Good day and thank you for standing by and welcome to Verint Systems Inc. Q2 fiscal 2022 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. Please be advised that today's conference is being recorded. [Operator Instructions].

I would now like to hand the conference over to Matthew Frankel. Please go ahead..

Thank you operator. Good afternoon and thank you for joining our conference call today. I am here with Dan Bodner, Verint's CEO, Doug Robinson, Verint's CFO and Alan Roden, Verint's Chief Corporate Development Officer. Before getting started, I would like to mention that accompanying our call today is a Webex with slides.

If you would 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, click on the webcast link and select today's conference call.

I would also like to draw your attention to the fact that certain matters discussed in 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.

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, 2021 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 Webex slides, 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 would like to turn the call over to Dan.

Dan?.

Thank you Matt. I am pleased to report a strong second quarter across all key cloud metric with both revenues and diluted EPS coming in ahead of our expectations. Since the completion of the Cognyte spin at the beginning of the year, we have experienced strong cloud momentum and crossed the midpoint of our cloud transition.

We expect our cloud momentum to continue in the second half of the year and we are raising our annual outlook for both revenue and diluted EPS. We also raising our annual outlook for new PLE booking, which we believe is an important metric during cloud transition. Let me start today's discussion with a review of our Q2 cloud KPIs.

First, I will review new PLE booking growth and mix. To remind you, new perpetual license equivalent bookings normalizes the mix of perpetual and SaaS bookings to compare bookings growth period-over-period. In Q2, new PLE came in strong with 17% year-over-year growth reflecting our continued strong bookings momentum.

Also the percentage of new PLE that came from SaaS continue to increase. In Q2, 53% of our new PLE bookings came from SaaS, up from 51% in Q1, representing the second quarter of crossing the midpoint of our cloud transition. In addition, I am pleased to report 20 SaaS deals over $1 million TCV in Q2, an increase of 100% year-over-year.

Overall, you can see on the slides, all of our bookings metrics came in strong in Q2. Looking at revenue. Non-GAAP cloud revenue was also strong with 44% year-over-year growth. Later, I will discuss the relationship between booking growth in current period and revenue growth in future periods.

Behind the strong momentum is our strategy to drive automation in customer engagement across the enterprise with our open cloud platform. We believe that more and more brands are embracing the digital first engagement and that we are uniquely positioned to help them with our open, partner friendly and infrastructure agnostic cloud platform.

I would like to briefly discuss our platform. It has been designed with an open multi-cloud architecture and provides our customer a unified engagement, data hub and broad set of AI and analytics engines.

As the platform is completely open, customers are able to deploy our workforce engagement, digital engagement and experience management solutions based on their business priorities. The platform is designed to help brands close the engagement to capacity gap by reducing their operating cost while elevating the customer experience.

To illustrate the value of our platform, I am happy to share the results of a study performed by Forrester consulting that examines the potential ROI and business benefits of our solutions.

The study encompassed Verint customers that handled 10 million interactions annually in the aggregate and found that on average these customers achieved a payback period of under six months and a 400% return on their investment over four years.

This ROI was be achieved through a variety of improvement including a 45% deflection of calls to less expensive channels, a 44% improvement in the contact center efficiency, a 20% improvement in agent productivity and an 8% reduction in employee turnover.

To drive even more for value for our customers, we continue to innovate our cloud platform, providing customers new functionality to power the workforce of people and bots, to embrace an enterprise wide customer experience culture and to harness data to drive more AI and analytics into their business.

Another important differentiation of our cloud platform is the open design that makes it seamlessly fit with existing enterprise ecosystems. This is very important for our customers and I would like to discuss three aspects of our open imperative.

First, relative to communication infrastructure, including CCaaS, UCaaS and CPaaS, Verint's platform is agnostic and enables our customers to quickly integrate with the vendor of their choice. We have recently seen some M&A activity among communication infrastructure vendors that combine these three infrastructure solutions into a single vendor.

We believe this should benefit Verint as a pure play enterprise application platform with an open infrastructure agnostic strategy. Second, many of our customers are using CRM solutions as a system of record for sales, marketing and service functions.

The Verint platform augments CRM solutions and will enable our customers to easily integrate data between Verint platform and their CRM systems. And third, for enterprise data and BI systems, we provide access to a wealth of engagement data managed by the Verint platform that could be easily shared with enterprise data lakes.

Our open platform is driving wins of new logos as well as expansions with our customer base. Some of the new logos we won in the first half of year include FedEx, Global Payments, NortonLifeLock and Vodacom.

