VRNT - NASDAQ

Good day, and thank you for standing by, and welcome to Verint Systems, Inc. Q1 Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Matthew Frankel, Investor Relations, and Corporate Development Director. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining our conference call today. I'm here with Dan Bodner, Verint's CEO; and 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's slide presentation. If you'd like to view these slides in real-time during the call, please visit the IR section of our website at verint.com, click on the Investor Relations tab and then 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 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 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 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, our Form 10-Q for the quarter ended April 30, 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 our peer companies. Please see today's slide presentation, our earnings release in 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 first quarter non-GAAP revenue and diluted EPS coming ahead of our guidance. Our results were driven by strong SaaS momentum in our differentiated open platform. Today, I will start with a review of our Q1 results, including our strong gross margin expansion, driven by our SaaS revenue growth. Next, I will review our open platform and how we leverage the latest AI innovations to deliver CX automation and significant customer ROI. Finally, I will review our guidance for this year, and we'll discuss the expected benefits to our financial model upon completion of our SaaS transition next year. These benefits include accelerating revenue growth, higher gross margins, and incremental cash generation. Let me start with reviewing our first quarter results. Non-GAAP Q1 revenue came in at $217 million ahead of our guidance and gross margin came in close to 70%, a strong 200 bps increase year-over-year. Our gross margin expansion is being driven by our ongoing shift to SaaS. Non-GAAP diluted EPS came in at $0.53, also ahead of our guidance. Last revenue, which is our key growth driver, increased approximately 24% year-over-year on a constant currency basis. We are on track to complete our SaaS transition next year which we define as the milestone where 90% of our software revenue comes from recurring sources. In Q1, we made very good progress towards this goal with this metric reaching 87%, up significantly from Q1 of last year. In summary, we are pleased with our revenue and profitability in Q1 and reiterate our guidance for the year. Next, I would like to discuss significant wins and market dynamics. During Q1, we received orders from some of the world's leading brands such as the global bank Macquarie, Auto company, Toyota and telecom provider, Deutsche Telekom. In terms of new logos, we continue to win many new customers and in Q1, we again added more than 100 new logos, including the Bank of England and retailer Casey's General Stores. As discussed on the last earnings call, in the current environment, we are seeing elevated sales cycles, especially with very large deals. While customers may take longer to make decisions, their need to elevate CX and increased automation is very high. Our open platform delivers significant customer value and we are winning deals in the current environment based on our ability to clearly demonstrate customer ROI. Let's take a closer look at three recent large 7and 8-digit SaaS wins. These wins were all driven by our open platform and our CX automation innovation resulting in significant ROI for our customers. The first order for $21 million TCV works from a leading U.S.-based financial services company. This customer expanded its relationship with Verint with an 8-digit order by adding new applications from our open platform. The second order for $6 million TCV was from a leading telecom company in Europe. This customer merged with another large company and decided to adopt Verint's Solution across the combined entity. The third order for $3 million TCV was from a large international bank. This customer expanded its usage of the Verint open platform to address additional CX automation opportunities. In this environment, the timing of closing deals can vary by customer. Looking at our pipeline across all types of deals, we expect to drive double-digit growth for new SaaS ACV for the year. Let me now turn to the capabilities of the Verint's open platform designed to increase CX automation and deliver significant customer ROI. Customers have been reporting that CF Automation has become a strategic objective. We estimate that industry already employs 50 million workers globally at an annual cost of $2 trillion and improving CX levels with incremental hiring is not sustainable anymore. Verint's are ready to adopt AI that can help them elevate CX and increase efficiencies to reduce cost. Clearly, the industry needs AI and Verint's developed the platform that translates AI technology into tangible business outcomes. We do this by placing AI at the fingertips of the workforce of humans and bots. Here are some examples that explain how Verint inject AI to all parts of the contact center operations. Verint's automates interaction responses to improve self-service and reduce the number of calls coming into the contact center. Verint's automates workforce planning by increasing focusing accuracy. Where it automates the compliance process across all channels to ensure adherence. Verint's automates the knowledge search to increase agent efficiency and reduce customer all time. And