Thank you, everyone, for joining us today. My name is Mike Cikos. I'm the lead analyst here at Needham, covering Cognyte. Pleased to say that we have with us the management team from Cognyte. CFO David is in the front here, as well as Elad, the CEO. We're going to go through a fireside chat format on our front. I have some prepared questions I'd like to go through, but really the whole purpose of this is to make sure that we're telling the story properly and benefiting you guys. So if you have questions, please feel free to float them up here while we have Elad. We'll do our best to get to them. Also, it just always helps the conversation to have your smart questions coming in on top of mine. But with that out of the way, Elad, thank you very much for joining us today. Thank you for hosting us, Mike. I think super high level, based on some important client feedback before I launch right into it, but Cognyte, what is it you guys do? What is the founding vision for this company? Yes, so we are focused on investigative analytics. We are in the market for three decades now. Actually, we help our customers to be able to investigate faster in order for them to identify and neutralize threats before they unfold. Actually, our customers are facing a more challenging environment. Adversaries are becoming more sophisticated. They hide their identities. They hide the movements. They hide the relationships. They hide everything they do, and actually, it's becoming more complicated for our customers to put their hands on them. On the other side, adversaries still have to move. They still have to have access to money and to trust their money. They still have to communicate in some way, not in normal ways, but in certain ways. Actually, we help our customers using the data in a very smart way and fuse and analyze it at high scale, at high speed, in order for them to be able to convert the raw data into actionable insights. By that, actually being able to identify those threats and stop it before it creates damage to lives or significant financial damage. We are in this market for 30 years. We are operating in about 100 countries. We focus on law enforcement, national security, and national intelligence agencies. Those are the main customers that we have. We stick to a strategy of land and expand, which means that we focus on giving our existing customers cross-sell and upsell opportunities, and obviously also to acquire new logos as we go ahead. Very happy to be here, Mike. Thank you. Excellent. Excellent. Excellent. And I know you're already starting to hint at it. I guess you're talking about the fusion of these different data sources to deliver those analytics. But can you talk about just some of the secular demand drivers which are necessitating this sort of solution for your customers? Sure. So again, our customer's mission is to identify threats, neutralize it, and actually safeguard societies. That's what they need to do. And different organizations have different objectives, but all of them are at the same. Keep going. Yeah, at the same area. As I mentioned before, there are two main demand drivers that are making our customers' life more difficult. One of them is the adversaries. They are becoming more sophisticated. They also use technology. They use AI to fake their identities. They use the dark web. They use the cryptocurrency environment to hide their money transactions. So actually, it's very difficult for security agencies to understand the intentions, the funding sources, and the relationship of those either criminal or terrorist groups. This is one demand driver which is intensifying these days. We all read papers. We all see news. The world is not getting safer. The second element in the demand drivers is related to data. Data is growing in diversity and volumes, which means that customers need to be able to fuse and analyze more data. Still, they have to get into conclusive outcomes very fast because security and timing is critical when it comes to security. That's exactly what we help them do. We help them with strong technology, being able to fuse and analyze data in a very sophisticated and effective manner and convert it into insights. When I'm saying convert it into insights, it's also using or utilizing strong AI and machine learning capabilities because some of the insights are hidden insights. For example, in the cryptocurrency environment, usually transactions are anonymized. We help customers to de-anonymize who is behind the specific transactions that might be related to criminal activities or terror activities. Same goes for the entities. The adversary uses fake entities, and we help customers to identify who is behind it and actually give them a full intelligence picture of what's going on, who are the potential bad guys, what are their intentions, what are the funding sources, and by that, help them to neutralize those threats. I know we talk about the evolution of the criminal activity out there. I'd be curious to get a sense, based on your customer conversations, are customers gravitating to a certain piece of Cognyte's offering more frequently today versus a couple of years ago? How has that evolved from where we stand today? Yes, so there are many different use cases that we are covering, so if I'm talking about criminal activities, it could be related to financial crime. It could be related to illegal trafficking. It could be related to drug trafficking, border