Leading companies around the world select Verint because of our market-leading open cloud platform, broad customer ecosystem and partner ecosystem and our focus as a pure play customer engagement company.

Verint has a broad customer base and in Q2 we received multimillion dollar expansion orders as our customers continue to evolve their digital first engagement strategies. As I mentioned earlier, in Q2 we had 20 SaaS orders with TCV greater than $1 million. Here are two examples of Q2 expansion deals.

The first is a $3 million SaaS order we received from one of the world's largest financial services companies. This customer has application for multiple vendors, including Verint and decided to consolidate their existing applications onto the Verint platform, while expanding with additional functionality.

Verint's selection was driven by the value the customers saw in the Verint platform, delivering strong ROI and our ability to connect customer engagements across their contact center and branches. The second expansion example is a $2 million order from a leading transportation company.

This win was due to the best-of-breed functionality of our open platform and our strategy of working closely with partners. We are very pleased with a strong first half momentum and are raising our annual non-GAAP guidance as follows. For new PLE bookings, we are raising our growth outlook to 15%, up from our initial guidance of 10%.

For cloud revenue growth, we are raising our growth outlook to 35%, up from our prior range of 30% to 35%. For revenue, we are raising our guidance to $872 million at the midpoint. And for diluted EPS, we are raising our guidance to $2.25. Doug will provide further details on our revised guidance shortly.

We believe our strong performance this year positions us for well for accelerated revenue growth going forward which I will discuss next. In Q1, we provided three-year targets and explained why we expect our revenue growth to accelerate as we cross the midpoint of our cloud transition.

Our three-year targets were based on an assumption for new PLE booking to grow at a 10% CAGR. We discussed that the 10% level over the three-year period is expected to drive higher revenue growth rates next year and the year after.

With two quarters under our belt as a pure play customer engagement company in which we overachieved the 10% level and built strong momentum, we now have increased confidence in our long term targets, Overall, I am very pleased with our first half results, the number of competitive wins we experienced and the momentum we have going into the second half of the year.

Now let me turn the call over to Doug.

Doug?.

Yes. Thanks Dan. Good afternoon everyone. Our discussion today will include non-GAAP financial measures. A reconciliation between our GAAP and our 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, as well as certain other items that can vary significantly in amount and frequency from period-to-period for certain metrics, that also includes adjustments related to foreign exchange rates.

We are pleased to have put up two strong quarters following the spin of our security business. Earlier, Dan reviewed our second quarter results. I would now like to review our first half which, as Dan indicated, provides us increased confidence in our fiscal 2022 outlook and our ability to accelerate revenue growth longer term.

New PLE bookings growth increased 22% year-over-year with more than half of our software bookings coming from SaaS. We are pleased to have crossed the midpoint of our cloud transition. We had 32 SaaS orders with more than $1 million TCV, an increase of 60% from last year. These deals drove a 59% increase in new SaaS ACV year-over-year.

Many of these SaaS deals are just ramping up and will contribute to revenue growth in the future. Non GAAP cloud revenue increased 42% year-over-year, while perpetual revenue continued to decline, as expected, resulting in total non-GAAP revenue growth of 5% year-over-year.

Overall, our business continues to shift towards more recurring revenue and in the first half of the year 83% of our software revenue was recurring. Also, remaining performance obligations or RPO increased 29% year-over-year. Turning to guidance. We are pleased to be in a position to raise our non-GAAP guidance for the year.

Half of our $12 million revenue guidance increase from $860 million to $872 million at the midpoint comes from the Conversocial acquisition we completed in late August. As the company is breakeven, we expect it will make no contribution to earnings in H2. Let me also discuss how we see the year progressing.

We expect Q3 revenue to be between $215 million to $220 million with $0.53 of diluted EPS at the midpoint and we expect to finish the year with our typically strong Q4. For annual diluted EPS, we are raising our outlook and we now expect fully diluted EPS for the year to be approximately $2.25 at the midpoint of our revenue guidance.

Let me also provide you some additional detail for modeling purposes. We expect around $1.5 million of interest and other expense in each of Q3 and Q4. We expect about $300,000 of net income from a non-controlling interest we have in a small joint venture in each of Q3 and Q4. We expect a 10% cash tax rate for the second half and for the full year.

Regarding our share count. The number of diluted shares we have can fluctuate each quarter depending on the accounting treatment of our convertible preferred. Each quarter, we calculate our diluted EPS two ways, including the preferred dividend but excluding the converted shares and then excluding the dividend but including the shares.

We then show diluted EPS based on the calculation that is more dilutive for the period. Given our level of expected income, we expect diluted EPS to be very similar under both scenarios.