Verint's automate quality assessment and coaching to increase the effectiveness of the workforce. There are many more automation capabilities available today in the Verint open platform. And with the increased pace of AI innovation, we are launching more CX automation at an even faster pace, which I will explain next. There are three key attributes that make the Verint open platform highly differentiated. First, at the core of the platform is our open engagement data hub. For more than two decades, we've been helping customers capture comprehensive engagement data across all channels and types of interactions between consumers and brands. This vast and unique data set is critical to continuously train AI models and make them accurate and effective. Open Data Hub is a key differentiation of the Verint platform. Second, we also architected at the core of the platform, the Verint's opened Da Vinci AI. Da Vinci is completely open and takes advantage of the latest AI models available commercially, such as GPT and others. This unique design enables Verint to remain flexible and future-proof by quickly embracing the latest generic AI innovations for Verint or any other vendor. And third, our platform includes many best-of-breed applications that leverages Da Vinci and the Data Hub, placing AI at the fingertips of the workforce to deliver tangible business outcomes. Regarding AI monetization, customers today can purchase from the open platform based on a CX automation consumption model. Over time, as AI adoption increases, we expect our customers will naturally increase their CX automation consumption, and this is expected to benefit both our customers as well as our financial results. Turning to our guidance for the current year fiscal ‘24. We expect another year of strong SaaS revenue growth and margin expansion with adjusted EBITDA growing faster than revenue, and we are maintaining our annual guidance. As we manage the business this year to 7% adjusted EBITDA growth, we continue to progress towards the completion of our SaaS transition. And I would like to discuss the expected benefits to our financial model next year. We expect the completion of the SaaS transition next year to positively impact our top line growth in two ways. First, when you look at the last year's results and this year's guidance, we have headwinds from the decline in nonrecurring revenue of approximately 3% each year. Next year, with the planned completion of our SaaS transition, we expect these headwinds to be largely eliminated. And this is expected to translate to incremental revenue growth next year. Second, over the last several years, we have focused on the Verint's SaaS transition and at the same time, our customers focused on their own SaaS migration. We are now beginning to shift our focus to driving customer expansion initiatives, helping our customers achieve their strategic objectives related to increased CX automation. This should have a positive impact on our revenue growth over time. Completing the SaaS transition should not only improve our overall revenue growth rate. It is also expected to have a positive impact on margins and cash flow generation. Similar to most companies going through a SaaS transition, we expect our cash generation to improve. This year, we expect cash flow operations, excluding nonrecurring items to grow at a similar rate to revenue. And next year, we expect it to grow faster than revenue. We look forward to completing the transition next year and to benefiting from these tailwinds to our financial model. As you know, our transition to SaaS has taken several years given the nature of our large enterprise customer base. As a reminder, our customer base, including over 85% of the Fortune 100 including all 10 of the top 10 banks, nine of the top 9 insurance companies and eight of the top 10 health care companies. In summary, CX Automation is a strategic objective as brands are spending $2 trillion annually on labor costs and hiring more people to elevate customer experience is not sustainable. Talking brands closed this engagement capacity gap by addressing their very large labor cost with CX Automation is a significant long-term opportunity for Verint. We've architectured the Open Data Hub and Verint Da Vinci AI at the core of the platform. And now with the faster pace of AI innovation, Verint is increasing our differentiation as the leader in CX automation. Our fast position is during the end of the journey, and we look forward to the financial and operational benefits we expect next year. And finally, where strong margins and a strong balance sheet, which provides us flexibility as we continue to execute our previously announced stock buyback program. 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. Starting with our Q1 results. Non-GAAP revenue came in at $217 million ahead of our guidance. Non-GAAP diluted EPS came in at $0.53, also ahead of our guidance. SaaS revenue increased approximately 24% year-over-year on a constant currency basis. There are two main drivers of our SaaS revenue growth, new customer deployments and conversions. In Q1, the growth from both drivers was relatively evenly split. For the year, we project around two-third of our growth to come from new customer deployments and one-third from conversions similar to prior years. And the percentage of our software revenue coming from recurring sources increased to 87%, up approximately 400 basis points year-over-year. Turning to gross margins. Our recurring revenue generates much higher gross margins than our nonrecurring revenue, and our recurring