Cognyte Software Ltd. (NASDAQ:CGNT) Q3 2024 Earnings Call Transcript

Our year-to-date non-GAAP gross margin increased 730 basis points to 69.3% and our non-GAAP gross profit increased approximately 21% year-over-year as a result of our high software revenue and the value we deliver for our customers. All the metrics I just discussed are on SAS adjusted non-GAAP basis. We are pleased with our execution and we see trend of continuing improvement in our financial performance. Our revenue growth, coupled with improved gross margin and cost structure to drive margin expansion and operating income. During the first nine months of the year, we generated $4.7 million of adjusted EBITDA ahead of our expectation. Turning to cash. For the first nine months of the year with a positive cash flow from operations of $24.8 million.

The positive cash flow from operation was driven by our improved financial results and strong cash collection. In terms of balance sheet, we ended the quarter with cash of about $74 million and no debt. Our long charter RPO continued to be strong. Total RPO at the end of Q3 was $585.7 million, and short-term RPO was $290.9 million. In our view, this healthy backlog, combined with our continuing solid results allow us to increase our outlook for the current year for the fourth consecutive quarter. For fiscal 2024, we are now raising our revenue outlook to $311 million, plus or minus 5%, reflecting approximately 10% year-over-year growth on an SAS adjusted non-GAAP basis at the midpoint of the revenue range. Now let me share with you more color about our outlook.

We’re increasing our full year non-GAAP gross margin expectation to 69%, an improvement of 100 basis points versus our previous outlook and year-over-year improvement of 620 basis points on an SAS adjusted non-GAAP basis. For our non-GAAP operating expense, we continue to expect total expenses of approximately $220 million for the full year. Given our strong performance in Q3 and our expectation for Q4, we now expect to have positive adjusted EBITDA of about $8 million for the full year at the midpoint of the revenue range an increase of about $6 million versus our previous outlook. We continue to work on optimizing our cash tax payments. As a result of this work, we’re expecting to record a non-GAAP tax provision of about $8 million for the year, an additional improvement of $1 million versus our outlook last quarter.

In terms of EPS, we are now expecting a $0.24 annual non-GAAP EPS loss at the midpoint of the revenue range, an improvement of $0.09 versus our previous outlook. Q4 non-GAAP EPS is expected to be loss versus a gain in Q3 as a result of fluctuation in our non-GAAP tax expenses. We believe that the combination of positive industry trend our loyal and global customer base, together with our innovative technology and our LC backlog positions us well for growth and improved profitability. To summarize, we believe we are a market leader in investigative analytics and they have a strong and lengthy track record with customers around the world. We continue to add capabilities and improve the performance of our solution by leveraging the latest technologies, including emerging innovations in artificial intelligence.

We believe these innovations increase the value our customers generate from our solution and help drive demand. The combination of our cutting-edge technology, large and lower customer base and the opportunity to address the needs of existing and new customers position us well profitable growth. We are very pleased with the progress we made this year, including raising our annual guidance every quarter and improving our visibility and profitability. Looking forward to next year, we expect another year of revenue growth and margin expansion and plan to provide guidance for FY ’25 during our Q4 earnings call. With that, I would like to hand the call over to the operator to open the line for questions. Operator?

Operator: [Operator Instructions] And we have a question coming from the line of Mike Cikos with Needham. Your line is open.

Mike Cikos: Hi, guys. Congrats on the solid execution here in a couple of quarters that have been shrunk together at this point. Good to see for the Cognyte story. So hats off on that. I did want to start on the revenues. And I know that you guys are discussing the significant number of new deals – or I’m sorry, a significant number of deals that were won during the quarter from both new and existing customers. Can you help us think about what you guys are actually seeing out there in the market? And where I’m going with this is the deals that are being won for – from both new and existing customers, like you obviously have a good line of sight and visibility into these deals. Are customers demonstrating increased confidence with respect to their budgets? Or is it potentially — is there any movement in sales cycles or sales velocity increasing? If you could talk through budget and sales velocity, those two would be helpful.