And for Q3 and Q4 modeling purposes, you can just assume the conversion of the preferred stock, so approximately 76 million shares outstanding per quarter for the full year. Turning to our long term outlook. We are two quarters into the three-year plan that we laid out at our Investor Day earlier this year.

At this point, we are not raising our long term targets. But our strong start to the year certainly gives us greater confidence in achieving these targets. So let me take this opportunity to review our current long term target. For fiscal 2023, we are assuming revenue growth accelerates to the mid single digits to around 6%.

For margins, we expect a little bit of expansion with greater scale and around 10% diluted EPS growth for the year. For items below the operating line, you can use the same assumptions we just discussed for the second half of fiscal 2022.

For fiscal 2024, we are assuming revenue growth accelerates further to high single digits with some additional margin expansion and are targeting $1 billion of revenue of which $650 million will be cloud and nearly 90% of our software revenue will be recurring.

Overall, we are pleased with the start of the current year and believe we are well positioned to achieve our three-year plan with our highly differentiated open cloud platform. So with that, operator, let's open the lines for Q&A..

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

Great. Thanks for taking my question. Congrats on the quarter.

I guess, first, obviously, depending on results, but are pipelines more predictable today versus where we were when we entered the year? Meaning, are we back to pre-pandemic levels? And I guess if not, like outline to us a path of the time frame or the time line you think it takes to kind of get back there?.

Yes. So we have a large pipeline, but you are right. We also had a large pipeline last year in COVID and what we saw last year is certainly the perpetual deals were are not happening as customers would hope for because of COVID and there was an increase in cloud deals.

And this year, we actually have a much better close rates, win ratio on the pipeline. So I would say back to normal, but also the number of cloud deals is ways higher than last year. We talked about double, right, the $1 million-plus deals. We got 20 in Q2 versus 10 in Q2 last year.

So I think that the shift that we see in the market to cloud is also helping customers to plan what they need and also to execute it because they are not dependent on the perpetual resources they have internally. They are basically buying cloud solutions from the vendor..

Perfect. And then just a follow-up question.

On the acquisition you guys made during the quarter, Conversocial, can you kind of just talk about the strategic rationale? And then maybe go into the go-to-market motion, what the go-to-market motion will look like? I mean is the idea to kind of white label this messaging product, essentially having your partners resell it? Meaning like will Five9 position this as a messaging platform? Thank you..

Yes. So I think first of all, our M&A strategy is about our cloud platform and expanding the functionality of our cloud platform.

So with Conversocial, our plan is in a very short time to offer it as part of the cloud platform, where it's going to be available to any of our customers or partners as just another application that they consume from the cloud platform. And I think we discussed last quarter why we think the platform approach is very important.

And I made comments earlier about the open platform approach where basically customers can start anywhere. So they can start with messaging, they can start with workforce management, they can start with IVA.

There is complete freedom for customers to consume cloud service from the platform based on their business priorities and then they will expand from there, again, over time based on what is the most urgent use cases they have. So this is the plan with messaging in the very short time frame.

And regarding the question about why messaging now? Well, we do see that the customer engagement market is shifting to digital and while we see the number of interactions on the voice telephony side is pretty flat, the number of interactions over digital and messaging is actually growing and growing very, very quickly.

And we also see that consumers actually would like to see more choices. They would like us to be able to choose the channel of their choice based on what they use to and especially for mobile devices.

So Conversocial brings to Verint the ability to offer channels like Twitter and WhatsApp and this basically completes the offering from Verint in terms of flexibility.

We can offer our customers' brands basically any choice of assisted service or self-service channels so they can put a complete set of choices in front of their customers and help them to have more flexible customer journeys.

And the feedback we got from industry analysts and customers was extremely positive because it is positioning Verint as a strong player, not just relative to the legacy telephony driven contact center, but also combining telephony and digital channels into a more unified workforce that can handle any type of interaction.

And obviously, Verint is very strong with automation. So the workforce is not just humans, but it's a combination of human and bots working side by side. And on the digital channels like messaging, it is obviously very, very important to offer automation because many of the interactions can be done by a bot and respond very well to customer needs.

So for example, if you look at Amtrak, when you go Amtrak and you try to find a schedule or book a ticket, you will talk to Julie. And Julie is a bot that handles five million customer interactions a year and Julie can handle many interactions at the same time.

So the importance here is that consumers don't have to wait, right, because even if there are 100 consumer trying to do something, they don't have to wait in the queue and get an agent. They can get instant responses from Julie. So as it becomes easier for the consumers to engage over digital interactions, the volume of interaction is growing.