revenue growth has been driving total gross margin expansion. In Q1, I am pleased to report that gross margin increased to nearly 70%, a more than 200 basis point increase year-over-year. Our 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 continue to move higher. Turning to guidance. We are pleased with our revenue and profitability metrics in Q1, and we are maintaining our guidance for the year. Let me discuss how we see the year progressing. On a non-GAAP basis, for revenue, we expect $935 million, plus or minus 2%, with sequential increases in revenue every quarter. We expect a slight increase in Q2, a larger increase in Q3 and to finish the year with our usual strong fourth quarter. Looking at the year, we expect revenue growth to be higher in the second half of the year, given the easier year-over-year compares. For new SaaS ACV, we expect double-digit growth this year. So far in the year, new SaaS ACV was $16 million in Q1 and $12 million in May. This brings our last 12-month new SaaS ACV bookings through May to $103 million reflecting 7% growth over the same period in the prior year. With respect to the progression of the current fiscal year, through May, we have $28 million closed out of the more than $50 million projected in the first half and an additional $60 million in the second half of the year. I would like to note that with ratable revenue recognition, the exact timing of bookings does not significantly impact revenue in the current financial period. We expect our gross margins to increase sequentially and for the full-year to increase around 50 basis points year-over-year. We expect OpEx to increase modestly in Q2 from Q1 levels and we expect to maintain that level of spend for the rest of the year as we manage expenses in the current economic environment. And for the full-year, we expect our operating margins to expand a bit more than 50 basis points year-over-year. We expect adjusted EBITDA to increase 7% for the year to a bit more than $250 million through a combination of strong SaaS revenue growth, gross margin expansion and expense controls. And for diluted EPS, we expect $2.65 at the midpoint of our revenue guidance with sequential increases in EPS, consistent with our sequential increase in revenue. Regarding the below-the-line assumptions, we expect interest and other expense on average of $750,000 per quarter. Net income from noncontrolling interest 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. Looking beyond this year, as Dan discussed earlier, we believe the completion of our SaaS transition will have positive benefits to our financial model next year. Let me provide you with some additional details on these benefits. Starting with revenue. As we have shifted to SaaS, our nonrecurring revenue has steadily been declining. Looking at last year's results and this year's guidance, nonrecurring revenue represents a headwind to total revenue growth in an amount of about 3 points each year, and we believe this headwind will be largely behind us next year. In addition, as Dan mentioned earlier, we believe we will see a benefit to our top line from shifting our focus from SaaS migration to platform and AI adoption. With respect to cash flow, similar to most companies going through a SaaS transition we expect our cash generation to start to grow faster. To put this in perspective, last year, we generated $190 million of cash from operations, excluding nonrecurring items. This year, we expect this to grow in line with revenue. And next year, we expect to grow faster than revenue at a double-digit rate. I'd like to highlight that our free cash flow acceleration should be even faster as the onetime investments over the last few years related to the spin and our office space will be behind us next year. Turning to our balance sheet. We continue to be in a very good financial position. Our net debt remains well under 1 times last 12-month EBITDA and is further supported by our strong cash flow. We expect our balance sheet to get even stronger going forward as we benefit from the foundation we laid since the spin, resulting in continued improvement in margins and cash flow. And regarding our previously announced $200 million stock buyback program, to date, we have repurchased close to $90 million worth of shares. In summary, our non-GAAP revenue and diluted EPS came in ahead of guidance, driven by our differentiated open platform. We expect our platform to drive strong SaaS growth and margin expansion for the full-year and we are maintaining our guidance for the current year. Looking ahead to next year, we expect our financial model to further benefit from the planned completion of our SaaS transition. These benefits include accelerating revenue growth, higher gross margins, and incremental cash generation. Finally, our ability to deliver innovative CX Automation and drive significant customer ROI, position us well for sustained long-term growth. Before taking questions, I'd like to highlight several investor relations initiatives. First, we've updated the financial dashboard on our IR website to help investors focus on the critical metrics associated with the end of our SaaS transition. Second, we'll be updating sell-side analysts on our AI-powered platform at our ENGAGE conference next week where we'll showcase our latest innovations. And third, in the fall, we'll be hosting an Investor Day for both sell-side analysts and investors to demonstrate our AI innovation and discuss the benefits of completing our SaaS transition in more detail. With that, operator, please open the line for questions.

