VRNT - NASDAQ

Hello, and thank you for standing by. Welcome to Verint Systems Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Matthew Frankel. Frankel, you may begin.

Thank you, operator. Good afternoon and thank you for joining our conference call today. I'm here with Dan Bodner, Verint's CEO; Grant Highlander, Verint's CFO; and Alan Roden, Verint's Chief Corporate Development Officer. Before getting started, I'd like to mention that accompanying our call today is a slide presentation. If you'd like to view these slides in real-time during the call, please go to the IR section of our website at verint.com, click on the Investor Relations tab, and click on the webcast link and select today's conference call. I'd 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 upon 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 as except as required by law, Verint 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 Verint's actual results to differ materially from those indicated in these forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2023, when filed and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures as we believe investors focus on those measures in comparing results between periods and among peer companies. Please see today's slide presentation, our earnings release and the Investor Relations section of our website at verint.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 supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures the company uses have limitations and may differ from those used by other companies. Now I'd like to turn the call over to Dan. Dan?

Thank you, Matt. I'm pleased with our non-GAAP revenue and diluted EPS coming ahead of our guidance. Our results were driven by strong SaaS momentum and our cloud platform delivering differentiated CX automation. Today, I will discuss our results, Verint's differentiated platform, the market environment and our guidance. I will also report on our multiyear SaaS transition, which is tracking ahead of the plan that we laid out 2 years ago at the time of the screen. As we are approaching the substantial completion of our SaaS position next year, today, we are introducing an additional SaaS operating metric, SaaS ARR. Let me start with reviewing our fiscal '23 results. SaaS revenue, which is our key growth driver, increased 38% in fiscal '23, on a non-GAAP constant currency basis. This SaaS momentum drove strong recurring revenue growth, and our total non-GAAP revenue came in $5 million ahead of guidance. As you know, our recurring revenue generates much higher gross margin than the non-recurring revenue. And as our revenue mix continues to improve, our gross margin expanded approximately 100 bps in fiscal '23. Consistent with our guidance on prior calls, our financial model assumes EPS growing faster than revenue, and I'm pleased with fiscal '23 diluted EPS increasing 11% on a non-GAAP basis. Our multi-year SaaS transition is going well. Since becoming a pure-play customer engagement company two years ago, we've delivered steady quarterly revenue growth with annual SaaS revenue nearly doubling and sustain. The success of our SaaS transition is due to several factors. First, we offer customers a broad portfolio of best-of-breed applications, providing them CX automation to help brands close their engagement capacity gap. Second, our cloud platform is open with data and Verint Da Vinci AI at the core. I will elaborate on our platform differentiation a little later. And third, our open and partner-friendly approach is resonating well in the market, both with end customers and with existing and new partners. As we progress with our SaaS transition, our recurring revenue has been steadily growing faster than total revenue. Over the last two years, recurring revenue has increased close to 10% each year on a constant currency basis. Last year, we reported that we have crossed the midpoint of our SaaS transition, and for the full year, we delivered 86% of our non-GAAP software revenue as recurring, up from 81%, two years ago. As previously discussed, we defined a substantial completion of our SaaS transition as when 90% of our software revenue is derived from recurring sources. We are targeting reaching the substantial completion of our SaaS transition next year in fiscal '25. Grant will discuss later how we expect completing our SaaS position will accelerate our overall revenue growth and free cash flow growth over time. We continue to evolve our disclosure with an additional pure SaaS operating metric, and today, we're introducing SaaS ARR, or annual recurring revenue. SaaS ARR has been growing at more than 30% CAGR over the last two years and reached a milestone of approximately $500 million in the year we just completed. There are four factors behind our strong ARR growth. The first one is expansion. Our large customer base continues to expand with Verint, and we expect this trend to continue as our cloud platform makes it easier for customers to add capacity and functionality. The second factor is customer-based conversions. Many customers have already converted their perpetual maintenance contracts to SaaS, and we expect this trend to continue. The third factor is winning new logos. In both fiscal '22 and fiscal '23, we won more than 100 new logos every quarter due to strong innovation in our platform. And lastly, our mission-critical [indiscernible] [ph] solutions are driving strong renewal rates, which contribute further to our strong ARR growth. In summary, we are pleased with our SaaS momentum across these four factors and is achieving a scale milestone of nearly $0.5 billion of SaaS ARR. Behind a strong SaaS revenue growth, is the rapid innovation we deliver in the Verint platform. Our platform is unique in the market, and I would like to highlight several areas providing us with strong competitive differentiation. First, the platform is completely