Great. Thanks, everyone, for joining us today for Needham's May Conference. My name is Mike Cikos, and I'm the lead analyst here covering Cognyte. I'm pleased to say that we have with us today the CEO and CFO of Cognyte, Elad and David. Thank you to both of you guys for joining us. As part of this, I guess, webcast that we have the next 40 minutes, I have prepared Q&A on my side. If anyone has any questions that they want to lob into the management team, please feel free to send those in, either using the chat box, or you can email me at msikos@needhamco.com. I'll make sure we get to that while we have Elad and David here. Before we go any further, just thank you again to Elad and David. Thanks for the time. We really do appreciate it.
Thanks, Mike. Pleasure to be here.
Thank you.
Absolutely. Before we dive in, again, you guys have been in the public markets now for a handful of years. But for anyone who's newer to the name, can we just start super high level with a quick overview of Cognyte, whether it's the history, the value prop? Let's start there.
Sure. Cognyte is a software-led technology vendor. We are in the investigative analytics domain. Our customers are primarily security agencies like law enforcement, national security, national intelligence, and military intelligence agencies. We help them accelerate investigations, speed accuracy and success rate, and actually eliminate the unknown. They have lots of unknown. We do it by helping them to fuse and analyze their data, which is high volumes, high diversity of data, and convert it into critical insights quickly. Time is critical when it comes to security. By that, they can identify, investigate, and prevent terror and crime, which we all know that the price tag for not having it on time is actually human lives and financial damage. We operate in nearly 100 countries. We have hundreds of customers. We are in this market for over three decades now.
Awesome. I know it's been probably a little bit more than a month now since we got the most recent earnings update. Again, just given that, can we go through key takeaways, especially since right on top of that earnings report, you guys also had the first-ever analyst day as a publicly traded entity. Just a reminder for folks as far as key metrics and takeaways that we got.
Yeah. We closed fiscal 2025 strong. We delivered double-digit revenue growth and a significant year-over-year increase in profitability. Revenue grew by approximately 12% year-over-year to $351 million. Our profitability grew significantly faster than revenue. The non-GAAP gross profit increased by approximately 15% year-over-year. We generated adjusted EBITDA at $29 million. This reflects more than three times what we had previous fiscal year. We had very strong cash flow for operations of $47 million. Our results actually highlight the significant value we delivered to our customers for many years, the strong execution, and the strength of our business model. With this healthy demand, our market reputation, customer base, and advanced technology, we believe we're well positioned to continue and grow the company profitably.
Great. It came with some financial targets as well. I just wanted to start with that. I'll ask this one to David and give Elad a little bit of a break. When I think about some of these multi-year targets, I think one of the things you guys just reported is 12% growth. The back of the math envelopes suggests you're doing a 13% CAGR over the next couple of years. Slight acceleration, but not much. Is all that expected to be organic growth, or is there any acquisitions assumed to drive that target?
When we put the plan, actually, we looked at our current business environment, and everything is assumed our core technology. We're a very strong technology, and we have a significant install base. We have our customers with us for a long time, and they are continuing to lend and expand. On top of us, we are assuming that we will gain more new logos. Last year, we gained almost 60 new logos. We are also penetrating into the U.S.. We took everything together, and this is the way that we are thinking about the future. It's mainly our core technology and based on our ability to execute.
Excellent. I know from the main standpoint, a lot of people have looked at what the, I guess, some of the headlines out there and some of the different data points. Now that we're through the first couple of months of this year, where is it your customer conversations are centered?
Where is, sorry, continue?
Where are your customer conversations centered? Are customers focused more on specific features or use cases?
Yeah.
Has there been any change in demand or tone of conversation, just given some of the geopolitical uncertainty out there?
Yeah. Okay. Actually, it's all of the above. We all witnessed that the world is not getting safer. Customers have to deal with different and evolving forms of terror and crime. The bad guys are becoming more sophisticated, better hard, well-funded, well-organized. The demand drivers are healthy, which means data is growing in diversity and volumes. The adversaries are becoming more sophisticated. The technology is running very fast. Customers have to deal with all of those demand drivers, which means they have to expand in order to be able to cover everything. Either it's data or more users. They have to update with more functionality in order to implement more analytics, more AI in order for them to be able to uncover more hidden insights after the same data sets and also simplify the work of their analysts.