And thank you. [Operator Instructions] And our first question comes from Ryan MacDonald from Needham & Company. Your line is now open. Q - Ryan MacDonald Thanks for taking my questions and appreciate all the color, especially in the, sort of, the post SaaS transition world here for Verint. And that's where I really wanted to start, Dan. Can you kind of double-click on that a bit more? And you talk a bit about the benefits of sort of what the completion of the SaaS transition will bring in. In particular, you talked about sort of the second revenue driver of acceleration around sort of the AI platform adoption will help further that acceleration of growth. Can you just maybe talk a bit more about where that comes from? Or how investors should think about that coming in?

Yes, sure. Thank you. So we're almost approaching the midpoint of the year. So it's a good time to start to talk about next year and really excited to finish the cloud transition as we discussed before. So there are immediate benefits that we will see next year and there are more benefits over time. And I'll talk about AI separately, I think it's a very important topic. But then you start kind of with a review of why this such transition completion is good. And based on the detailed analysis that we did for our customer base, we believe that next year, the headwind for nonrecurring decline is coming to an end. And just this will result in a couple of points of incremental growth even if the rest of the business performs exactly the same way it is this year. So that's one thing. Then the second thing is we also see an increase -- the customer base shifting to running in the Verint cloud. And these customers are already Saas, but for now, they host bearing solutions in other clouds. It could be in part cloud or their own cloud. So there are clear benefits for these customers to shift to the Verint cloud for faster innovation and especially AI and quick time to value. And we expect minimum of 2 times uplift if these customers just move like to like. But of course, many of them are expanding, and we expect up to 10 times if they expand in the platform. And they don't have to spend at the time of the conversion, they can definitely expand on the conversion and then over time. But it's a great uplift opportunity for us from this customer base. Finally, as we complete the first transition, we're going to focus on helping them expand. We -- you asked what are we going to do? So it's a little early, but we're starting actually this year, so we will be fully ready next year. And as we kind of shift the focus to operational -- operationalizing the completion. It's more marketing campaigns on the base. It's the pricing models. I'll discuss maybe later that the consumption models, and obviously, the sales force that we'll be focusing more on helping customers doing this conversion and expansion. So there's some uplift that comes from this conversion and of course, expanding as these customers are looking to increase consumption of CX Automation, and that drives a very strong ROI. Now in addition to what we expect to revenue accelerating, we definitely expect gross margin to continue to expand. We discussed many times that our recurring revenue has higher gross margin in the mid- to high 70s. So the shift to more recurring continue to benefit gross margin, and we saw some very nice expansion in Q1. And Grant discussed also the improvement to our cash flow generation, which is acceleration in cash from operation, but also acceleration in free cash flow, because some of the one-time investments we did after the spin are also going to come to an end. So free cash flow is going to accelerate even faster next year. So from a big picture perspective, when you think about this SaaS transition, the economic value of a SaaS deal is far greater than perpetual over time. And our customers benefit from faster innovation in the Verint cloud and of course, we benefit from higher economic value. And because we have very large customers, and they moved to SaaS slowly. Our transition took several years, but for the same reason, we expect that we'll continue to renew and expand with these customers as they consume more AI from the platform and increase the spend with Verint. And again, the expansion opportunity can result in a 10 times uplift. So we see very tangible benefits that we expect next year and even more so over time.