open, unlike many of our competitors and it easily fits into the customers' existing ecosystems. In fact, our message to customers is focused on bring your own telephony and bring your own CRM. The benefits for customers of this approach are clear. They can choose to keep their existing telephony or CRM solutions or choose to purchase new from the many vendors that offer these solutions. Either way, customers can easily connect their choices to Verint's platforms and quickly deploy the CX automation benefits our platform provides. In addition to Openness, customers benefit from the engagement data hub and Verint Da Vinci AI at the core of the platform. Today, customers realize that data and AI are core to achieving their strategic objectives to elevate customer experience with lower operating costs. Verint Da Vinci AI powers the platform with state-of-the-art AI models, including unique models developed by Verint as well as open AI models. In that regard, in Q4, we already had a first customer purchasing Verint Da Vinci with ChatGPT embedded to achieve automation of call summary. The Verint platform supports a broad set of best-of-breed applications and customers can start anywhere and deploy CX automation capabilities in their contact centers and across the enterprise. Also, the platform design is partner-friendly and supports cloud-to-cloud connectivity. This capability makes it easy for resale partners and system integrators to add value for the end customer by collecting the Verint cloud platform with solutions running in other clouds. Let's turn to our Q4 results and recent market environment. In Q4, non-GAAP revenue and diluted EPS came in ahead of our expectations with record high gross margin. The revenue overachievement was primarily due to several deals we originally expected to close in Q1 that came earlier before the year-end. The competitive differentiation of our platform continued to drive many customer wins including expansions and new logos. In Q4, we had many large SaaS orders, including some of the more recognizable organizations in the world, such as financial services provider, Barclays, media company, DIRECTV; and airline, easyJet. For the year, we had more than 100 SaaS deals with a TCV of $1 million plus, up more than 15% year-over-year. In addition, we continued to win many new logos, including the telecom company, Juniper Networks and financial institution, Farmers & Merchants Bank. For the year, we added more than 400 new logos, including more than 100 new logos every quarter. Our open and flexible platform is also attracting new partners that are reselling the Verint platform. And we recently announced new reselling partnerships with Google, Carahsoft and Tech Mahindra. These 3 companies signed a Verint's reseller agreement, and we are enabling their sales force to sell the Verint platform. We generate approximately 50% of our annual revenue from partners and expect our partner ecosystem to continue to grow due to the strength of the Verint platform and our partner-friendly strategy. Let's take a closer look at three, large 7 and 8-digit SaaS wins in Q4. The first order for $16 million TCV was from a leading healthcare company. This customer is expanding its relationship with Verint to more applications and to additional areas of its enterprise due to our platform scalability and openness. The second order, for $4 million TCV, was from a leading company in the transportation industry. This large European company chose our SaaS platform given the strong ROI the platform offers and our AI differentiation. And the third order, for $2 million TCV, was from a leading insurance company. This customer decided to move to the cloud, with CX applications first while keeping their existing telephony system on-prem. We believe our platforms openness and our differentiated AI capabilities were key drivers of the customer's decision. As we continue to win many large orders and new logos, we're also seeing a change in the market environment and buying behaviors. Here are a few examples of behaviors we noticed in Q4. We saw some buyers slowing down conversion deals. They continue to be engaged with us and plan to convert but given that Verint software is already deployed in their operations, they're taking more time to move forward with the conversion. We also noticed several deals that came in with a reduction in scope as customers push out budgets and awarded us smaller deal than originally anticipated. Having said this, we also noticed the opposite behavior as some deals that we expected in Q1 arrived earlier and drove our revenue overachievement in Q4. Grant will discuss later the booking trends and our booking assumptions underlying our guidance for fiscal '24. Turning to our guidance for fiscal '24. We expect another year of strong SaaS revenue momentum with 25% to 30% growth. We expect another year of double-digit recurring revenue growth of around 10%, and we expect another year of gross margin expansion, driving diluted EPS growth faster than revenue growth. Overall, Verint SaaS business has reached scale and is driving strong growth with improving margins. Looking beyond fiscal '24, we believe we are well positioned to sustain our SaaS momentum over many years. Verint's platform delivers CX automation solutions. CX automation is important to our customers, and we believe that brands are spending $2 trillion annually on labor costs and are seeking vendors like Verint that can help introduce to their workforce new automation tools while elevating the customer experience, helping brands to address their very large labor costs with automation is a significant long-term opportunity for Verint. In summary, I'm pleased with the strong set momentum since the spin two years ago and the opportunity to sustain this momentum over many years. Now let me turn the call over to Grant to discuss our financials in more detail. Grant?