control, many things. When it comes to national security, national intelligence, it's more related to terror threats, so customers, also in good days, not only in when it's not they don't need the solution only when the security pressure is high. They need it all the time and need to be prepared for the dynamic environment that is running fast to be able to address their challenges before it happens, so we do see today that the focus of our customers is to uncover more hidden insights out of more data sources. That's the focus, and for that reason, our main objective is to help them with strong analytics. Analytics is an important measure here. Analytics, including machine learning, AI, to uncover more hidden insights out of the same data sets that they have and by that, help them address their growing challenges. Great. And I think it was late last year you guys held a summit, right, with customers attending. Can you just help us, again, better understand where are those conversations centered, the volume of customers that are engaging with you, the type of persona from those customers? Yeah, so November 2024, last year, a few weeks ago, we hosted 300 attendees in what we call Global Intelligence Summit of Cognyte, 300 attendees from different countries, actually about 70 countries joined us, existing and potential customers, and we had three objectives in this summit. Of course, to present the power of the company. The second one, which is very important, is to help our customers understand that while their challenges are growing, we do have the technology that they need in order to address it, so they were able to see demos. They were able to touch the technology themselves. They were able to go into expert discussions, and the third idea was to let customers communicate with each other. Actually, one of the customers by the end of this event came to me and told me that it's amazing that a commercial company became an infrastructure for the intelligence community to talk to each other. Actually, they don't have many opportunities to do that. And the discussions were around what will be the future challenges of the customers. And the future challenges of the customers are similar to what it is today, but in different frames related to technology. And for example, technology disruption is something that we need to identify today in order for us to be able to help them tomorrow. A few examples. If we go back, the data was clear. Today, everything is encrypted. So actually, we need to help customers. We do not decrypt data, OK? But we do have machine learning, strong machine learning algorithms that can actually analyze metadata that is encrypted and find ways to find relations, to find identities, to find intentions. And this is exactly what we're trying to do now. We do see that those, I mentioned before, that those challenges are intensified. Actually, demand drivers are intensified. Why? Because first of all, data continues to grow. But we do have the 5G that is launching around the world, right? So 5G is not just a nice tool for us to browse faster in our devices. But when it comes, it allows more applications to be launched, more bandwidth, which means more data, more new applications that the bad actors can use in order to hide even better. And we need to prepare now in order for our customers to be able to address the challenges tomorrow. We help our customers, first of all, to understand what's going to happen in terms of technology disruptions in the future, listen to them, and really understand what are their current and future needs, and actually tune our roadmap accordingly. While we are a technology company, a software vendor, we also have domain experts with us. We just reported that a couple of months ago, Mr. Tim O'Callaghan joined us after 26 years serving in the U.S. Marshals. Domain expert knows the market, knows the needs, and he will also help us to enhance our presence in North America. Recently, we also had the pleasure to have Nadav Argaman, the ex-head of the Shabak, the Israeli security agency, as an advisor, again, to help us with his domain expertise, but also to enhance market reach. Actually, we look at the market not just as a vendor that delivers technology to our customers, but as strategic partners for our customers to help them understand what are going to be the next challenges and how we can help them address it. It was a very successful event, and I believe it will help a lot with our land and expand strategy, which means repeat business for existing customers with cross-sell and upsell, and also acquiring new customers. We had very good results in doing both this year. Excellent. And just to come back to that element on the persona, so who is the one who's ultimately signing off on a deal with Cognyte? Is it the Chief Security Officer? How does that flow through? Yes, so it's different between one organization to the other. There are certain organizations in certain countries that the IT is the most critical element in the decision-making process because they have to make sure that the product is secured and that it fits into their environment and that they can feed the data sources in a secured way into our platform. In most cases, the main influencer and the decision-makers are the intelligence units themselves, those that need to get the mission done, so when we go to a green market like in North America, which we are focusing more now