Title

Presentation

Cognyte Software Ltd. beats earnings expectations. Reported EPS is $0.08, expectations were $0.025.

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Cognyte Software Ltd.’s second quarter fiscal year 2026 earnings conference call. After the speaker’s presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please note that today’s conference may be recorded. I will now hand the conference over to your speaker host, Dean Ridlon, Head of Investor Relations. Please go ahead.

Dean Ridlon: 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 Investor section of our website at cognyte.com. Click on “Upcoming Events,” then the webcast link for today’s conference call. 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 and 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, 2025, 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 Investor 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 would like to turn the call over to Elad.

Elad Sharon: Thank you, Dean. Welcome, everyone, to our conference call for the second quarter of the fiscal year ending January 31, 2026. Before I get started, on behalf of the Board and management team, I want to thank our shareholders for their trust and support at last week’s annual general meeting. Turning now to our Q2 results. Our Q2 performance reflects solid execution against our strategy and constant demand for our solutions. In the second quarter, we grew revenue by approximately 16% year-over-year to about $98 million. Non-GAAP gross profit increased by about 17% year-over-year. We generated approximately $11 million of adjusted EBITDA for the quarter, growth of about 33% compared to what we generated in Q2 last year, and cash flow from operating activities was a negative $6 million, primarily due to expected seasonal expenses.

These results reflect how our technology is not only mission-critical but increasingly indispensable as global threats grow more complex. We proudly serve four agency types: law enforcement, military intelligence, national intelligence, and national security agencies, each facing rising data volumes, more sophisticated adversaries, and a constantly evolving technology landscape. Our solutions help them to stay ahead of these challenges, enabling them to protect people, secure borders, disrupt criminal internal networks, defend against cyber threats, and ensure public safety every single day. This quarter, the commitment was reflected in two significant wins for military intelligence customers. In Asia-Pacific, we signed a $10 million follow-on deal with a longstanding customer.

They operate in a complex border environment and use our border security solutions to stop infiltration attempts by hostile actors, clear proof of the ongoing trust they place in us and the tangible operational results we deliver. In EMEA, we won a competitive deal worth about $10 million with a new Tier 1 military intelligence organization, beating several global vendors, including the regional incumbent. They chose Cognyte Software Ltd. for our proven tactical intelligence solutions to modernize operations and address emerging threats. The anticipated impact of our solutions has already led the customer to place a follow-on order, demonstrating confidence in our technology and the potential for a broader and long-term partnership. Taken together, these wins reflect the broader reality we see every day.

Around the world, governments and agencies are confronting rising levels of complexity and uncertainty. The global environment is marked by heightened security challenges, from digital to physical domains, creating an urgent and sustained demand for advanced intelligence solutions. This growing demand not only underscores our commercial momentum but also the effectiveness of our differentiated technology. As we shared at Investor Day, our technology stack is built on three layers: signal processing, insight mining, and investigative analytics. Within this framework, this quarter, I want to highlight our operational intelligence suite of solutions, also known as tactical intelligence, which is where our technology meets the field. Taking in the foundational layer of signal processing, it transforms chaotic signal feeds into clean, usable data as it helps field units operate in real time.

Whether in complex city environments or remote terrain, our best-in-class suite of tactical intelligence solutions enables missions from early threat detection to planning and operational response. When you combine that offering with our top layers: insight mining and investigative analytics, culminating in our decision intelligence solution, Nexite, you get the full power of the Cognyte technology platform. What sets us apart is how these layers and solutions work together as one integrated platform, creating a complete and differentiated intelligence capability powered by advanced AI. That is why intelligence and security agencies continue to choose Cognyte: to detect threats faster, act with precision, protect communities, and respond decisively to the full spectrum of criminal, terror, and national security challenges.

We regularly hear from both current and prospective customers about the real impact our solutions are having. Just last month, during a week-long proof-of-concept in the field in a large U.S. city, a prospective customer used one of our solutions to work more efficiently. The customer noted that the solution performed better than what they had relied on for years from incumbent providers. That pilot led directly to the arrest of several fugitives, individuals wanted for murder and armed robbery, clear proof of how quickly our solutions make an impact. Beyond customer feedback, our innovation is recognized across the industry. In Gartner’s 2025 hype cycle for public safety and law enforcement, Cognyte was named a sample vendor for our AI-powered predictive analytics.