They also have to make sure that they are ahead of the bad guys in terms of technology. The market is very dynamic, and customers have to deal with all of the above to upgrade, expand, and even get more departments into this effort within the agency and buy for other departments as well. We get very positive feedback on the strong value we deliver to our customers. Some of them also share with us impressive success stories about saving lives, about preventing financial damage. We are very happy to hear those stories. We also see that customers willing to adopt more AI is there. More customers are buying upgrades in order to have more AI in their solutions. In terms of the geopolitical uncertainty, we all see what happens around us.
I mean, over the last few years and to a greater extent during the last few quarters, we witness increased uncertainty across the globe. If it's the new tariff, the conflict in Ukraine, Russia, Israel, Houthis, very recently, India, and Pakistan, almost everywhere. Regardless of those geopolitical situation and unrest, security threats are there. Crime continues, terror continues, and evolving. And our customer security agencies have to be successful in their missions. We do expect that the demand drivers will intensify and the potential for Cognyte will grow along the way. Security agencies must address these security threats. It's not a matter of whether they want to or need to. It's a must. It's a mission-critical technology. Without this technology, actually, it's very difficult for them to be successful. To summarize, there is unrest in the world. It creates more security pressure.
Even without it, crime and terror continues. The demand drivers, data, technology, adversaries is very healthy. We believe that the demand will continue to grow, and our opportunity for the future is strong.
When you guys look at the pipeline or you talk to your sales team, again, I'm understood that the secular demand backdrop remains consistent, right? I think that's been like a very important highlight that management has pointed to now for some time. Specific to the pipeline or the deals with your existing customers, are you seeing any movements as far as deal cycles elongating potentially or contract sizes actually shrinking because people are nervous about budgets in this environment?
Not at all. Actually, we do not see changes in customer behavior, purchasing behavior. We do see actually very, I would say, consistent behavior of customers discussing with us, engaging with us, checking what else they can have in order to make their missions more successful. We did share in the last few quarters a repeat business coming from existing customers, including very large renewals and upgrades and expansions. We do not see this kind of trend of elongated sales cycle. It is not what we see today. We do see that the demand drivers are healthy, and we execute on it.
If I shift to the guidance for a second, maybe to come back to David, but I know that you guys have spoken about the significant visibility that this business model has, which can leg into the revenue. When you guys formulated the initial fiscal 2026 guidance, can you help us think through what are the team's key considerations when presenting that to shareholders and people on the outside? What is it that you guys are looking at at the different data points you're triangulating?
Obviously, we look at multiple KPI error and data points to give us the confidence about our guidance. We look for the first thing, we look at the demand environment, what we know from our customers, what we hear from our customers. Given the fact that we are three decades in the market, we have a very long relationship with the customer. The other thing is risk performance, what we are doing quarter- over- quarter, and we see the trends. We have the CRPO that plays a role and recurring revenue and contract liability. We took everything together. Based on that, we are building our guidance. If you look at this year, we entered with a very good momentum. I would say it's a consistent momentum that takes place over a long period already. We have healthy demand. We have a strong recurring business.
We have a strong RPO, short term and long term. Everything creates this good visibility that allows us to guide. Actually, we are very pleased with the revenue guidance that we issued. We issued guidance for FY2026 of $392 million ±2%, which would present around 12% year-over-year growth.
Great. When you guys went through the exercise of the analyst day and provided us with three-year financial targets, I think it's interesting. One of the things that I received as far as a talking point from clients is like, why is now the right time to be putting a medium-term model out there? Before we even get into some of the pieces with the analyst day itself, let's just tackle that. Why was now the right time for Cognyte to go out there with this medium?
Yeah. We thought it's the right timing for a few reasons. The first one is that we see consistent good performance over quite a long period. This is one. Second, we do see healthy market demand, which means that the discussions with our customers are good. Their needs, current and future needs, are out there. The reputation of Cognyte in the market is very good. This is another data point. The third one is good visibility. David just mentioned the short and long-term RPO, which is very strong. Combining all of this together, market trends, consistent execution, as well as good visibility into the future, gives us the idea that this was the right time to share our story and to retarget in the investor day.