We are all trying to do more from our mobile devices than we used to do with the telephone call. And that fact is important to point to manage a workforce that is human and bots working together so that brands can lower the cost of operation but at the same time, elevate the customer experience.

So it is positioning Verint, it's a small acquisition, but it's additive to our platform. And together with all the conversational channels and conversational AI, we really supports automation across every channel and very differentiated platform in that regard..

All right. Thank you for the color..

Thank you. And our next question comes from Dan Ives from Wedbush. Your line is now open..

Yes. Thanks. Can you talk about, for a typical customer when they move to cloud, what type of up-sell or cross-sell you are generally seeing? I mean, obviously you are seeing the large deals, just hit on that..

Yes. So our customers move to the cloud in two ways. There are customers that convert what they already have from there into the cloud and then they expand. And we also have customers that do not want to convert right now because they are quite happy and don't want to disrupt anything.

But they are buying from Verint's new solutions that are offered in the cloud. And one of the benefits of Verint is that we are able to support them with the combination of some of their solutions working on-prem like they always did and some of the newer solutions like digital, like automation and IVA and so forth working in the cloud.

And then we see customers that move to the cloud with new solutions and then they bring their legacy solutions into the cloud over time. So we really see all that different scenarios.

And I think our customers are very appreciative that we allow them best flexibility that they can actually innovate faster with new solutions in the cloud, but don't have to carry their legacy stuff into the cloud on some time timeframe that may not be best for them.

And I think that's why we see very strong renewal rates because our software was always sticky. But I think that our newer rate are high as a result of this flexibility that we provide our customer in the conversion journey..

Great.

And then just as a follow-up, when you think about million dollar deals and you spoke to the pipeline, I mean is it something where, from a trend perspective, this is just going to continue to accelerate when we think about where it's heading and just more and more customers owning a bigger piece of this suite of platform?.

Definitely. I think that we will see definitely more adoption by customers of our cloud platform because it is easier for us and for the customers to expand in the cloud than it was on-prem.

With every on-prem expansion, the customer have to initiate a project, they have to involve IT, they have to purchase hardware, integration and very often it becomes a complex project and IT, their internal IT may have limited resources in terms of how fast they can move.

With cloud platform, our business users basically bypass all that process and they just consume more applications from the same cloud platform. So we expect more adoption in the cloud platform.

Now, whether they are all going to buy that in one purchase of multimillion dollar deal or small incremental deals that could be hundreds of thousands each one, but multiple deals like this every quarter, I think that can go either way because many customers wants to try before buying new functionalities.

So they may want to start something new at a low volume, but then expand over time. So I think we will see growth in terms of spending, but we will see both more multimillion dollar deals, but also higher spend per customer in the Verint cloud platform..

Great. Thanks..

Thank you. And our next question comes from Shaul Eyal from Cowen. Your line is now open..

Thank you. Good afternoon guys. Congrats on the performance and improved outlook. Dan or Doug, so you have crossed the midpoint of your cloud transition. Congrats on that front. Can you talk about the impact, maybe also the longer term impact, on the financial model? And I have a follow-up..

Sure. So I will start and I will have Doug give some more details. But we believe the crossing the midpoint is a big deal. We saw that with other companies that had a cloud provision journey and had very positive impact from crossing the midpoint. So let me start with some operational aspects.

So operationally, the second half is much easier because in the first half we had to make many changes in how we sell to our customers, the commission plan, how we incentivize the sales force. This was a lot of changes. And while the second half is now more about timing of customer decisions, how fast going they are going to adopt the cloud.

But it's doesn't require that many changes into our model and operational procedures. So operationally, that gives us a lot of flexibility. Now from the financial model, there are benefits to growth rates, there are benefits to margins and there are benefits to cash flows. So let me start and maybe be Doug can give more the cash flow side.

First on the revenue growth. So, it accelerates even if we don't accelerate booking and we did see great booking momentum in H1. But as I mentioned before, our three-year target assumes 10% PLE growth.

And even with a flat booking growth, we will see higher revenue growth because there's less headwinds from the current period perpetual decline and there is all the benefits of the booking and all the strong booking we report now will impact growth rare in the future.

And of course, with the cloud platform for and we talked about expansion in the platform and so on, we certainly think that this will accelerate the revenue growth. And we expect revenue growth of 6%. We didn't even change our three-year targets. Doug mentioned that before. It's too soon. H1 was great.