Thanks, Dan. Good afternoon, everyone. Our discussion today will include non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available, as Matt mentioned, in our earnings release and in the IR section of our website. Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition-related intangibles, certain other acquisition-related expenses, stock-based compensation expenses, separation-related expenses, accelerated lease costs, IT, facilities and infrastructure realignment as well as certain other items that can vary significantly in amount and frequency from period-to-period. For certain metrics, it also includes adjustments related to foreign exchange rates. Similar to last quarter, given the significant appreciation of the U.S. dollar this past year, I will be discussing certain results on a constant currency basis to help you better understand our operational performance. Non-GAAP revenue for Q4 came in at $237 million, $5 million above our prior guidance. For the year, it was $905 million, an increase of 5% year-over-year on a constant currency basis. Non-GAAP recurring revenue came in at $186 million. And for the year, it was $689 million, up 10% year-over-year on a constant currency basis. Driving our recurring revenue growth was our strong SaaS revenue growth, up 38% for the year on a non-GAAP constant currency basis. I would like to break down the sources of our 38% non-GAAP SaaS revenue growth last year on a constant currency basis between new deals and conversion deals. In fiscal '23, SaaS revenue grew 23% year-over-year as a result of new deals on a constant currency basis. New deals primarily come from expansions and also include new logos. In fiscal '23, SaaS revenue grew 15% on a constant currency basis as a result of converting deals from our perpetual customers migrating to SaaS. We believe that these growth drivers will remain intact for many years and will enable us to sustain strong SaaS growth long-term. Throughout the last year, we experienced a sequential improvement in gross margins each quarter. Our recurring revenue generates much higher gross margins than our nonrecurring revenue, and our recurring revenue growth has been driving gross margin expansion. In Q4, we achieved a non-GAAP gross margin of 71.5%, and for the year, we achieved 100 basis points of expansion with our non-GAAP annual gross margin reaching 70%. Our non-GAAP recurring revenue gross margin has already improved to the mid- to high 70% range due to the scale of our SaaS operations. And going forward, as our revenue mix continues to shift towards SaaS, we expect total gross margin to move higher. Turning to earnings. In Q4, we delivered $0.75 of non-GAAP diluted EPS, up from $0.57 in Q4 of the prior year. Our strong Q4 earnings was driven by our SaaS revenue growth combined with gross and operating margin expansion. For the year, non-GAAP diluted EPS grew 11% faster than our revenue growth. Moving forward, our goal is to continue to grow our non-GAAP EPS faster than revenue through margin expansion driven by our SaaS transition and our proven ability to manage costs, including with the natural foreign currency hedge we have. As Dan mentioned earlier, as we approach the completion of our SaaS transition, we are pivoting from transitional SaaS metrics to traditional SaaS operating metrics to help investors better understand the momentum underlying our business. And today, we are introducing SaaS annual recurring revenue, or SaaS ARR. SaaS ARR represents the annualized quarterly run rate value of active or signed SaaS contracts as of the end of the period. We use SaaS ARR to identify the annual recurring value of customer contracts at the end of a reporting period and to monitor the growth of our recurring business as we shift to SaaS. We believe SaaS ARR is an appropriate metric at this time given the majority of our software revenue now comes from SaaS. Our SaaS ARR has been growing at more than a 30% CAGR over the last 2 years. And in Q4, we were pleased to achieve a significant milestone of approximately $500 million of SaaS ARR. Looking forward, we expect continued strong growth in SaaS ARR in fiscal '24 and beyond. Turning to new SaaS ACV bookings. We delivered $102 million in fiscal '23, representing 11% growth on a constant currency basis. New SaaS ACV can fluctuate quarter-to-quarter based on the timing of new deals and conversions. In fiscal '23, we had small quarterly fluctuations and averaged about $25 million of new SaaS ACV bookings per quarter. During our last earnings call, we discussed