Gartner called the benefit of predictive analytics transformational, as broader data sharing and richer datasets unlock new insights. Across all regions, agencies are being asked to do more with fewer resources while facing adversaries who are more agile and technology-sophisticated. This dynamic is driving increased investment in modern AI-enabled intelligence platforms, reinforcing the strategic importance of our offering. The U.S. remains a cornerstone of our growth strategy, and further penetration into this market is a key priority. We continue to strengthen our reach through expanded presence and strategic partnerships. To that end, we entered into an alliance with LexisNexis Risk Solutions, a Tier 1 partner with deep specialization in the federal market.

This partnership expands our footprint and sales power in the region, providing access to a highly connected team with strong relationships across U.S. agencies. This is particularly strategic for our tactical intelligence portfolio, where federal customers represent an important growth opportunity. At the same time, we continue to operate against the backdrop of atypical U.S. agency procurement delays that limit NAITM visibility into budget timing. While this environment presents what we believe are temporary challenges, we are confident that as state and local and federal spend normalizes, Cognyte will be well-positioned to accelerate customer acquisition and reinforce our competitive position in this region. Direct engagement with customers and prospects is also central to advancing our strategy.

Recently, we participated in ATIA, a leading U.S. event for federal and state and local law enforcement, where we had an opportunity to showcase our capabilities and connect with key decision-makers. Looking ahead, we are actively preparing for key upcoming conferences, including MILIPOL Paris, the leading global event for Homeland Security and Safety, Asian Defense and Security in Bangkok, a premier exhibition for defense, security, and disaster response in the Asia-Pacific region, and IACP in Denver, Colorado, the premier gathering for U.S. police chiefs and public safety leaders, as well as other important forums. These events give us the opportunity to showcase our latest capabilities, strengthen relationships, and create new opportunities.

In today’s environment, where threats are becoming more diverse and harder to predict, our technology provides agencies with the speed, accuracy, and insights they require to stay ahead. Looking ahead, we are encouraged by how current and prospective customers continue to respond to our technology. Our ongoing execution, combined with a clear focus on innovation, positions us well to drive long-term growth and continue to meaningfully expand profitability. We have a clear path to our financial targets for the fiscal year ending January 31, 2028: $500 million in revenue, gross margins of about 73%, and adjusted EBITDA margins above 20%. These goals are grounded in our strategy, deepening relationships with our existing customers, winning new customers, and expanding our footprint in the U.S. market.

We remain confident in achieving these targets because the market need is growing, our technology leadership is proven, and our execution is delivering results quarter after quarter. For our current fiscal year ending January 31, 2026, we are updating our guidance and now expect revenue of approximately $397 million, plus or minus 2%, representing about 13% year-over-year growth at the midpoint of the range, and adjusted EBITDA of approximately $45 million at the midpoint of the revenue range, representing approximately 55% year-over-year growth. Before I hand it over to David, I want to share why we do what we do. A core challenge our customers face is the imbalance between bad actors and those working to stop them. Bad actors, whether criminals or terrorists, move fast, adapt quickly, and exploit a single weakness with devastating impact.

By contrast, law enforcement and security organizations must track and respond to a wide range of evolving threats in real time and with absolute precision. That means the bad guys only need to succeed once, while agencies need to succeed every single time. This asymmetry puts immense pressure on investigative teams to work faster, smarter, and more accurately than ever. Every day, our customers stand on the front lines, protecting citizens, safeguarding borders, and preventing harm. Our purpose is clear: to give them the technology to generate the insights and the confidence they need to stay ahead of those who would do harm. This is the mission that drives every innovation, every partnership, and every decision we make at Cognyte. Now, let me turn the call over to David to provide more details about our Q2 results.

David?

David Abadi: Thank you, Elad, and hello, everyone. As you just heard, we are making strong progress across the business. In Q2, that translated into solid financial performance supported by healthy demand and good visibility. This performance reflects the consistency of our execution and reinforces our continued confidence in the outlook. Revenue for Q2 was $97.5 million, an increase of 15.5% year-over-year. Software revenue was $36.6 million, an increase of $9.7 million, or 35.9% year-over-year. Software revenue is comprised of perpetual licenses, appliances, along with some term-based subscription licenses. Software services revenue was $46.7 million, up $1.4 million from last year. Software services revenue comes mainly from support contracts and, to a lesser extent, cloud-based SaaS subscriptions.