I know you just said the word execution, right? I'll bring it back to what we were just talking about with David. The company has significant visibility, and now it's giving that a peek or a window into that visibility to the investor base, right? On that execution standpoint, to deliver against those fiscal 2027 or 2028 targets, from where you guys sit, what's the most important initiatives that the management team, the team needs to execute against to achieve those targets?
Yeah. When we look at our growth potential and growth initiatives, to begin with, it starts with investing in technology that will continue to be a leading technology that creates and generates significant value to our customers. When customers are successful with our technology, they'll buy more. This is one. Technology is one thing. It's about being able to uncover more hidden insights, what we called in investor day, eliminate the unknown. Actually, we help our customers to uncover more hidden insights, including from encrypted traffic, in order for them to be able to put their hands on the bad guys and answer many important questions like who is going to do what, when, with whom, where, et cetera. Those kinds of questions are critical.
Given that, again, the adversaries are becoming more sophisticated, hiding, using encrypted applications, using encrypted channels for fundings, it makes the lives of the security agencies more complicated. Actually, our mission is to make sure that we keep them one step ahead of the curve. This is one. Second is related to existing customers. We operate in nearly 100 countries. We have hundreds of customers. It is important for us to be able to deliver upgrade path for each and every customer, which means upgrades, expansions, more use cases, and sometimes to sell to more departments within a security agency. The repeat business and being able to leverage on our customer base is another pillar. The third pillar is acquiring new logos. Actually, our strategy, go-to-market strategy, is learn and expand. We know that when you acquire new customers, sometimes they start small. Usually, they start small.
Over time, they buy more and more and expand and upgrade with us. It is important for us to focus also on acquiring new customers. This is another pillar. The last one is the U.S. market. We have decided that we want to expand presence in the U.S. market. We do it gradually. We started with state and local. We continue with federal. This is another growth pillar for us. It is about technology, leverage on existing customers, acquiring new ones, and expand presence in the U.S.. Those are the main, I would say, growth pillars.
Great. For David too, I know, again, there were some pretty impressive margin targets put out there as well. I am trying to get a better understanding or at least tease out for the audience as well. Can you walk us through the dynamic about how you balance that, I guess, low teens, revenue CAGR outlook, that growth versus the profitability and the expanded margins that you guys are looking to drive at?
Over the years, our focus remains on driving revenue growth and margin expansion. Actually, if you look at the quarter- over- quarter, we're able to improve our profitability significantly. Last year, we were able to almost triple our adjusted EBITDA while we were growing 12%. This is the way that we operate our organization. When we're making our investment, we are consistently thinking with this approach. This is how we decide where to invest to drive growth with leverage. We expect that this will continue to drive the growth and the acceleration. We target revenue of $500,000,000 by FY2028 and adjusted EBITDA of over 20%. The major profitability will come from better gross margins. We're aiming to have a 73% gross margin and leverage related to our OPEX.
I think one of the things that was impressive when we were running the numbers on our side is that to achieve that fiscal 2028 target, it's more than $0.50 for every revenue dollar is dropping to adjusted EBITDA. I think it's low 50% as far as incremental margin. I wanted to get a sense, it would seem that there is a significant amount of fixed costs that you guys are just driving leverage against. If we think about even beyond $500 million as the revenue in fiscal 2028, would you then need to start tacking on a significant amount of OPEX costs or no? There's still even more margin to drive in this business over the longer term?
Obviously, over FY 2028, we will see where we are. In general, the business is very healthy, meaning that we have a very strong, I would say, technology. Over the years, you can see that the level of R&D investment is relatively high. We continue to plan to invest more. There is leverage, and the leverage is because we are able to drive with our technology to more customers. By acquiring new logos and expansion within existing customers and penetrating into new regions like the US, that allows us to be more with a better leverage. This is the reason you see also in the last few quarters and also when we are guiding for this year and for the future that we are able to leverage on that. It may be coming from, again, from gross margin.
The other pillar is the R&D level to revenue, which will create for us some leverage.
I should ask this earlier. With your existing customers, can you give us a sense what's the average contract length?