But we are really just confirming the three-year targets today. We talked about mid single digit next year, around 5%. Doug mentioned 6% as we have 1% more now from the acquisition of Conversocial. And then we expect high single digit to get to $1 billion in 2024. Now earnings also will benefit because we expect margin expansion a little bit next year.

So EPS will grow 10% and more in 2024 where EPS will expand into around 12%. And the final thing is that in addition to the revenue and margin, our cash flow will also expand faster. And we expect actually 20% growth in cash flow, but Doug maybe you can explain more about the outlook on cash flows..

Yes. Sure, Dan. Yes, it's all really the same thing, right. It's the beauty of that waterfall. So that same thing that was giving us the headwind as we began the cloud transition, built up that RPO and the deferred revenues. And that's all coming in now, right.

So you can see as we go forward over the next couple of years, you can see that in our three-year targets the accelerated revenue growth that drives accelerated earnings, of course. The cost structure was always what it was, but that revenue was a little bit of headwind now kind of catching up. And the same thing is true in the cash also, right.

So you go through this cloud transition over the next couple of years, we will have some very strong cash flow and then kind of normalize out beyond the next couple of years.

So as Dan mentioned, this year we are going to probably end up about $150 million in terms of GAAP cash from ops, if you exclude the separation and some of those other cash costs we had this year, the year of the spin, if you will, it will probably be around $180 million.

And then we expect that to grow like 20% the next couple of years because we have kind get that cash waterfall happening along with the revenue topline waterfall for the same kind of cloud transition reasons, right. So what was the headwind is turning into tailwind as we kind of go through time here. So that's certainly the financial model benefit..

Yes. And just to add to this, Doug, so $180 million is what we expect excluding the spin related expenses this year. Of course, we don't have this spin related next year. So we expect that $180 million to grow 20% next year and then another 20% the following year, which is clearly ahead of our EPS growth.

So that's another benefits of being at the second half of the transition..

Understood. And Dan, maybe from really a bird's eye view, as someone who had been within the industry for such a long time. We have seen over the course of the past, not even six to 12 months, an acceleration of market consolidation. Zoom, Five9, Thoma Bravo consolidating two related assets.

Do we see the blurring of the swim lanes between the infrastructure, the application, kind of the services, the CCaaS and the UCaaS? How are you thinking about some of those accelerating trend within the current environment?.

Yes. So as you know, there has been debates in the industry for quite some time on where is the market is going to go to vertical integration.

So there's contact center companies will integrate infrastructure with applications? Or whether the market is going to grow to enterprise consolidation of infrastructure and enterprise consolidation of applications? And I think the deals you mentioned are very important data points that actually point to the second theory or scenario.

So what we saw is Five9, which is a contact center CCaaS company combining with Zoom, which is an enterprise communication collaboration company, to create a very strong infrastructure that they can deliver across the enterprise.

Whether it's a CCaaS, UCaaS, CPaaS, customers really want to have strong infrastructure which is reliable and whether it can get to the efficiencies of scale. And it doesn't matter whether the person that engaged the customer is in the contact center or is on the website engaging through some automation.

Because the market is moving very quickly not just to reactive engagement, but proactive, right. The activities where you as the consumer has a problem, you call the contact center.

Proactive is, there is a flight cancellation, we now notify 500 passengers that the flight was canceled and we right away engage them into how they can book another flight or something else they need. So that engagement is no longer, proactive engagement is not longer the contact center. It's becoming part of other parts of the organization.

We talked about some deals we won in Q2 and there was also a deal in Q1 where we have financial services companies that wanted to manage the workforce across the branch and the contact center as one workforce because it doesn't matter if the consumer walks into a branch or they engage electronically with the contact center or with the website.

They really need to manage it holistically. So the bottomline is, I think, when you look at Zoom and Five9, I think it is a strong data point of infrastructure consolidation of across the enterprise.

And then when you look at another deal like Qualtrics and Clarabridge, while Qualtrics is a CX company and is interaction analytics, again consolidation of applications across the enterprise where Clarabridge is mostly in the contact center and Qualtrics is mostly outside the contact center. So it does make sense to me.

We saw that in other software markets where first there was infrastructure consolidation of the data center and then there was enterprise consolidation across different parts of the enterprise. And what we see from customers, at least, is that they can no longer run their customer operation in silos.

They are looking for applications that cut across the silos and connects them well to basically elevate the customer experience..

Got it. Thank you so much. Good luck..

Thank you. And our next question comes from Samad Samana from Jefferies. Your line is now open..

Hi. Great. Thanks taking my questions.