Our total software revenue for the quarter was approximately $83.3 million, representing 85.5% of total revenue. We continue to expect software revenue to be about 87% of total revenue on an annual basis. Professional services revenue in Q2 was $14.2 million, an increase of $2 million over last year. Professional services revenue is expected to fluctuate between quarters due to revenue recognition timing. We continue to expect professional services revenue to be about 13% of total revenue on an annual basis. Recurring revenue for Q2 was $47.4 million, representing 48.7% of total revenue. Recurring revenue, driven primarily by support contracts and some term-based and SaaS subscription offerings, enhances our visibility in both the near and the long term.

Non-GAAP gross margin for the quarter was 72.1%, expanding by 81 basis points year-over-year. Gross margin may fluctuate between quarters based on our revenue mix. Gross profit in the second quarter grew faster than revenue growth and was $70.3 million, an increase of 16.8% year-over-year. We believe the steady improvement we have made in gross profit is the result of the significant value customers derive from our innovative solutions, our competitive differentiation, and our improved cost structure. The combination of revenue growth and our business model continues to deliver meaningful year-over-year improvements in profitability, showing our ability to drive operational leverage. Once again, non-GAAP operating income and adjusted EBITDA both grew significantly faster than revenue.

In Q2, we generated $8 million of non-GAAP operating income, nearly twice as much as the $4.4 million generated in Q2 last year. Adjusted EBITDA for the quarter was $11 million, about 33% higher than the $8.3 million generated last Q2, resulting in second quarter fiscal 2026 non-GAAP EPS of $0.08. Q2 GAAP net income for the quarter was $2.7 million versus a loss of $0.9 million in Q2 last year, resulting in second quarter GAAP EPS of $0.02. Looking at our H1 results, our revenue was $193.1 million and grew by 15.5% year-over-year. Our non-GAAP gross profit grew faster by 16.8% year-over-year. The leverage we have in our model helped us generate meaningful improvement in profitability year-over-year. Our H1 GAAP operating income was $4.9 million versus an operating loss of $3.7 million during the same period last year.

Non-GAAP operating income was $15.6 million, more than double versus $6.3 million during the first half of last fiscal year. Our H1 adjusted EBITDA was $21.3 million versus $13.3 million in H1 of the previous year. Non-GAAP EPS was $0.15 in H1 this year compared to $0.02 in the same period last year. Turning to our balance sheet, our short and long-term contract liabilities, commonly referred to as deferred revenue, remained robust at about $114.3 million at the end of Q2, up slightly versus the July 31, 2024 balance. During Q2, we had negative cash flow from operations of $6.3 million and a negative free cash flow of $8.9 million. Historically, we have had negative cash flow from operations in Q2 due to the timing of certain expenses, including bonus payments.

For the full year, we continue to expect cash flow from operating activities to be about $45 million. During Q2, we completed the repurchase program previously authorized by the Board of Directors. The company repurchased about 2.1 million ordinary shares for a total of $20 million. In July, the Board has also approved a new share repurchase program of up to $20 million in ordinary shares over the next 18 months through January 14, 2027, as part of our capital allocation strategy. Following the required 30-day notice period under Israeli law, share repurchases could commence on Friday, August 13. Our cash position remains strong at $84.7 million with no debt. Let me walk you through our execution against some of our key performance indicators.

RPO, or remaining performance obligations, represents contracted revenue to be recognized in future periods, influenced by factors such as sales cycles, deployment timelines, contract plans, renewal timing, and seasonality. While fluctuations are expected in total RPO, current levels support our growth expectations. At the end of Q2, total RPO was $574.5 million versus $567.7 million at the same period last year. Total RPO is a sum of deferred revenue of $114.3 million and backlog of $460.2 million. Short-term RPO at the end of Q2 increased to $355 million, which we believe provides solid visibility into revenue over the next 12 months. These healthy RPO levels validate the strength and resilience of our business model and support our expectations for $500 million in annual revenue for the year ending January 2028.