the strong pipeline for conversion and expansion deals that we were expecting to close before year-end. Looking back at Q4, we noticed changes in buying behavior and are now expecting new SaaS ACV to grow approximately 11% in fiscal '24, similar to the growth we experienced in fiscal '23. I'd now like to discuss our guidance for the current fiscal year ending January 31, 2024. For the year, we are adjusting our revenue guidance to $935 million, plus or minus 2%, to reflect the overachievement in Q4 from deals that we originally expected in Q1 but closed before year-end as well as the trends we've discussed today. We expect another year of double-digit growth in recurring revenue with a decline in non-recurring revenue. This translates into about $755 million of recurring revenue and about $180 million of non-recurring revenue for the year. Behind our strong recurring revenue growth is an expectation for continued strong SaaS revenue growth of between 25% and 30%. As we discussed earlier, we expect gross margin to expand by about 50 basis points and operating margin a little faster. And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance. Regarding below-the-line assumptions, we expect interest and other expense on average of $750,000 per quarter. Net income from a non-controlling interest we have in a small joint venture should be about $200,000 per quarter. Our cash tax rate should be about 10%, and we expect around 75 million fully diluted shares outstanding. Let me also discuss how we see the year progressing. For recurring revenue, we expect about $170 million in Q1, with sequential growth of about $10 million in Q2, another sequential increase in Q3, and to finish the year with our typically strong Q4. For non-recurring revenue, which includes perpetual licenses and professional services, we expect quarterly revenue this year to be flat with around $45 million each quarter. As a reminder, last year was not flat as we had a step down in non-recurring revenue in the middle of the year. The fact that nonrecurring revenue stepped down in the middle of last year will make for tough revenue comparisons in H1. For OpEx, we expect Q1 to be similar to Q4 of fiscal '23. We do not plan to increase headcount this year and, therefore, expect to maintain that level of OpEx for the full year. These assumptions drive approximately $215 million of total revenue for Q1, consisting of $170 million of recurring revenue, reflecting 6% year-over-year growth and $45 million of non-recurring revenue compared to $59 million in Q1 of last year. These assumptions also drive around $0.45 of diluted EPS in Q1. Turning to our balance sheet. We continue to be in a very good financial position with a strong balance sheet and cash flow generation. For fiscal '23, we generated $190 million of cash from operations, excluding one-time items, primarily associated with office lease terminations as part of our Workplace Reimagine program. We expect cash flow from operations to continue to grow as we complete our SaaS transition. On our last earnings call, we announced a $200 million buyback program. Since announcing the program, we have repurchased $41 million worth of shares, $24 million in Q4 and $17 million so far in Q1. In summary, our SaaS transition has been going very well, and we are tracking ahead of the plan we laid out 2 years ago at the time of our spin. Over the last 2 years, our SaaS solutions have been deployed by some of the leading brands in the world, and we delivered more than 30% SaaS ARR growth, achieving scale in our SaaS operations with approximately $0.5 billion of SaaS ARR. Looking forward, SaaS growth is our key success metric, and we are getting to sustain strong SaaS revenue growth long-term for the following reasons. First, our highly differentiated platform is resonating well in the market, both with end customers and with partners. Second, we have a large customer base that continues to expand with Verint. Third, we continue to expand our ecosystem as resellers are attracted to our open platform because it provides them an opportunity to build value-added services around our offerings. And finally, we have a significant revenue uplift opportunity from converting our customer base to our SaaS platform. We estimate that the conversion uplift opportunities still ahead of us is very large in the order of magnitude of several hundred million dollars. Overall, we expect to sustain strong SaaS revenue growth in fiscal '24 and beyond. With that, operator, please open the line for questions.