Most of the customers, our customer behavior is perpetual license. Meaning they're buying the perpetual, and then they place support contracts. Usually, they buy support contract between one year to up to three years. I would say the nice thing about our business is the reoccurring business. When I'm saying reoccurring business, it's the idea that when customers start with us, usually they need expansion. It could be expansion related to data capacity. It could be more functionality. It could be more use cases. It's a journey. You start with the customer, and over time, they're adding more and more business. Again, the license in most cases is perpetuals. The support in most cases is renewed. It gives us more business over time.
When you look at the support contracts as an example, I'm trying to get a sense that I have to imagine is like a tell or helps you underwrite what next year looks like, just given that renewal base that you have coming due. Is there reason to think that fiscal 2026 or fiscal 2027 or 2028, are any of those years a larger renewal year? Or are each of these years about on average with the others?
In general, these variety, I would say the large range of renewal deal size, it mainly depends on the customer install base and the terms. Because not all the customers will acquire a contract for three years. There are cases that will buy for one year. The other one is for three years. It truly depends on the specific customers and specific country purchasing behavior. This is something that I think it was March when we issued a press release about a very large deal that we have a support renewal. It was a three-year deal with annual support renewal of more than $20 million. A very large one that took place this year. It really depends on the year, what is upcoming to renewal.
Everything, even when we shared our guidance for this year and we look on the three models, we took everything together in our plan, and it's baked into these numbers.
Okay. I know you had spoken to data capacity, use cases. A lot had mentioned some of the new capabilities coming in from AI as an example. Can you talk about, and this probably comes back to my earlier question as far as where customer conversations are centered. When I was asking about the customer conversations, initially, it was more around macro geopolitical uncertainty. If we change the question slightly, when customers are coming to you today for new use cases, are there more dominant use cases that are coming up today that are driving that expansion motion with your existing customers?
Yeah. It is different and changing between one territory to the other. There are certain territories that are more concerned about border control and border security, illegal immigration. This is primarily military intelligence and those that are responsible for borders in certain territories, which is becoming an issue in some countries. In all countries globally, law enforcement is doing things similarly, which means everybody is fighting drug trafficking, human trafficking, organized crime activities. This is more common. If I look at law enforcement agencies, it is all kinds of crime all over. This is quite similar. If I am talking about national security and military, it is a little bit different use case between one country to the other. Certain countries are more concerned about external threats that are coming from neighboring countries. Others are more concerned about internal terror activities.
This is about the security pressure in each and every country. Generally speaking, what we do see is that, I would say, the borders are blurring. If there was a clear distinguish, or you could clearly distinguish between, I would say, terror activities and crime activities before, today, this is not the case. Actually, I urge and encourage everybody on the line to view the IRD replay that we have in our website. It is only one hour. It will give you lots of color about the market, about the challenges of our customers, about the technology, and also about this one, that the borders are blurring, which means today, funding of terror and crime is sometimes the same. Actually, they have to use specific ways to do funding without being exposed. They now utilize similar ways to fund themselves, to organize themselves.
We do see this quite globally. This is another trend that we see today, that crime and terror are no longer totally separate. They are becoming more involved one with each other. This is another area where customers need our help. We do take into consideration also future concerns that customers may have based on what they tell us. All of them are concerned about terror that is growing. Actually, each and every country on the globe, I think, is concerned about internal terror themselves. If you look at specific use cases, generally speaking, crime activities, criminal activities all over is quite similar. Border external threats are different. You can assume that what happens between India and Pakistan now is more border related. What happens now with the Trump administration is some of it is border related.
Still, the state and local law enforcement agencies have to deal with the day-to-day crime. So that's what we see in the market today.
Just the last thing on the analyst day here, again, back to David. For the 13%-ish revenue CAGR to drive at $500 million in fiscal 2028, can you help us think about what the basic building blocks are? What I mean by that, understood that 85% or 90% + of your growth each year comes from existing customers. If I take that, again, the 13% revenue CAGR, is it two to three points a year from new logos? Maybe four-ish % is coming from price increases. The rest is data capacity and AI upgrades and use cases. How do you look at to drive at that 13%?