Q2 billings were $93 million, an increase of about 20% versus the same period last year. Q2 non-GAAP operating expenses were $62.3 million and aligned with our expectations. We remain focused on driving continued financial improvement and sustained margin expansion. Today, we are updating our guidance for the current fiscal year ending January 31, 2026. We’re expecting full-year revenue of about $397 million, plus or minus 2%. This represents approximately 13% year-over-year growth at the midpoint of the revenue range. We expect total software revenue to be about $345 million, representing approximately 87% of total revenue, and professional service revenue to represent about 13% of total revenue, aligned with our strategic goals. We believe that our strong short-term RPO of $355 million and the favorable demand environment support this outlook.

We expect Q3 revenue to be slightly higher than the Q2 levels we are reporting today, and Q4 to also grow sequentially. We now expect annual non-GAAP gross margin to be 72%, reflecting an improvement of 100 basis points over last fiscal year. Gross margin may fluctuate between quarters based on our revenue mix. We expect annual gross profit to increase at a faster rate than revenue growth. We expect adjusted EBITDA to be about $45 million for the year ending January 2026, representing approximately 55% year-over-year growth. We have made progress with our strategic tax planning and now expect non-GAAP tax expenses to be about $11 million, an improvement from our initial estimate of $13 million. With this updated and improved outlook, we now project annual non-GAAP EPS to be $0.23 at the midpoint of the revenue range.

Turning to cash flow, we remain confident in our ability to generate $45 million of operating cash flow in FY26, reflecting both strong collections discipline and expanding profitability. Before I summarize, we are pleased to report that the class action lawsuit was fully dismissed with no additional appeals possible. To summarize, we continue to execute against our strategic priorities with a strong focus on delivering results. We have good visibility into our business, supported by healthy demand, which gives us confidence in our momentum and our outlook. The fundamentals we have built: recurring revenue, operating leverage, and targeted investment in strategic growth areas are durable and support our confidence in the long-term value we are creating.

This is also reflected in our strong balance sheet and is especially evident in our capital allocation approach. With strong fundamentals, we believe we are well-positioned to sustain our momentum and continue delivering profitable growth this year and beyond. With that, I would like to hand the call over to the Operator to open the lines for questions. Operator?

Receive real-time insider trading and news alerts

Operator: Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question at this time, you will need to press star one one on your touch-tone telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Matthew Kalitri from Needham, you’ll understand open.

Matthew Kalitri: Hey, guys. This is Matt Kalitri over at Needham. Thank you for taking our questions, and nice to see the revenue outlook raised again. Can you help us think through your updated assumptions there around the U.S. federal environment, the group’s contribution, and any contributions from the large deal signed during the quarter?

Elad Sharon: Yeah, hi, Matt. When you look at the guidance, we look at our existing customers as well as the new opportunities. The U.S. represents a significant opportunity for us, given that it’s a large territory with many security agencies. We continue to make investments in order to expand presence, increase market reach, expand the partner network, and invest more in marketing. Having said that, in the shorter term, the U.S. presents a small portion of our business, so we are not relying in our guidance heavily on the U.S. We do believe that the U.S. will become a more significant portion of our business over time. In terms of the federal agencies, we do have lots of traction with federal agencies. We run POCs and demos very successfully, actually.

The LexisNexis Risk Solutions partnership is also a tailwind for us in order to access faster and more efficiently both federal agencies, and actually, they started working with us already. I do not expect the numbers to increase fast, given that first, it takes some time to sell to the federals, but also, we know that there are certain budget issues in the federal agencies. Some of them are still in continuing resolution budget behaviors, so it will take some time. To summarize, the U.S. is a significant opportunity for us. We do not rely on it heavily in the shorter term. We do believe that it will accelerate over time, and we see very good indication across the board in the federal and state and local in the U.S. In terms of GroupSense contribution to this one, GroupSense is a relatively small acquisition.

We want to increase the market access for cyber threat intelligence. We actually are on track with the integration of GroupSense into Cognyte Software Ltd. We are approaching their customers, and we are trying actually to push the Luminar technology into the customer base. It looks good. We are on track, and we will continue this effort as part of the many other initiatives that we are running in order to expand presence in the U.S.