Thank you. [Operator Instructions]. Our first question comes from the line of Timothy Horan with Oppenheimer. Your line is open.

Thanks guys. Can we talk about AI in a little bit more detail? Can you maybe prepare and contrast how ChatGPT compares to your legacy AI and maybe what new opportunities and risks it represents. And it sounds like you're able to relatively quickly to an existing customer. Can you maybe just elaborate a little bit more on that? And how important is your legacy data and operations to basically being able to leverage ChatGPT and maybe other forms of AI? Thanks a lot.

Okay. Thank you for the question. Clearly, AI is going to play a very important role in the future of customer engagement industry. But different vendors are approaching AI very differently. So many cloud telephony vendors approach AI with a focus on deploying bots, and of course, Verint is different. We are focusing on CX automation. And with CX automation, AI is critical, and we're taking a much broader point of view on how to use AI across the platform. So the underlying approach is that we believe that brands are looking for tools that enable people and bots to work together to achieve the productivity and to elevate CX. And that's very important because bots, on their own, sometimes frustrate customers and they don't really help people. So you need workflows and AI to work together, and I want to explain how we approach it. So Verint Da Vinci is our AI engines that are built at the core of our platform. They offer state-of-the-art technology. But the key to a successful AI strategy is not just a technology, but it's the ability to monetize the AI. And obviously, customers will pay for AI when it's providing them ROI. So this is why we are embedding AI in all the applications that we offer in the platform, and we have AI working together with workflows to bring AI to the right people at the right time. So let me just focus on the technology because you asked about the technology. I'll focus on that first, and then I'll talk about some examples. From a technology standpoint, Da Vinci is architected at the core of the platform as an open framework. So what does this mean that it's open? First, Da Vinci includes AI models that Verint developed, and we developed based on our unique data, which I'll touch on data later, but we're also embedding commercially available generative AI, such as ChatGPT. Also because it architected at the core of the platform, Da Vinci provides access to all the applications running in the platform. So we don't need to design separate AI models for each of the applications. And we have many, many different applications we offer customers. So let's take the example with ChatGPT. We've been evaluating this technology for last year. And we've added for not just capability it provides on the Internet, but what specifically we can use that for customer engagement use cases. And because Da Vinci is open, we embedded ChatGPT at the core of the platform. And initially, we decided to apply to use case for automating call summaries. And this worked very well because in fact, cases really like that, and it's automating part of the function that people do. So this is a good example of how bots are helping people, are not working on their own. And we obviously sold this in Q4. I believe we are the first company to offer a working solution that customers use operationally that includes ChatGPT. So it's a good example of putting Da Vinci at the core of the platform can accelerate the pace of AI innovation and provide our customers quick time to value. Another example, so I want to give about the unique Da Vinci architecture is related to machine learning. So I think we all know now that AI models are only as good as the underlying data that are used to train them. And we've seen some crazy things that happens when the machine learning is on partial data or irrelevant data. So Verint platform includes a very comprehensive engagement data hub that provides us the opportunity to use machine learning to improve the AI effectiveness based on real customer data. And we have many, many customers in many verticals across different languages in different geographies. So we believe that this data that we use for training our AI models give us a big competitive advantage. So the combination of unique data hub, open Da Vinci AI, the center of the platform, the ability to connect AI with direct flows. All this makes the platform differentiated in its ability to drive automation to help brands close the engagement capacity gap. And one of the reasons that we nearly doubled SaaS revenue over the last two years, I believe is our ability to help brands use data and AI effectively.

Our next question comes from the line of Shaul Eyal with Cowen. Your line is open.

Thank you. Good afternoon, guys. My first question is on your fiscal '24 guidance. Dan. what's the level of confidence you have in the current guidance given the macro environment? And I have a follow-up.