Appreciate the color there. And then maybe as I think about, we've got to get a lot of questions from investors, obviously, with generative AI and the potential disruption it can have on the context center broadly. But can you talk about why these investments in AI are a good thing for Verint over time?

Sure. So AI plays a role in many industries, but clearly, it plays a very big role in the customer engagement. And we discussed many times, we estimate that brands spent $2 trillion on labor, it's not sustainable. So our customers are really excited by AI. And I can tell you that in Q1, we estimate that more than half of the deals we did in Q1 had some elements of AI already included. But as much as customers are excited, they also want to make sure that it's creating ROI, and it's not just technology. So what Verint's does is really we're exclusively focused on CX Automation. That's what we do. And that means that we -- our mission is to transform AI technology into business outcomes. And that's what customers want because they don't want to buy AI. They want to buy the business outcomes that create the ROI. So why are we going to benefit from AI. So first, there's a simple reason. We have an open platform and it's differentiated and best in the market in its ability to place AI innovation at the fingertips of the workforce. And we also -- I can talk about how we monetize AI and through a consumption model, and that's good for our customers and also good for Verint's. But let me start with the first point, why we have the best platform in the market today. So our platform is open, and it's open in all dimensions. We have the Open Da Vinci and Open Da Vinci takes advantage of commercial AI models in addition to our own proprietary models. So I can tell you specifically with GPT, we already have GPT 3.5 in production with customers. We have GPT 4.0 in our research labs, and we will be introducing new use cases because there's some additional capabilities in 4 that specifically around leveraging visual imports and significantly larger comps that will create new use cases that Verint will commercialize. I believe that when it comes to GPT, open source generative AI this year is equally, if not more disruptive than GPT 4 and we have basically -- we have every and any open source AI for many vendors as part of Da Vinci and it's completely open. So Da Vinci is architected at the core of the platform, and I'm not aware any other vendor in the market that actually have this architecture. So it's undifferentiated. And why it's important is because -- at the core of the platform, we also have the Data Hub. And the platform can train all the AI models, whether it's proprietary or third-party, they train on real engagement data 24/7. And data is critical. It's critical for the accuracy and effectiveness of AI. We know that when AI doesn't work, it's very frustrating to people, and that's it useless. So training is a key component. And for over two decades, we help our customers capture data and our data is completely open. So we bring together data from many data silos across the customer ecosystem. And again, no other vendor has a data hub architecture at the core with such vast and diversified data sets that is available for AI training. So that you can see we have Da Vinci it's open. We have data that is vast and trained all the time. But then the last component, you need a platform to transform technology into business outcomes. And the platform offers many best-of-breed applications and it's completely open to allow customers to start anywhere. So they can use any piece of workflow that they want and inject AI into that workflow. And the result of this is you bring the AI to the fingertips of the workforce, so they can use it and it will augment the work and increased -- obviously increased their productivity. And let me stop here and see if any follow-up questions.

Yes. No, that's helpful. And then maybe just one more from me. You mentioned earlier about the potential for a 2 times uplift when a customer moves on is hosted on the Verint Cloud versus another cloud. How are you thinking about in terms of strategy, incentivizing sales force, incentivizing customers to sort of drive that shift going into next year? Thanks.

Yes. So the way we designed the SaaS transition because we have large customers, and they have preferences for cloud. And we wanted to make sure that they move to SaaS and regardless of which cloud they run. And that was the first part of our SaaS transition. But over time, our customers realized that running in the Verint allows us to introduce innovation faster than when they run in different clouds just because we put new software in our cloud every 2 weeks. So the AI increased the pace of innovation and obviously, cloud is the best vehicle to drive innovation faster for quick and to value. In fact, Da Vinci is only available in the Verint cloud today. So that's a big incentive for our customers to leverage the latest Da Vinci capabilities. And again, now that we're getting to 90% of software revenue recurring and the sub position will be behind us next year we're increasing the focus also internally in terms of programs that we offer customers and pricing consumption models and, of course, sales force incentives. This will be introduced later in the year, but I think it will start to really kick off next year and beyond that.

