Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- New AI bookings increased over 40% year over year in Q2.
- Bundled SaaS revenue driven by AI increased 15% year over year, showing acceleration from Q1.
- Verint Systems Inc (VRNT, Financial) is maintaining its full-year guidance of 5% revenue growth and 10% adjusted EBITDA growth.
- The company reported strong AI business outcomes from various AI-powered bots, including significant cost savings and efficiency improvements for customers.
- Verint Systems Inc (VRNT) has a strong balance sheet with net debt well under 1x the last 12-month EBITDA and a new $200 million share buyback program over two years.
Negative Points
- Unbundled SaaS revenue came in lower than expectations due to deal timing.
- The company expects a small amount of conversions in H2, indicating slower-than-expected transition to cloud-based solutions.
- Gross margins are expected to be lower in Q3 compared to Q2, with higher operating expenses anticipated.
- There is a possibility that about $20 million of expected unbundled SaaS revenue may shift from Q4 to Q3, indicating potential revenue timing issues.
- The competitive landscape remains challenging, with new entrants and existing competitors vying for market share in the AI and contact center space.
Q & A Highlights
Q: Can you provide more details on the unbundled deals that were pushed in the quarter? Were these delays driven by macro factors, competitive issues, or customer considerations regarding AI impact on seat count?
A: The delay in unbundled SaaS deals was due to the timing of one large deal, unrelated to AI or agent counts. Bundled SaaS revenue grew as expected, showing strong linear growth. The unbundled SaaS deal, worth $1.5 million, was from a large customer and may shift to Q3. Overall, AI is beginning to impact agent capacity, but no significant changes in agent counts have been observed across the customer base.
Q: Your SaaS ARR and new SaaS ACV were strong this quarter. Are you seeing improved customer retention and reduced churn?
A: Yes, AI bookings grew over 40%, and bundled SaaS revenue increased by 15%. Improved SaaS ARR reflects strong bookings and better retention. Customers are increasingly validating AI business outcomes, leading to higher AI consumption and better retention rates.
Q: Are you seeing any changes in the competitive landscape?
A: The competitive market remains strong, but our "Switzerland" approach, allowing AI deployment without immediate cloud conversion, is increasingly attractive. Customers appreciate the ability to start with AI and deal with infrastructure changes later. This approach, along with our ability to deliver tangible AI business outcomes, differentiates us from competitors.
Q: Are customers asking for new AI business outcomes or use cases recently?
A: Yes, while improving self-service and agent co-pilots remain common requests, customers are also interested in reducing attrition, better coaching, automated knowledge, and fraud prevention. Different industries have varied focus areas, and we help customers identify and achieve desired business outcomes.
Q: How has the mix of bundled SaaS ACV between new deals and conversions differed from your expectations?
A: AI bookings from new deals exceeded expectations with 37% growth, while conversions were expected to be flat but actually decreased. This shift does not impact revenue as customers remain in unbundled SaaS and expand there. The focus on AI first, with conversions later, aligns with customer priorities.
Q: Can you explain the mechanics of bot billing and its impact on the financial model?
A: Bot billing is volume-based with minimum commitments. Customers can increase consumption within the term through purchase orders, avoiding overage charges. This flexible model allows customers to validate AI outcomes and scale consumption, driving strong economics for Verint over time.
Q: Are there any changes in customer behavior regarding AI adoption and agent capacity?
A: Some customers report increased agent capacity due to AI, but overall agent counts remain stable. Customers are using additional capacity to improve customer retention and sales, transforming contact centers into revenue-generating centers. AI coaching bots are also enhancing agent performance.
Q: How do you see the progression of the second half of the year?
A: We expect continued bundled SaaS revenue growth driven by AI momentum and significant unbundled SaaS revenue growth in Q4 due to renewals. For Q3, we project $210 million in revenue, with Q4 expected to reach $291 million. Overall, we anticipate around 6% adjusted revenue growth and an 11% increase in adjusted EBITDA year over year in H2.
Q: What are your expectations for AI's impact on your financial model and Rule of 40 target?
A: AI adoption is expanding our TAM and driving revenue growth. We expect continued gross margin expansion and increased sales productivity as the market matures. AI's positive impact on revenue growth, margins, and cash flows will help us achieve our Rule of 40 target by fiscal '27.
Q: How are you managing stock buybacks and cash flow?
A: We completed a $200 million share buyback program in Q2 and announced a new $200 million buyback program over two years. We target a 40% increase in free cash flow to approximately $180 million for the full year, using around half for stock buybacks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