Yes. So I can give you a short answer which is basically our guidance. Our guidance is consistent with [SaaS] [ph] processes. But I think given the environment, it's probably better to give a detailed answer, just to take you through our thinking. So let me just put this together. So first, we're guiding for 25% to 30% SaaS revenue growth and that's compared to 38% last year. And SaaS revenue growth is the critical metric in our guidance because it drives the recurring revenue growth, which in turn is driving the gross margin expansion and, of course, the opportunity to grow EPS faster than revenue. So let me focus first on why we think that 25% to 30% SaaS revenue guidance represents about $570 million SaaS revenue at the midpoint of our guidance. And how do we plan to achieve it in the current environment? So first, the benefit of achieving SaaS maturity. And our SaaS offering is no longer in early stages. We already achieved scale in our SaaS operations and including adoption by some of the very large customers in the world that moved to SaaS with Verint. So we ended the year with $500 million SaaS ARR. So I think all that gives us confidence that our SaaS offering is very, very robust. Second, when we look back, and I see very strong SaaS momentum over the last few years, and I look at the sources of what drove this very fast growth. And the source of growth are not changing in the current environment and that's basically conversion and expansion. So as Grant said before, 38% growth last year, 50% growth came from conversion and 23% came from expansion. So we have very large conversion pipeline opportunities still ahead of us. We have many customers that converted, but we see a clear trend that customers are increasingly adopting SaaS. But we also see that we have a lot of customers that have not converted yet. So for the guidance this year compared to 15% growth last year, we're dialing 10% to 15% growth this year. And then, the other source is new deals expansion and new logos. So that's a 23% growth last year. We expect this to be lower, about 5%, 10% lower this year. And that's consistent with the current environment assumptions. And the expansion comes from a very large customer base that continues to have many business needs. And we know that they will continue to expand in the Verint platform. And also, we've brought to the company many new logos, 100 new logos every quarter, and of course, those are expected to grow over time. So that's kind of the year. But now obviously, I'm going to focus on how we think about Q1 because this is an environment that changed very quickly. So Q1 guidance or the color that Grant provided is also important. And we're looking to start the year strong. We expect the SaaS revenue in Q1 to grow in line with our annual guidance, so 25% to 30%. And based on the current pipeline, we also expect New SaaS ACV to grow double digits, in line with our annual guidance of 11%. And this result was strong Q1 recurring revenue, which is more predictable, of course. And we're targeting $750 million of recurring revenue for the year, which is 10% growth, but Verint is a tale of two cities. On one hand, we have $750 million, growing 10% and at the same time, we have $180 million of non-recurring revenue, which is declining. But the good news is it's also becoming less relevant over time because it becomes very small. So during Q1, we expect a big drop in perpetual versus last year, almost $15 million non-recurring revenue drop year-over-year. And this is almost 6% impact on total revenue growth. But non-recurring revenue, we expect to be flat this year, $45 million every quarter, and that creates a tough compare at the beginning of the year, but more favorable later in H2. So kind to summarize, we see last year was 38% growth. We see the growth drivers intact. Our guidance is SaaS revenue is up 25% to 30% with margin expansion, and we believe that's achievable. Our Q1 guidance reflects strong SaaS growth with continued decline in perpetual. And finally, we introduced a new metric, $500 million of SaaS ARR metric, that's up 25% year-over-year, and we expect to complete our SaaS transition next year. And that's kind of the summary of our thinking of guidance.

Got it. And then, my follow-up would be, you mentioned that some contracts came ahead of time versus some of that slipped. Why would these contracts come at an earlier timeframe? But is it budget flush, is it discount related? How would you characterize that specific phenomenon?

Yes. I don't think it's budget flush because our year-end at the end of January, so it's mostly not aligning with customer budgets. I think it's customers that just have needs and these are our needs that they have to satisfy. As opposed to conversion. We saw many of the slipped deals were actually conversions because in this case, customers already have the Verint product, it's working, it's operational, and they can take more time to keep the tier and decide to do conversion. They do want to convert to SaaS, that's pretty much their direction. But they don't feel the urgency that they feel if they need something new. So we really see, we saw conversions pushing out. We saw some expansions that came in somewhat smaller. So the customer kind of put few phases into the expansion and awarded a little smaller than originally expected. At the same time, there were deals that customer decided to take earlier. And the new logos was very strong as well in Q4. So I think it's a mix of different behaviors.