Maybe one, just given the consolidation that you have mentioned in the industry and the company itself being more than halfway through its cloud transition, I was wondering if you could maybe help us understand, for your installed base of WFO customers, how much of it is attached to a true cloud contact center vendors users versus an on-premise deployment with a legacy or an incumbent solution? I guess I am just trying to map where your installed base is, not whether they are in the cloud or not but what they are using on the routing side, how much of that's moved to the cloud in your installed base?.

Yes. I think a good chunk of it moved to the cloud. I think our customers separate the decision on applications from infrastructure. So they may have moved to the Verint cloud while keeping infrastructure on-prem or they have moved to the Verint cloud and to infrastructure cloud at the same time.

But they don't have to make the decision at the same time. And many customers look at their kind of infrastructure and they want to make the decision together with their enterprise communication platform. So if they want to move to Teams, they are looking to and especially when you think about digital channels, right.

Digital channels are not really married to kind of their infrastructure because when you think about chat, chat is offered in the contact center, but it's also offered on any website. It's also a marketing tool.

And definitely messaging like Messenger and Twitter and WhatsApp are channels that are being used by the enterprise not exclusively in the contact center.

So the old way of thinking about telephony, I have my infrastructure for telephony in the contact center and that's different from my telephony in the enterprise, all that is blurred now because of digital. And customers see that the number of telephony calls are not growing, but the number of digital interaction is growing exponentially.

So the decisions are decoupled. And I think that not all of our customers report to us what they do with infrastructure. So I don't have pure and perfect numbers, but anecdotally what we hear is that they prefer, many of them prefer to kind of make those decisions decoupled because infrastructure change does not really create ROI.

It's not helping them to close engagement capacity gap. It provides IT a lot of flexibility, but it's not about business ROU, where the Verint applications are all about ROI. We talked before about the Forrester study and our customers.

So every sale that we do, we start with what is the business problem and what is the expected ROI and then we sell into that target and help been measure the ROI that they generate, both in terms of hard dollars they save as well as elevating the customer experience.

In a nutshell, I think that what we see is more and more decoupling of the two decisions. And I would say that most of our customers are mid-markets to large enterprise. I think at the small end of the market, it's different. I think there, there's much less focus on infrastructure and applications.

So it's a different dynamics, but it's not really where Verint is operating..

Helpful. And then maybe just a housekeeping question.

I am sorry, I missed what the Conversocial impact would to the guidance in dollars?.

Yes. So Conversocial, basically we paid $50 million for the company. It's generating about a little bit more than $1 million a month and it was breaking even. So for the remainder of the year, we expect about $6 million dollars of revenue and no contribution to EPS.

We raised guidance for this year $12 million, so this is about 50% percent of the guidance is from the acquisition and 50% is organic. And for next year, because this is going to be over five months this year and seven months next year, it's about 1% contribution to next year growth..

Okay. Great. And then just maybe kind of zooming out a little bit just as we think about, there's been consolidation, as again, we have talked about it. But I want to maybe touch on the company's own acquisition strategy going forward.

How should we think about maybe what the area that you are most focused on, especially now that you have just digested or just completed the Conversocial acquisition? Would it be more on the digital side? Or is there another area that we should be thinking about?.

Yes. So first just to make clear that we set a three-year target for $1 billion in 2024. We said clearly this is organic targets. So we are not trying to manage into a financial number when it customer M&A strategy. It's more about expanding the cloud platform functionality and accelerating growth.

So the areas that we think are very important to us to accelerate is obviously automation and in that regard, I think it's data, AI and analytics. And there's a lot of small companies that have innovation that potentially could be good addition to our platform.

And then around digital, again the changes in that area of the market is so fast that while we innovate organically, we think that a lot of companies that maybe have no revenue or very little revenue could become very innovative very quickly and make a difference. So we are definitely looking at tuck-in acquisitions on the digital side as well..

Great. Thank you again for taking my questions..

Yes. Sure..

Thank you. And our next question comes from Dan Bergstrom from RBC Capital Markets. Your line is now open..

Yes. Thanks for taking my questions. So the SaaS booking mix remains impressive, 53% of PLE bookings from SaaS, up 1,000 basis points year-over-year.

Just given that strength and trajectory here, is SaaS trending towards 60% still the right way to think of the bookings mix for the year?.

Yes. I think that we expect Q3 and Q4 to continue to increase the mix towards SaaS. That's what our pipeline suggests. And we have been 40% last year. So things are moving pretty quickly in that regard.

And I think that's what I mentioned about the second half being easier than the first half, because we [indiscernible] spend less time on making changes to our model and really just looking at what is the pipeline and what do we think customers are going to do? And we also see the customers that tell us that they are going to go to SaaS are actually during it.