Matthew Kalitri: That’s great. Thanks so much there. With the U.S. specifically, how are conversations compared to expectations? I know you said budgets remain a challenge, and that’s consistent with what we’re hearing. Are budgets starting to open up at all, or is it a lot of the same still?

Elad Sharon: First of all, all our judgments related to budget headwinds coming from the U.S. are based on our guidance, so we shouldn’t be surprised, right? We do see the behavior all over. It’s not just Cognyte, but we hear it from others. We know that there are certain headwinds that we have to take into account in the U.S. Having said that, if you look at the few last quarters, we were able to acquire new state and local customers. We were able to have very strong POCs and demos. We pushed out incumbents. We already got follow-on orders from some of them. We engaged with federal agencies. We ran POCs. Earlier in the call, I gave an example of a very successful POC where the customer was able, a prospect customer actually, was able to generate value very fast from our technology that he couldn’t do within the current technology they have.

Generally speaking, we believe that our strategy to expand presence in the U.S. is the right one. Of course, we take into consideration that penetration mode takes time, and the headwinds in the budgets now that we see in the federal agencies are also temporary disruptions, but it doesn’t change our strategy that the U.S. should be a growth opportunity for us over time, and that’s the reason we continue to invest.

Matthew Kalitri: Understood. Great to hear. You’re still expecting an 87%, 13% split between software and professional services for the year. Is there any seasonality at play with that, or what gives you confidence that the software revenue mix will increase in the second half this year?

Elad Sharon: There is no real seasonality that can take place on the professional services, but if you look at the first, the reason that we’re doing professional services, professional services we are doing in cases that we believe that this can allow the customer to generate the value faster from our solution and actually allow us to grow with the customer faster. You can see that professional services recognize based on certain revenue accreditation criteria, so there is fluctuation between quarters in the professional services. The reason that we believe that we will continue to have the level of mix of 30% of professional services and 87% of software is actually the visibility that we have. We do have visibility into our next 12 months and specifically in the next two quarters, which gives us the confidence that we will be able to achieve it.

If you think about that, you can see that our software revenue is growing fast, and you can see that our gross margin is improving. This is something that we are also very pleased. We now raised the guidance of the gross margin to be 72%, and it gives us also the confidence that we will be able to achieve the 73% in the long term. From an overall perspective, we are in a very good shape on achieving our financial targets.

Matthew Kalitri: Very helpful. Thank you.

Operator: Thank you. Our next question coming from the line of Joshua Husk with Evercore. Have all your lines now open.

Joshua Husk: Hey, guys. Can you hear me? Hello?

Operator: Yes, we can.

Joshua Husk: Yes, we can hear you. Hey, guys. Thanks. Quick question. On the quarters together, just clarify how much of the growth came from existing customers buying more products versus data growth. I know your growth is driven by data growth and new products being adopted by your customers. Can you give us some color on how much of the growth this quarter was driven by data versus new products?

Elad Sharon: When you look at our growth strategy, actually, there are three pillars, three main pillars. The first one is the current customer base, the existing customer base, and we have a very significant task that we believe. We have hundreds of customers around the world in nearly 100 countries that continue to buy from us, either expansions related to data capacity and diversity, functionality upgrades, or more use cases. The second one is related to acquiring new logos. Actually, we acquired about 30 new logos in H1 this year. The third one is midterm, actually the acceleration of our performance in the U.S. In general, the main growth is usually coming from the existing customer base, and the reason is that when you acquire a new customer, usually they start small, and when they grow over time, they’re already considered existing customers.

For that reason, usually you’ll see the growth coming from the existing customer base. Whether it’s data or functionality, it’s usually both. The reason is that we continue to innovate and actually release more capabilities and generate more value and uncover more hidden insights out of the same data sets customers have. The customer, in order for them to be successful in the mission, they have first to cover all data sources that they have and analyze it in a very efficient manner. They also have to be able to get strong analytics in order to have the insights and get the decisions, the right decisions on time. To summarize, mostly existing customers are the driver for the growth, but the reason is that the new customers start small and grow over time, and by then they are considered already existing customers.