Excellent. I appreciate the color. I'll hop back in the queue.

And thank you. [Operator Instructions] And our next question comes from Shaul Eyal from TD Inc. Cowen. Your line is now open.

Thank you so much. Good afternoon, guys. Apologies for some background noises here. So Dan it would appear that you, Grant, Alan, the team definitely seeing kind of the -- whatever is left in the SaaS transition. And I'm getting e-mails asking me as we start thinking about your next year's revenue guidance, and again, I don't want to front run the Analyst Day that you alluded to later on this year, but is there any chance that we're going to be heading back to a double-digit growth territory. Is that a possibility at all?

It's too soon to discuss next year guidance also, because the economic environment this year. And that's why we discussed it in terms of incremental growth that we see next year to this year. Of course, if the overall economy improves, the increase of growth will be on top of a faster foundational growth, let's call it, but whether it's next year or the year after, we stated the goal that based on an open platform, Da Vinci and data at the core and driving more ROI for customers we definitely are targeting double-digit revenue growth over time. We're already at 27% EBITDA margin this year. So we talk about continued margin expansion. So we are targeting to increase revenue growth and at the same time, expand margins. And I think for -- I mentioned before, a 10 times opportunity for our customers, if they adopt more AI across the platform. And I think if you want to think about the growth potential here or the TAM, maybe the best thing is to discuss an ROI example. So let's take, for example, a customer that employs 2,500 employees, customer service employees. This customer will spend $100 million a year on labor, that's 2,500 times 40,000 a year. So it's a big spend. And Verint customers have thousands of agents, and we have customers that have tens of thousands of agents. We are very strong in the mid to high end of the market, so our customers have lots of labor spend. So now let's assume that this customer purchased three Verint specialized bots, and I'll explain what the specialized bots is. But they only pursue three for a price of $2 million ACV. So they're committing to spend $2 million here. So these three specialized bots can help the workforce to increase productivity. So let's say one specialized bots is an expert in automating interaction wrap-up. They're not replacing humans. They're not better than humans, but they're really good at doing one thing. The interaction wrap up, and therefore, they save 30 seconds from each interaction. The second specialized bot from Verint is an expert in surfacing contextual knowledge. So that saved another 30 seconds from the interaction. And the third special bot is only good at real-time agent coaching based on assessing where coaching is needed and real-time assisting the agent, and that saves another 30 seconds. So now that's 90 second less, and if the average interaction duration is five minutes, this customer workforce productivity just increased by 30% using three specialized bots. And this could be a $20 million ROI for this customer, $20 million savings. So our customers was motivated to consume more. And when we think about what's the potential, what's the TAM, what is Verint after when we came up with this CX Automation and we did the spin, and we said that's what we're going to focus that's really the mission that we have to help customers to create this productivity by creating specialized bots, and we have dozens of specialist bots each focused on one element of the customer engagement workflow. So they are not useful for superhumans, but they make the agent into a superhuman because they're there to help them do something. And when you free the agent time, our customers now can decide either they want to cut costs or they want to improve the customer experience or what we see many customers are now thinking to use that extra time to make the customer service people into salespeople and leverage the fact that they had a very good interaction with the customer to sell them something. So there's a lot of different ways that this automation can benefit customers. That's how I think about the long-term opportunity.

Understood. Thank you for that elaborated reply. And just maybe a quick question also. I know that you mentioned really maybe a handful of elongated maybe some bills that are were pushed a little bit by elongated sales cycle. But has any deal canceled? Or was it just timing issue and all the transactions that might have been postponed. How many of those have already come back?