Our next question comes from the line of Peter Levine with Evercore. Your line is open.

Great. Thanks for taking my questions. Maybe one, just a follow-up from the prior question, can you quantify the dollar number that got pulled forward into Q4 and then perhaps the same on the on-prem conversion side that got pushed out into calendar fiscal '24?

Yes. So there were $5 million of deals that we expected in Q1 that came in Q4 close to $5 million, 4 something. And the majority of that was perpetual deals. So you don't see them in the new SaaS ACV number. This ACV came at $24 million for the quarter. We expected about $12 million more based on our pipeline. And I would say half of that $12 million is conversions that got delayed and half is expansions that were either pushed or smaller scope. None of these deals on the $20 million, none of these deals was lost to competitors. So we have confidence that it's timing. And also some of the deals already came in Q1, but definitely not all of it.

And then, two follow-ups. One is just can you kind of explain or just give us a little bit more detail on the customers that are kind of having a smaller scope, like what are they pulling back on? Is it the seat count? Are they going with like one workforce or engagement? I'm just curious to know, like, what are they pulling back on. And then the conversations that you're having, is it more of a, hey, come back to us in calendar '24? Or is it more of a second half conversation? Just curious now what their appetite is to kind of come back to the table and then go full forward on the contract.

Sure. I'll give you an example. So as you know, we have very large customers, and they have many divisions and very large workforces. So one of our customers that has our knowledge management product, who's looking to expand into more divisions and add more people and bots to the license, and the deal on the table was $1.5 million. And the deal ended up, awarded to us at $500,000, so one-third. The balance is still something they want to do, but they said later. I don't know that I have a specific timeline that I can be confident about it, but I do know that we are the standard product. They are a very happy customer and it's just a matter of their priority and how fast they want to deploy the product into other divisions.

Maybe just one last one. On the Google announcement, can you kind of maybe just tell us who was the bake-off with? Is this like an exclusive deal? And then with Google, are there any contract minimums that you guys have in place for them to hit? Thank you.

Yes. So I think the Google story is obviously interesting on a number of levels. One is the fact that Google has been our customers now for a while for the Verint platform. As a customer, I think they were able to see the strength that we bring. Then Google has been for a number of years, a player in AI in the contact center and they've decided to play bigger. So they were looking for a partner to resell. And I think our relationship in terms of being a vendor expanded to now Google reselling Verint. We are going to be enabling their sales force. And it's obviously deal-by-deal, as we do with many other partners, we're not just expecting them to resell on their own, but we will continue to collaborate on specific deals and have our salespeople and presales and experts side-by-side, helping Google, the same way we've been helping many, many other customers because as we said many times, we have an open and partner-friendly strategy. And we're not only providing our partners with good technology but also with great support in helping them to be successful. And vigilant, I think, part of the success we have.

[Operator Instructions]. Our next question comes from the line of Ryan MacDonald with Needham & Company. Your line is open.

Yes. Thanks for taking my question and thanks for all the great color and detail on the outlook for '24 here. Dan, maybe just starting on the deals where you're seeing the delayed conversions or maybe some of the elongation there. Can you talk about sort of willingness and appetite for the remaining customers to convert over to SaaS? And then, are you seeing any instances on conversion delays where maybe there's a reevaluation going on or any change in pricing or competitive dynamics there? Thanks.

The only thing we see right now, and I'll give you an example because that tells the story, is just a desire to kick a tire again and again. So we had one of our large banks that has been the customer for many years and have made the conversion decision, I think a long time ago. Got to the final stages, which is have a security review of our cloud security. And that was planned to be completed in Q4. And at the end of that security review, they decided that they want to do another security review, not because we don't have great security. We've been already converting many financial services companies to SaaS, and we know how to address their issues. But for this customer, this was the first time they were going to SaaS. So we were one of the first vendors in their operations, they're going to SaaS, and they decided that they want to take another review, which will take a few more months. Now we believe that the desire to go SaaS is based on better TCO for the customer and also the ability to innovate in this SaaS environment faster than they can on-prem. So that didn't change. And I think the decision to move to the cloud with Verint didn't change. But given everything else that's going on right now in their environment, I don't think they are trying to accelerate they're trying to take the time. When I look at the pipelines for this year in terms of how many customers are interested in conversion, it's actually growing versus the year before and prior year because the whole industry is moving to SaaS, and it's just a matter of time. But I don't think that this decision was to take the time was related to Verint at all.