We've seen that when we look at the future, we see three main pillars. The first one is the existing customers, like many existing install base and the customer that we have. There is with them few options to grow. One of them is data capacity. Given what happened with data, you see more and more data. The data is growing. That drives more demand. Functionality, we are innovating on a daily basis. Innovation is playing a significant role. Customers need more functionality that creates additional expansion. Actually, when we are sharing data about expansion, expansion could be even $5 million, $10 million. This is a significant expansion. It could be related to data capacity. It could be functionality. In a lot of cases, it's a combination. Usually, when they're doing this type of expansion, this is what happens.
The third element within the existing customers is the additional use cases. You can see that within the organization, they need more use cases to deal with. Elad was speaking about the changes in the market that you see more. The boundaries are changing. They need more use cases within the same organization. That is what we see in the existing customer. I did not quantify it because we need all three of them in different, I would say, the weights will allow us to get into the FY 2028 target of $500,000,000. The second pillar is new logos. With new logos, last year, we ended with more than 60 new logos. Usually, the case is that new customers start with small deals and increase over time.
We shared a few successful stories that customers may start with a few hundred thousand dollars and then in two years' time can do already $2 million. The journey, I would say, is very important. Given the fact that once you start to work with the customer, you can demonstrate the value, work with them, and build, I would say, a roadmap with the customer where they want to be in the future so they can plan around it and build their budget towards that. The third element is the U.S. opportunity, which is a significant opportunity. The U.S. represents a large market with a lot of opportunity for us. We are in a penetration mode there. All these three pillars will play a role in different ways.
Obviously, we have enough room to get into this target of FY 2028 of $500,000,000.
On the go-to-market point too, I know you just said the new logos. That is something that I think investors are aware of, how management has been more transparent or aggressive. I do not know how to phrase it right now. You guys have been pointing us to the volume and growing number of new logos that are coming into contact, which has been great. I would love to get a better perspective of the new logo acquisition initiatives that you guys have. What do you have in place to ensure that new logos continue to come to the Cognyte platform?
Yeah. So when it comes to new logos, usually, we have to either replace incumbent that is a commercial vendor competitor of us or to replace someone's solution. The way we do it is usually we encourage customers to go for a POC, proof of concept. When we go to a proof of concept, it's easier for us to present the superiority of our technology and the significant value we can deliver compared to others. One is to encourage customers to go for a POC. Second one is we look at the opportunity, the current opportunity, but also the future opportunity. If we believe that customers can become significant customers for the longer term, obviously, we'll invest more in order to acquire these customers. We'll invest in more sales and marketing activities, more POCs, more demos, et cetera.
We also have marketing events, ours and industry marketing events, but also our specific marketing events. The last one was back in November last year when we invited customers from many countries. Last year, it was 70 countries that participated in this event. Some of them are new potential customers. Others are existing customers. Actually, we attract them with the technology that we have, show them the value, present to them how we can solve many different use cases with technology that is building blocks that they can update and evolve over time. It's not necessarily that they need to go now for a huge installation, but they can do it gradually in a way that is easier for them to absorb. We make adjustments and prioritizations to a go-to-market. It depends on the opportunity and where the security pressure is and where the budgets are.
I believe that the combination of the advanced solutions that we have, customer references, we have also customer references that help us, a global presence, including people close to customers that are sitting in the customer's countries, and the reputation for the last three decades, all of them are helping us to acquire more and more new customers.
Great. The U.S. market is a large new territory that Cognyte is addressing, right? For historical context, why is it Cognyte has not been in the U.S. market before now? Secondly, where are we in building out that U.S. motion for the company?
Yeah. So we were part of Verint. Part of Verint, the focus of the security business was rest of the world and less in the U.S. market. For that reason, we were unknown, I would say, almost unknown as a security vendor in the U.S.. We've decided after the spin-off, we've decided to change it and to create brand awareness, brand recognition, and to start acquiring new customers, start with state and local operational units, and then move to the federal agencies' operational units, the law enforcement federal agencies' operational units, and do it gradually, step by step, do it right without any mistakes in between. Why now? I explained why now. Because now we are standalone. We can take our own decisions. We believe that the U.S. market presents lots of opportunity for us.