So we mentioned in Q4 some slip deals. I can say that the majority came in Q1, and we expect over the year, some were pushed more than just a few months. In Q1, we had a couple of deals that actually closed shortly after Q1. The $21 million deals that I mentioned before, that's an interesting story because the deal was fully negotiated and ready to sign way before quarter end. And it's a $21 million deal, so many signatories and the signature process just took long and ended shortly after quarter end. But it's a ratable revenue cognition. So it really doesn't affect anything. And Other than the -- which period to report it, it doesn't really impact the revenue at all. So we see customers are taking longer with the final approvals, especially when it gets to the CFO. But eventually, they recognize that they need technology and they cannot spend money on labor and we can help them to create a good ROI, and that’s get the deal over the goal line.

Understood. Thank you so much. Good job.

And thank you. [Operator Instructions] And our next question comes from Samad Samana from Jefferies. Your line is now open.

Hi, good afternoon. Thanks for taking my questions. Dan, maybe the first one for you. Just on the pricing model for AI. Can you remind us, are you currently pricing Da Vinci? Is it a platform fee plus some interaction model? Is it based on the number of seats, just how should we think about the current model? And how are you thinking about that model evolving over time?

Yes. So today, we give customers an option to purchase the specialist bots, either by the users that they help or by the consumption. So how many times they have been called to help. I can say that some customers like to go by consumption because they can start small, and they want to make sure that they only increase automation consumption when it's really working. So that's what's appealing to some customers. Other customers prefer to just pay a fixed price per user, because they want to kind of cap their cost of automation. But when you think about this, it's not that we have one special bots per user. I envision that over time, each user will have three, four, five or 10 different bots, helping them doing different things, right? The wrap up work that agent does manually is replaced with a bot that we can only do wrap up. Searching for knowledge is completely different bots. Coaching the agent, it's a different bot. So they can pay by user, but then they'll have to pay for each bot that they use or they can prefer the consumption. The way they actually buy, they don't buy bots. They buy workflows, right? We have been delivering workflows to our customers for many, many years that help them to run their business processes and the bots are actually injected into the workflow. So the agent doesn't have to stop what they're doing and say, oh, I'm going to call it bot. Everything is big actually automatically built into the way they work today. Well, when they come to do a certain task, they -- if the bots was purchased by the customer, that bots shows up and just do the work. So instead of summarizing the call, which can take 30 seconds, sometimes a minute, the bots, if this purchase come in, they see the summary, they approve it. It takes them five, 10 seconds, and they go to continue to take the next interaction. So it’s -- we're very flexible because we know our customers like AI, but they also want to make sure that this works in their own environment. And that's why we see that as they get more confident, they will increase consumption over time.

Great. And then, Grant, maybe just a follow-up question for you on the SaaS revenue guidance. I understand the comps get easier in the back half. I guess as you sit here today, how much of that -- how much visibility do you have into that acceleration that's required in the back half of the year to hit the full-year target and how much I guess, how much new business you have to book in order to get to those targets, how much variance is there?

Sure. Thanks for the -- so we do see an uptick in the second-half growth rates and for SaaS, it's really driven by a couple of things that we've talked about in the past. One is the new and expansion deals, right? And that's related to the new bookings and the others related to conversions. First quarter, we saw a 50-50 split between those in terms of driving that SaaS revenue growth. Second happened for the full-year. We expect it to be more closer -- closely related to two-third of that overall SaaS revenue in the second-half will come from the new and expansions and about one-third from the conversion activity. So in terms of the visibility and uptick, a portion of that is outside of the conversions and getting some of the uplift Dan mentioned. It's also related to some of the new bookings that we have and I gave some commentary on what we see, the $50 million -- greater than $50 million in new SaaS ACV first-half and a slightly more in the second-half, that $60 million and we have good visibility on the pipeline, right, coverage to achieve that. And then there's one other dynamic that we have that drives a little bit faster acceleration in the second-half for growth rates and that's related to some renewal volumes that we have coming up in the second-half of the year, and that's really driven by the nature of our SaaS transition. We established our transition program three years ago. We had a number of customer contracts we signed at that time, and those renewals are coming up in the second-half of this year. So that combination of dynamics is what drives a little bit of the uptick that you'll see first-half to second-half.