Joshua Husk: Yep, very helpful. Elad, you mentioned that you had some displacement of incumbents in Europe, and I think even in the US, you said you displaced some of the existing vendors. Can you talk about what is driving that displacement? What is your secret sauce or what is the functionality that you bring to the table that is allowing you to displace the incumbents? You mentioned, I think, in EMEA as well as in the US.

Elad Sharon: Yeah, so actually, when we look at the market, we understand that the demand drivers are related to three dimensions. The first one is data. We just discussed it. The second one, the adversaries are getting more sophisticated. They use advanced tools to evade detection. They also use new technology. The third one is technology that is running really fast. Technology running really fast means that actually it can be an advantage for our customers, for security agencies, if they implement it and use it sooner than the bad guys. It also can be a challenge for them if they don’t use it because the others are using it. For example, in order to use fake identities and to create or to encrypt their doing. In order for security agencies to be more successful, they must stay ahead of the bad guys.

For that reason, we invest in R&D, and actually, our investment in R&D is relatively significant in order to be able to keep our customers ahead of the adversaries. We add more AI capabilities, analytics, and GenAI. We improve the workflows of the users. We give them some automation inside the solution in order to be more effective. We maintain the solution to be able to be utilized by simple users and advanced users. Actually, the most important one is to be able to deal with data that is growing really fast and the functionality, which is primarily analytics that can generate more insights out of the same data set. Usually when we push incumbents out, it’s because we show either by POCs or demos. I gave an example earlier in the call. We actually encourage prospective customers to go for a POC, not just to get the proposal and see the compliance because everybody is compliant to everything.

We encourage customers to test the technology. Actually, we educate them. They try it, and after they try it and they see the results compared to incumbents, they choose to move to us. It happened to us in many territories, and I gave two examples today. It happened in the U.S., and it also happened in EMEA this time. Actually, this is not new to us. It happens again and again, and the main reason is actually maintaining the superiority of the technology in a way that makes our customers’ mission more successful.

Joshua Husk: Ana, the majority of the growth comes from existing new logos. It’s still a small portion of the growth driver. When you think about new logos acquisition, how much of that is displacing an existing vendor versus completely greenfield? Is there a lot of greenfield out there, or most of the new logos that you acquire are coming from displacing an incumbent?

Elad Sharon: It’s a mix. Actually, some new logos are coming from new territories, like in the U.S. We were not operating in the U.S. a few years back, so every new logo that we get from the U.S. is a new territory. Actually, we haven’t been there before. In other cases, it could be other new departments at the same organization in a customer that we already have, or it could be new agencies in the same country we’re operating in already. For example, we serve today the national security only, and then we are able to acquire also the law enforcement and the military intelligence. It’s a mix, I would say. It’s not either this or that. It’s both.

Joshua Husk: Got it. I just have a few more. Maybe for David. David, the billing summary was very strong this quarter. I think if I look at the seasonal jump from Q1, it seems stronger than usual seasonality. Anything to call out in the billing strength this quarter?

David Abadi: I couldn’t hear the beginning of the question. Can you repeat?

Joshua Husk: Yeah, the billing summary this quarter was very strong. I think if you look at the typical seasonality, you don’t see a big jump from Q1 to Q2, but I think this quarter we saw a big jump in billings. I believe last quarter was $78 million, and I think you’re doing $93 million this quarter in billings. That seems like a big jump. Anything to call out? Anything specific that drove that strength in billings this quarter?

David Abadi: Actually, billing is impacted from multiple things. It could be certain milestones of the billing per the contract. It could be based on new orders that come with the advances. It could be a lot of things that impact. If you look at the overall trend, you can see that in the level of the 12 months, we see that the billing is strong, is in a similar level of revenue, which means that we have a quality revenue. There is nothing specific for this quarter to call. We are very pleased with the number that we have this quarter because it was a strong one, and obviously, we want that this number will continue.

Joshua Husk: Very helpful. The recurring revenue mix of 48%. I think that’s been pretty consistent. Do you expect that to trend up quite a bit, or should we see that level of 48% sort of sustained in the next few quarters?