Obviously, there are many security agencies out there in all levels, state and local and federal. Second, decided to start with state and local because it's easier to penetrate. We are pleased with the acquisition of new customers and also follow-on orders that we already seen in the state and local market. Now we are engaging with federal agencies. We have partners with us in order to do that. We also sit in front of the potential federal customers. We know that it will be a longer sales cycle. We know that the investment level in POCs, demos, and engagement will be higher than what we experienced in the state and local. We go there with open eyes. We are very determined to make this happen. Actually, we had already a few POCs with federal agencies with very good and successful results.
We will work hard in order to have the federal market law enforcement agency side with us. We are very happy with the progress we have made so far. We intend to continue and invest more and more in the U.S. over time in order to grow it and have more and more customers with us.
We probably have time for maybe just a couple of more questions here. Just rounding out the understanding on go-to-market for the U.S. market specifically, can you talk about where we are or the strategy first, again, for some of the newer people here? Are we going direct versus indirect? If we are going indirect, where are we in establishing some of those reseller or partner relationships?
Yeah. Go-to-market strategy globally and in general always was to increase the market reach as much as we can, either to hire more sales and marketing people or acquire more partners or increase the partner network, expand the partner network. We do both. Actually, globally, that is our strategy for many years. We do the same, exactly the same in the U.S.. We started with state and local direct. The reason we started direct is we wanted to have high touch with customers because we are a newcomer. We wanted to make sure that we fully understand the market needs, that we are very close to customers, that we get feedback and respond to it immediately. In state and local, we already started to have also partners there.
With the federal, we've decided that in day one, we will start with partners because we need the market reach that we didn't have. We have a few partners already that are working with us with federal agencies. The federal agencies know that it's Cognyte technology. Cognyte employees, including myself, are meeting and discussing with federal agencies as well. It is about accelerating market reach as much as possible. We combine both direct and indirect.
The last question I have for you guys is more from the, I guess it's go-to-market and tech wrapped in one, right? On the go-to-market with the expansion into North America, how does the competitive landscape change? The tech question that goes into that is, does GenAI or AI technologies more generally benefit you guys versus some of your competitors? Are they doing enough to invest in their solutions? Are you guys actually seeing win rates improve for your side?
Yeah. In terms of competitive landscape, we are global. We address many different use cases in many different territories. The competitive landscape is quite fragmented for us. Penetrating the U.S. did not have any material change in our competitive set. In the U.S., as I mentioned before, we are focusing on operational units in law enforcement agencies. Usually, the competitors we see there are Eldred Harris, Jacobs, these kinds of competitors. In terms of GenAI, it presents a huge opportunity for us and for our customers. The reason is that investigation is a process. It involves many data sources, new leads that are coming in during the process of the investigation, governance requirements, holistic intelligence pictures that need to be uncovered. GenAI can help in two ways.
The first one is to uncover more hidden insights, including out-of-encrypted data, in order to understand and be able to answer questions like who is going to do what, where we turn, why, where are the funding coming from, et cetera. Another way to look at GenAI is actually to simplify the process of the analyst and make their lives much easier just to access the technology in a very simple and human manner and get very sophisticated answers without being required to understand the technology, the data sets, et cetera. In two ways, this is a very strong capability for our customers. I can tell you that having a standalone AI capability does not really help our customers. They need to implement it and integrate it into the investigation process, the governance, et cetera. What we are doing quite successfully is two things.
First, we do use AI capabilities, strong AI capabilities that are available in the market. We also develop, and we have a new CTO with us, and we have an AI team with us for a few years already. We develop purpose-driven AI capabilities, machine learning engines in order to solve specific needs that are relevant for investigation, security, et cetera. The combination of those two that are integrated into the platform that the customers have today with all the data management and governance management and the feeds that they get from many data sources actually presents a very strong value for our customers and opportunity for us to continue and grow and upgrade the customer base and maintain leadership.
Terrific. That's great. It's a great way to wrap it up here. I know we're out of time here. Thank you a lot, David, and to the audience for joining. Any follow-ups, please feel free to reach out. We'd love to make sure that we missed the intro here. Thank you, guys. Take care.
Thank you, Mike. Take care. Bye-bye.
Bye-bye.