Last year, it was more, we would like to go SaaS, but we are not sure yet, I think our pipeline suggest now continued increase in the mix from the 51% to 53% and towards to 60%..

Great. And then maybe one for Doug. Doug, RPO growth, again, remains strong at 29%.

Anything to point out behind the continued strength here? Or is it just as simple as multiyear commitments from cloud customers?.

Yes. I think it's the latter, Dan. So I mean that's going to be a derivative really of the SaaS bookings growth as we build that up and accelerate that, it just adds to the RPO that than waterfalls into the future that we had talked about a few moments ago..

Great. Thanks..

Thank you. And our next question comes from Ryan MacDonald from Needham. Your line is now open..

Great. Thanks for taking my questions and congrats on a great quarter. Dan, maybe first one for you. I think it was you in answering Shaul's first question earlier on the call about the first half versus the second half of this cloud transition.

You mentioned in the second half, it's more dependent on the timing of when your customers want to make that transition.

Just curious, given the positive commentary and the confidence you have got in sort of 2023 and 2024 targets, I would just be curious to know how are those conversations are going with customers and what level of visibility you are starting to see as we get into the back half of this year for migrations within that base as we enter 2023 and 2024? Thanks..

Yes. So what we mentioned in prior calls and on Investor Day was that we think that some of our largest customers will continue to be perpetual. So we talked about when we get to the $1 billion.

We talked about 90% of far software we will be recurring, but there will be around $100 million of perpetual that we expect will not convert to SaaS, not in 2024. I can say that that's still pretty much the case. I think it's concentrated in maybe few tens of customers.

This is the vast majority of our close to 10,000 customers, very much committed to move to SaaS. It's just a matter of which quarter they are going to do it. And this is really based on their individual circumstances. But there are few kinds of customers that are large enough that they don't feel they need to buying a different model.

And having said that, I think what's interesting is that even those large customers are starting to build cloud themselves. So while they may not be moving to a public cloud for a lot of reasons that I think they have good reasons. They are big enough to actually own the cloud.

And we see that they are building cloud and at some point they are going to lead a native cloud architecture. So I think that even if they don't move to the public cloud, they may be moving to a subscription and to our native cloud architecture software. But that's kind of an interesting discussions we are having recently.

But it doesn't change our long term targets. And if any, we are just going to see acceleration in cloud transition, not offering..

Great. That's really helpful. And maybe a follow-up for Doug. Doug, we have been hearing more and more commentary about this idea that the tight labor market is sort of causing companies to fall behind on hiring plans and resulting in higher costs for labor.

Just curious if you are seeing anything of those dynamics within your business today? And if we should expect any impact from a cost perspective as we think about the financial model? Thanks..

I think we are all experiencing it. I think it's harder, not easier. But we haven't seen anything significant enough to kind of alter our model. So we are just trying to weather through it and do our best to get the folks that we want and to retain our existing folks and not impact the cost structure going forward..

Yes. But I think that hiring this year, so far, is on track. So we have hired to our budget and we are able to hire talent all over the world. So we are not just in one area. Especially technical talents, we hire in many different geographies. And I really feel good about our position because we are able to offer a great culture.

I think we are having really good feedback from employees about our customer-centric culture. We are operating in a very interesting, very dynamic market. The customer engagement market is just fascinating. And we have a very clear and strong vision for our platform, which is also exciting for candidates.

So you couple that with competitive compensation and benefits and I think we are a very attractive opportunity for candidates. Because what happens now and this is I think the backdrop to what you described as a very active labor market, is that people make all kind of career decisions post-COVID.

Balancing life and work and change in careers, it seems like it's a post-COVID reaction that maybe people just want to look at different things, But at the same time, when they want to make this career change, they really want to be part of companies that have very attractive opportunities and it's all a relative gain.

So when we think about how we attract talent, it's not just getting them competitive compensation plan, But it's really more important thinking about the overall package of what does it take for a key talent that have options to work in many different tech companies, why would they want to work in Verint and especially post-spin, right, when we finished the spin two quarters ago, we have great momentum, very, very clear pure play vision, I think we are getting really a lot of success with hiring..

Great. It's helpful color. Thanks very much..

Thank you. And the next question comes from Tim Horan from Oppenheimer. Your line is now open..

Thanks guys. I wonder if you have any color on the 400% productivity you are citing now? What that would have been a few years ago? I guess I am trying to get at how much has the product improved over the last few years? And how much it will improve a few years from now? Thanks..