David Abadi: Recurring revenue consists of two major pillars. One of them is the support, which is the vast majority. The other element is subscription. Subscription is split into two things. One of them is the SaaS, which is a very small number, and the other one is the term-based. The term-based can play a role here with the fluctuation. If we look at the fundamental of the recurring itself, what is recurring? If I say support and SaaS, do you see that they are growing over time? Looking ahead, we believe that, for example, in the beginning of next year, you will see some improvement in the recurring revenue because we closed some deals in subscription that will be active next year. Overall, I would say that in the long term, you will see some improvement in the recurring revenue, but we are very pleased with the recurring because if you look at that, today we have 48% or 49% of our total revenue is recurring, while the vast majority of ours is perpetual.

The offering by itself is perpetual, and we are able to drive recurring revenue, although we see customers that are still buying on perpetual. Given the fact that we want over time to increase our subscription offering, we believe that the overall trend that you will see is that recurring is growing.

Joshua Husk: Yeah. One last one from you guys. Elad, I know you mentioned that the U.S. is still early. You’re not assuming a lot of contribution from the U.S. for your guide for this year, but we also have a long-term guide of $500 million. Are you assuming that the U.S. becomes a sizable portion of your revenue mix to get to that $500 million, or the U.S. doesn’t have to inflect that much for you to reach your $500 million target?

Elad Sharon: Yeah, so when we guide, of course, we have a few pillars that we work on in order to be able to balance between risks and opportunities, et cetera. Having said that, we did take into consideration, and we have the baseline to do that, that the U.S. will grow over time because of a few data points. The first one is that we today know, it’s not a question mark, but we know that the product-market fit to the U.S. market is excellent. We know that. We know that because customers that either bought from us already or POCing or seeing demonstrations, they tell us that. This is one. Second, we’re able to get follow-on orders already. Third, we do see that partners would want to work with us more than before because they also recognize the strength of the technology.

We did see that we are able to acquire new customers over time, not yet in the federal, but you have to remember that with federal, we started after we started with state and local. Taking all of those data points together, we do see the potential challenge in the U.S., and I do expect the portion of the revenue coming from the U.S. to grow over time.

Joshua Husk: Got it. That’s it from you guys. Thank you. Thanks.

Operator: As a reminder, to ask a question, please press star one one. Our next question coming from the line of Charlie Zhou with Evercore. You’ll understand, open.

Charlie Zhou: Hi, thank you so much for taking that question. This is Charlie for Peter Levine. I just have two quick ones. First, could you please help us to think about how the overall deal pipeline is turning versus six to twelve months ago? If you have observed any incremental pressure from macro, and secondly, just in terms of the overall threat landscape, have you seen any new trends in the public sector? Any color would be super helpful. Thank you so much.

Elad Sharon: Charlie, I understand that you’re asking about the demand environment, right? That’s what you’re trying to understand.

Charlie Zhou: Yes.

Elad Sharon: Is that correct?

Charlie Zhou: Yeah.

Elad Sharon: If you look globally at the market, we all see that the world is not getting safer. The security pressure is growing all over. The borders are blurred between criminal activities and terror activities. They’re actually cooperating. The technology is a benefit for the bad actors to evade detection. The challenge of our customers is growing. For that reason, we do see a healthy demand environment. Customers need to modernize the solution. They have to deal with more data. They have to have more analytics in order to uncover insights, including hidden insights out of the data that they have. They have to understand who is doing what, when, with whom, why, and also to have predictive analytics to actually be able to predict what would be the next potential threat in order to neutralize it before it unfolds.

The challenge on our customers and security agencies is growing dramatically. For that reason, we believe, and we also see that, that the demand is very healthy. We do see this in the amount of POCs and demos we are doing. We do see this in the traction with existing customers that want to modernize and to upgrade and expand. We do see this in the industry conferences that we are participating in. Many meetings, many demonstrations, customers, and also prospectives are keen to hear from us what’s new, what we are going to have soon. The demand drivers are very strong, and the environment overall is very healthy.

Charlie Zhou: Great. Thank you.

Elad Sharon: You’re welcome, Charlie.

Operator: Thank you. I’m showing no further questions in the Q&A queue at this time. I will now turn the call back over to Dean for any closing remarks.

Dean Ridlon: Thank you, Livia, and thank you everyone for joining us on today’s call. Please feel free to reach out to me should you have any questions, and we look forward to speaking with you again next quarter.

Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.

Receive real-time insider trading and news alerts