Great, really helpful. Thank you for taking my questions. Appreciate it.

You bet. Thanks.

And thank you. [Operator Instructions] And our next question comes from Peter Levine from Evercore. Your line is now open.

Hey, thanks guys for taking my question here. Maybe, Grant, just to piggy back of you back off of what you just said with the renewals. Maybe could you give us an initial read for the contracts that are you seeing those contracts take longer to close? What percent -- are you seeing those conversion rates or renewal rates at all, stay steady, improved, decrease? Just give us a sense of, kind of, where you think those renewals will come in, in the second-half?

Yes. Renewals, we're not seeing much change at all on those contracts. I think what Dan had highlighted and where we're seeing more of the elongated sales cycle, are really on the newer deals or the expansion related because that's where customers need to go and find the additional funding. On the renewals, it's pretty well baked in and for the funding environment. So we've seen very good steady progression on that over time.

Now in terms of contract terms we heard from others that reported this quarter, like they're not getting through years anymore. So is that what you're seeing from both new and existing contracts where it's typically maybe you're seeing more one-year deals versus three-year deals?

What we've seen -- so our new deals typically are three years. And then for the renewal opportunities that we have out there, it's really a mix. It's not a standard three year. If anything, we've actually seen a slight tick up in the term length that we have with customers, in many cases, starting to renew a little bit longer. And part of that is the understanding and the messaging that Dan has highlighted of the ability to get additional value from Verint's platform. So locking in gives them a little bit of pricing benefits without as much of uplift but they have that ability to get a lot more innovation from our platform in doing so.

Perfect. Sorry, Dan, go ahead.

What I see in that regard, customer on one hand, the natural trend is -- I don't want to renew longer because I don't know what's going to happen. But once they realize that they actually have -- we're not locking them in because the platform is probably open, and they can do whatever they want with their Telephony, CRM system. They can buy any application. We -- and they can leverage the platform in any way, as Grant said, we don't see that as an issue. And at the same time, we see customers that really want to lock the price for three years, because of inflation, and they have a price guarantee if they lock the price for three years. So net-net, yes, no impact on Verint from now.

And just one last quick one. I don't think I put it on the call, but just a kind of a macro update. If you look at your full-year guide, what assumptions are you baking in? Are you assuming the environment gets worse, stays kind of where it is today. Just give us a sense of you think about the full-year guide, what your assumptions are around the background impacting your ability to close deals? Thank you.

Yes. No assumption in improvement of economic environment. There's no reason for us to make that assumption. So we expect the same. We talked about the new deals, the [Indiscernible] ACV, 50 in H1, and we have 28 through May and then 60 in H2, which is as Grant just said, we have the pipeline coverage. But in addition, the assumptions this year is that we'll have the gross margin expansion, because we continue to shift with good SaaS growth, recurring revenue growth, we continue to shift to higher gross margin. And we will -- we assume that the gross margin improvement throughout the year. And in our OpEx level, we had 106 in Q1. We planned very small sequential increases because we, again, want to be cautious in this environment. So the net-net is 7% EBITDA growth. That's over $250 million EBITDA this year, 20% margin and that's really our focus here. And while we're doing that, we want to complete the SaaS transition and focus on helping customers adopt. So those three things are the main strategic initiatives that are driving in the company this year.

Great. Thank you for the color.

And thank you. And I am showing no further questions. I would now like to turn the call back over to Matthew Frankel for closing remarks.

Thanks, Justin, and thank you to everyone for joining us today. As always, please feel free to reach out to me with any questions, and we look forward to speaking to you again soon. Have a good night. Take care.