approximately non-GAAP and $XX primarily due gross million, lower this profit year-over-year is gross of is the was overall software The margin the of to due About million revenue. decline gross XX.X% respectively. in profit and revenue. decline $XX

our Our million, loss $XX.X $XX.X EBITDA in like I to EPS methodology million. that for diluted This operating This of charge. similar came adjusted previous reflects QX cash create practice. million consistent that expense methodology at mention a the diluted $XX.X $XX.X rate $X.XX on was had operating loss our level. expected million is We would tax result to non-GAAP volatility. based with loss non-GAAP year's year, can QX is EPS tax a loss. of non-GAAP the and Non-GAAP tax non-GAAP of

$X tax Our were in QX actual million. payment cash

about we QX million. in reduce Elad cost to of earlier $XX actions in took these result to expect non-GAAP OpEx And steps As we mentioned, our QX, structure.

to facility. equivalents include solid Turning quarter and existing we sheet, credit cash $XX the reflects balance ended and with million of our million This $XXX short-term from balance investments. mainly back remind To we the you, collections Overall, our paid QX facility our QX credit during cash and, drew we was to million. operation million, $X.X QX, $XX used in in loss. down due during QX, million $XXX cash,

to flexibility chain increase we better steps our supply a by million address environment, inventory demands the given for took market to of inventory, dollars to Regarding solution. level our few allow

Our an was also related a to an in reflects $X.X infringement balance alleged settled million claim, and which accrual sheet patent QX. of [indiscernible] paid

let stand that ahead, are me taking nature, to facing we over the look specific believe us enable we're we We today. issue and where As time. stronger steps temporary emerge we're summarize in will

environment soon more to resume delivering and innovative guidance strong volatility. decades the and two will through We monitor relationships, as of growth Cognyte than profitable practical. of has customer continue as managing periods solutions,

opportunity to in front to for open long-term call a our like questions. to operator that, helping I With have threats. to We the customers line hand us address of the would the security in over

Instructions]. [Operator

from is question Company. first Our Mike & Cikos Needham from

June months second done that fiscal we The or think the is in were the seen changes question month I'm if constraints you what's now guys have business we our out we're from Just quarter, supply that curious talk belt that to where pipeline could in the played under far. essentially quarter second chain were here. May better that know I in and where With either curious, said, in conversion getting I April you quarter? any make or with would you far from so worse first April in so two had, right, the

We are clearly in a visibility. period of low

multi-million that slipped for During were quarter. of the dollar orders out quarter expected I the the of shared call, examples

already. One of an is backlog to that order them in was related the

to an and the book was supposed order be were was one order other to we that that quarter. The book supposed ship same deploy

rate. and volatile. About of So, we you is pipeline, the healthy it's We outcomes see the a at level potential conversion time. reason, tell that situation the this that range And a give is uncertainty guidance still pipeline. for cannot still the I is is there point can pipeline broad lower of

are On the other side, we losses on we didn't key of focusing any accelerating And see pipeline conversion. deals.

RPO? is by was a you saw RPO, called what say, I which be I next be going by amount that I what you you I RPO increase that out. think the I mentioned months mean recognized RPO, recognized that XX about few us a to guys dollars, that, And can on guys of know think that Could certain sequential the there's know million that the a versus had of composition over thereafter. help can we had

So, recognized in about, the talking that longer it is Or the months then? next nature? to was XX RPO we're increase in sequential be in expected term it

the for one-third RPO of is is with deal and year two-thirds the Usually, we enter years and RPO an for the the after. –

usually, the time this I range. So, as at And that's of well. it's similar think point

on up? as turn the continuing to with this balances know the Or far increases as at it sheet, providing guys seeing current you're on take but comfortable balance state? you're over increased inventory that there is the you it inventory, colleagues, is Last there have question Is the to cited something do the inventories, to my before guys I which as flexibility. more in reflected I you

we of Just point a to everyone, product. faced. that us. for level shortage components that portion this about At be inventory sufficient related of level to is is also in time, of related And to completed to of that remind installed business just process that warn increased QX. on that redesign the want should A the want is we software is XX% to to our we challenge it embedded you

have So, we we need the for do that. mitigations

is from Our from Levine question Evercore next Peter ISI.

are weeks growth and RSA went across seems metrics. it federal, really the board, like at look ago I to seems of you if pretty couple spending sales a and corporate security healthy. Obviously, and funnel

I or So, you're a contributing of prepared on didn't new evolving maybe you that just be a see some not about had competitor against? know Or talk the that the pipelines kind was of just there may have? called landscape. a remarks, new that feature you selling but maybe conversions strong. developments not competitive just the perhaps you Any well building to pipeline

I'll we share with hear from you Maybe what customers. our

they Our tools. they challenges, growing face their complex, customer is need us and telling becoming more need more security they are investigative challenges analytics, that growing more challenges, security

So, we any customers significant About see technology. no in this our do and competition, need don't change is change competition.

we are years. in remember, years this XX you more As many business, than

We reputation and have more base technology. deep among our superior XXX And customer base relationship a and than customer countries. large in also we have

the anything And competitive is do still position. we of landscape. see talk low So, environment when And not facing About in environment, we it's the in do the see. in related that in We to competitive we to is the we any pipeline, we challenges It's the size rate to of changed side. are landscape to customers, believe has pipeline think market. And about the the significant we geopolitical are see way. earlier the call chain but change see that supply hear in what pipeline. any related what the we in the not about customer in or conversion related But that the macroeconomic and not healthy. changes the leadership the be are we a that pipeline, really market the also I shared might the

are? you the about R&D? he that's to what curious Maybe changes just us the two you marketing? here. from? year is of doing making? saw where it in kind CRO, where a coming Maybe reductions it is, what explain ago? a headcount. question. One talked sales Is And to can versus Just final then what explain today a parts Like, new you Can to he's second, reduction know you what and Is us