No, that's helpful color. I appreciate that. And then, you talked about consistently about the importance of the partner ecosystem. And obviously, just curious, given the sort of a situation that's been going on at Avaya, and how big of a partner that is for you. I'm curious, one, any concerns about potential negative impacts from that, or conversely, if you start to see maybe an acceleration in maybe a reevaluation from customers to move to maybe another routing customer partner as a result of those challenges? Thanks.

Yes. I think generally, we see our partner system -- the ecosystem is growing. We announced Google and Tech Mahindra. It's a system integrator and Carahsoft, they are a federal government system integrator. So we're expanding the ecosystem. And when we looked like last year, our revenue, which is 50:50 between direct and indirect, but last year, revenue grew faster with partners then they grew direct. And it's fine. We compensate our sales force, whether they sell direct or they're helping customers, sorry, helping partners to win, our sales force is neutral, which is part of being vigilant. We definitely like to see our partners successful. In terms of concentration, we don't have any 10% partner. And of course, the partners that have been with us many years and have grown some large customer base with Verint. It's not concentrated in one account, but it's many, many accounts. So I don't see any concentration. I believe that we will see many partners that just started with the SaaS platform over the last two years will be growing. And part of our strategy is to continue to grow our indirect business faster than direct because it's also creating better ecosystem for the platform and also putting some leverage in terms of our OpEx spending and our sales cost. And the last thing, I'd say about our partner ecosystem that it's not just reselling partners, but we also have many partners developing into a platform and training functionality than they put in our marketplace. And our marketplace is open and available to our customers. So our platform and partner ecosystem will benefit from reselling relationship, but we also see benefits from the platform approach.

Thank you. [Operator Instructions]. Our next question comes from the line of Mason Marion with Jefferies. Your line is open.

Hi. Thanks for taking the question. So if we think about your future SaaS growth, do you expect more of this to come from more of your direct sales model or more from your CCaaS partners?

SaaS growth, look, our business now is SaaS revenue scale. And when I say we expect more from partners than direct, that's true for SaaS as well. But it's not necessarily what you call CCaaS partners. I want to make sure I respond to that correctly, because we have partners that are CCaaS vendors. And we have many, many, many partners that are CCaaS resellers, but they sell -- CCaaS vendor and they sell CX automation from Verint. So we're giving the CCaaS partners the ability to not just resell CCaaS but to add a lot of value with CX automation. And I think that's a very interesting dynamic in the industry. When you look back at contact centers, the decision was to buy telephony first because without telephony, there is no contact center. And then, you buy some applications around it. But when you think about digital transformation and AI, we see many, many customers, and I actually gave an example earlier in my prepared remarks, that actually are not looking to change the telephony yet because they don't think that's strategic. But they want to move with Verint to the cloud because they are looking for new AI capabilities. And many of our Da Vinci AI capabilities only existing in the cloud, they don't exist on-prem. But the way we designed the platform, we don't force our customers to convert to the SaaS. They can leave what they have on-prem and they can buy new things in the cloud. And that's why the conversion opportunity that's still ahead of us is pretty big because we have many customers that are buying from Verint to the cloud, but not yet converting the legacy, and that's the next step to convert everything into the cloud. So I think to put everything into context, when we think about partners, we have CCaaS vendors who are looking to augment what they design with some additional platform capabilities. There are many resellers that are actually not vendors, but they represent multiple vendors and they see the opportunity for open platform to connect Verint cloud-to-cloud with somebody else's cloud. And then, we also have all the customers that prefer to continue their journey direct with Verint. And we're open to all three scenarios.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back to Matthew for closing remarks. Matthew Frankel Thanks, Loretta, and thank you, everyone, for joining us today. As usual, if you have any questions, feel free to reach out, and we'll speak with you soon. Have a good night.