Yes. Well, I can tell you that we made a lot of improvements and I will give you a few examples. But I can also say that our customers are measuring the ROI than they did before. If I look 10 years ago, it was more of an infrastructure kind of contact center infrastructure play where, yes, let's buy some productivity tools in addition.

But things got much more complicated because of the digital transition and the increase in volume, which is really something the industry didn't see. And that increase in volume is creating an engagement capacity gap. So our customers more and more feel like, oh, there is more interactions. I need to add people. But they can't afford to add more people.

So how do you provide your consumers the experience they expect? And with messaging, for example, you go on Twitter and you say something, he will expect the company to act pretty quickly. If they don't, you just assume that they don't care. So things have changed.

And higher consumer expectations, much more volume of interactions and companies cannot afford to hire more people. So the pressure on companies to measure productivity and understand everybody can tell them a story during the sales process and it's easy to produce slides.

But they really want to understand what is going to be the impact on ROI because they can't afford spending more money, but they also cannot afford not to elevate the customer experience. So now to the question about improvement in technology.

So let's look at, I talked before about IVA and gave an examples of Ask Julie, which is an Amtrak automated assistance. And it's all about being able to deflect interactions from expensive channels, like a human person to less expensive channels like a bot.

But obviously, if you force up your customers to go to the bot and they can't get the answers, you are deflecting the conversation away from the human channels, but you are not creating the right level of customer experience.

So how effective is the bot in producing the right answers and clearly deflecting their call to success completion is definitely an improvement in technology. And today, AI technology, much more capable in understanding the intent of the consumer, being able to provide contextual knowledge and respond in real time to consumer requests.

And therefore there is a higher level of successful deflation away from more expensive channels. So just one example of how the cloud is improving and therefore applications not just check the box, but it's really customers really need to measure they purchase an application, is it really delivering the expected ROI..

And are they able to measure now? Are they starting to measure improvements in quality or maybe revenue generation? Because I am assuming the productivity measurement you cited is really just expense yet, but are they starting to measure these software things?.

So we provide in our software many more reports and metrics for our customers to mention.

So over time, we added the ability for our customers to decide which of the metrics are important in their environment and provide them real time reports so that agents can self correct real time report to supervisors so they can coach agents as well as trending reports to management so they see the trends in productivity, the trends in first core resolution and the trend in the deflection and the trend in NPS scores.

Yes, it's becoming more of a science and our software is definitely improving in terms of the metrics reporting that we provide the customers..

So just lastly, I mean, it seems like the product should almost sell itself to existing customers. They are seeing very high churn in their call centers, impossible to hire new people and you have evidence on an incremental basis that you are having major positive impacts on them.

But for lack of a better word, I guess, can you just describe that sales motion to existing customers?.

Yes. So I think that when you sell an application platform, again you starts with identifying a business problem that the customer feel like they want to solve.

And some customers really don't know what they want to solve and they use consultants or advisory firms or system integrators to decide what is their most important business problem, But where our sales force come in is discussing the different problems and discussing what is the potential RI and then being helpful to the customer to decide what is their journey going to look like.

And some of our customers have tens of thousands of employees. We discussed before this customer engagement is very labor intense. So they are willing to decide what is the priority and how they want to change management internally in order to drive this ROI. I think a number of things are changing now and our customers are responding well.

But it's something that they need to absorb. So historically, we sold applications on a seat basis, right, 10 years ago, almost entirely, we sold the portfolio on a seat basis, A cloud platform today is on a volume basis. Because when we talk about like IVA and robotics, there's no seats. They are bots.

So you basically charge the customers by the volume, the number of questions that consumers are able to complete by asking the bot and that's volume based. Now, what's interesting think about that is that the move or the customer shift the questions to the Verint solution, the more they pay Verint, right, because they pay us by volume.

But if you think about it every call that they deflect from a voice channel or digital channel, they serve a lot of money, That's basically a win-win decision. They will pay Verint more, but they will pay other vendors much less. And they will not have to increase their workforce. So this is the discussions.

Customers need to the decide, okay, if our priority is call deflection, we need to implement a certain technology and now we need to choose which of the vendors out there is going to be able to provide us the ROI that we expect..

Very helpful. Thanks so much everybody..

And thank you. And that is our last question. I would now like to turn the call back to Matthew Frankel for closing remarks..

Thank you operator and thank you everyone for joining us today. Of course, feel free to reach out with any questions you have. And we look forward to seeing you soon. Have a good night. Take care..

This concludes today's conference call. Thank you for participating. You may now disconnect..