CRO. with let's So, start the

company. the challenges team. us. him great and to points joining the to understand conversion. executive priorities pipeline the sales the Obviously, each customers force the a that pain open, of meeting and better extensively. every say as borders of all, he main addition focus, senior customer. his are now, challenge of I'm I on to is is are for main focus we is That's a what when with customers’ the the really His team excited First top focus The He having must with and course, and main accelerating see

earlier As to are there try and interviews to customers. we're the in call, the understand help remain and it. I challenges there We many where where they mentioned with them focus, doing try solve

making. progress So, with we he's entire team pipeline. the I'm this have executive on And focused conversion is pleased also of the that

across In to one terms functions X%, of was area, the across was cost about but reduction, related total and the including it It was board. R&D. not it specific

next Capital Our Ruttenbur Argio [ph] Brian question from from [ph]. is

cash questions on operations. from Next series of

said, board, cash the third turns roughly to you Will X% the quarter I positive? a second you that – operations quarter and Given flows across where believe and cuts, said positive back cuts. impact from

we expense fact mentioned our And call, when actually, $XX As not the expect the QX, providing did to also we are we we be the saving cash the the million. situation to there the around capitalize cash. of we’re that across organization. believe overall, looking operation. will not at the cost million guidance, operating given current Obviously, look to at we during we non-GAAP if enough $XXX But our refer be any we that should [indiscernible]

I’ll on elaborate Maybe that.

repay credit the million $XXX drew the end given we of we cash believe run facility we this remember, the is business. And that you to by last $XX on QX, of had sufficient million. year. decided back to We December If

for you any are Along those where on next Or quarters? do stable kind of anticipate a you the couple of further headcount? same lines, is this

We temporary completed cost it's make. that reduction appropriate facing challenges that And the We the the level is we nature. believe and had we temporary took this is of to and we We that think in that decision that given gave in are it are in believe pipeline the nature, that we that a lot thought. we June. of healthy

for the is So, believe of cost the we run that structure environment. to business given need now, level this current the we

question. Last

Just real quick.

government lot dragging there's that know specific trying and there's you I'm to I the slowness the it their to, feet out of it is are and understand, a reason? Just customers down. – a reason? conversion, there. trying to the to a this But narrow A Is primarily it trying I'm just your reasons is there COVID, of relating combination everything? war? point it is to a

I the anymore. issue COVID don't think an is

behind it us, now, to – generally face, it might to an we not gave think it's it's see face example call. What we potentially extensively. precise to I that do is us for I that related reason. COVID the And also be it's easier macroeconomic meet and and in to when situation. chain. the us customers provide supply earlier But customers to the geopolitical related with will

all it's So, speculations.

[Operator Instructions]. from a question Needham Mike Company. have & And Cikos from we

here. I questions more just for can But licenses? to much maybe fine remind my help crowd term-based And the of your revenue comes wanted had just on David, from the couple I versus a licenses side. quarter perpetual each us how you to tune typically

revenue The of from minor. actually based our most licenses. It's relatively term coming is perpetual

close assuming it of [Technical Like, high Difficulty] XX%? contribution? So, north to I'm is XX%? that is percent or How perpetual

the majority. more than – to It’s perpetual close look we at our from of revenue the software coming when main revenue. Like, XX%

call linearity contribution sales Is the typical is it, the be to we typical revenue about – the quarter? help each the How can XX%, should third again, When you just that for third XX%? the month each total about it cadence is each month quarter, think the of think within quarter? what thinking we quarter, quarter, us of

in get called, quarter, through also given quarter are revenue ship last given deliver the the like other source coming have is from, and and highly like the it's be planned quarter quarter. the the type in we important. like, quarter, that's to obviously, shipped two the same of company, last is any the the between orders that months mentioned, quarter and are Elad we change the software to Revenue the from of to that Usually, quarter. within backlog that's At be of different. month the any book can weeks As coming any what revenue of two planned

fact that could. think comment the we guessing during were And you prepared impacted software quarter. with and and it then in subscriptions was how Cognyte, if support a that that which more think Can that? be There customers your one customers several their in services remarks thinking question, I But about causing should calling reduce subscription I you're reducing support I'm what's us out. help about it's And piece? to atypical the the

is First are of it's to us customer with say the important those active all, and customers. that still

years or bought the most years. of multiple part us of are Some for with them and solutions many over them

important buy related whatever to be subscription areas they happens us. is For and But a us time. customers reduce are but from and budget spend support and with could some to decided years. reason, for free some solutions have This other to purposes. for to all us still potentially continue they It time those customer to possibility, from to that in be this other they'll many

Our question Stifel. Brad Reback from is from next

ones here. a just OpEx, clarify, XQ. to of think quick that's of I couple The $XX for just million

it higher that in something be So, should here XQ? than

don't for everything Obviously, until QX. cost we is reduction, it It's some when do time takes the effective. – we

are So million. of non-GAAP expenses for QX, operating we expecting $XX

happens where maintenance us I XX% people about cut the a that question, back. maintenance know time the last from it talked historical precedent time to historically? sense the you year-over-year time give declined On you Can

solutions No, new shift modernized I old and more solutions the No, can't but to from it new sometimes might now. to upgrade budgets by remember and and relatively be heart move, customers update decide solution. their

happen. might it come by this But cannot remember Brad. and you, can offline to back heart. I We So check

Dean closing Now, I’d over call turn for like to the back to remarks. Ridlon

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

Thank Thank today's That call. may you you, gentlemen. now ladies concludes for participating and disconnect. and you