than before, we are trying to cover it from all different angles. We are talking to the working levels and encouraging them to go for POCs. We have a proof of concept. Use the technology, try it, and see the value. So they influence later on the decision-makers and help them take the decision to move to us. We also do it the other ways. We have direct and indirect sales. We use resellers. We use partners. And we use also individual contributors, as I mentioned before, for example, Mr. Tim and Mr. Argaman. Both of them are helping us to enhance the access. So actually, we try to cover the entire ecosystem in order for us to be able to grow our market reach. When you guys have won that deal, the customer decides to go with Cognyte, are they typically replacing a previous solution, or is most of this market still manual, do-it-yourself? Where is that flow? Yes. So when it comes to advanced customers, usually they have something, either a competitor equipment or it could be in-house capabilities. Some of the advanced organizations have their own R&D. But many customers found it not so effective because if you develop something one time only for yourself, you do not benefit from the knowledge of the entire market. It's very expensive to develop only for yourself. So actually, it's ineffective. It's costly. And you cannot keep pace with the technology that is running very fast. So customers, also customers that used to do things internally with their own R&D, now they prefer to go to the commercial market and they come to us. There are deals that are running as an RFP. And actually, the bids have to be attractive. It's not necessarily price. Sometimes we offer double or triple the price, and we still win. And the reason is that you have to go through a really deep evaluation and to make sure that what you say you can do, you're really doing. And for that reason, we encourage customers to go to POCs. In other cases, it's a sole vendor. If a customer starts with us and they now want to expand and update their solutions, they come to us. They cannot go to another vendor to update our solution. And it's important to understand that while we sell in perpetual license mostly and support contracts, the behavior of the market is recurring, which means that it's not a TV. It's not that you buy a TV, and until it's broken, you don't buy a new one, OK? You buy a platform. And then, as I mentioned before, the data volumes are growing. You need to upgrade the capacity. There are new analytics and AI capabilities, and you want to get the greatest and latest, so you have to upgrade by functionality, and then you have another department that wants to use the solutions, so you have to increase the amount of users using it, so it's a dynamic world, and it's a recurring behavior of customers, so when they start with us, they usually expand. In the last two weeks, we just issued two press releases with examples of North American state and local customers who started with us. One started with us a year ago. One started with us two years ago, and we got the third deal for each one of them, so it's something that is growing, and although it's perpetual license, it's a recurring behavior of customers. So let's talk about that for a second, right, the North American market opportunity. Where are we in building that out? And maybe for context for the audience here, Cognyte has not historically been in North America. So what was the decision to remain out of that market? And now that we're expanding, how has that build-out gone? Yeah. So if you remember, we were part of Verint until 2021. And we spun out of Verint. Verint's strategy was different. Our strategy is that the security, which is what we do actually at Cognyte, the opportunity in North America is significant for us, and we should play in this playground. We took a decision to expand presence in the US. And we are very focused on doing it. Actually, what we did is we decided to start with state and local law enforcement agencies and go to their operational units. There are many different units, operational units, investigation units within each and every agency. We are very focused on operational units in the state and local law enforcement agency. We are pleased with the progress we've made so far. Actually, we're able to push out incumbents. By the end of Q3, we had 10 new customers coming from North America. We do see follow-on orders. We get very good feedback on our technology. Actually, David and myself met one of the customers this week on Monday, and actually, the customers recognized the superiority of our technology compared to competition, compared to what they have today, so this is a mission in progress. We are also making efforts to enhance presence and to go to the federal law enforcement agencies, again, to their operational units. We engage with them. We are discussing with them. We are meeting with them, and we had a few POCs with some of them, very successful POCs. We know that the sales cycle for a new vendor for the federal agencies is longer. We are aware of that. We will continue to push. I believe that we'll be able to make this happen also in the next few quarters. Excellent. Excellent. And And as you guys are pushing into the North American market as well, whether it's state and local or federal, are you now bumping up against a different host of competitors versus what you've historically seen on the international theater? Yes, so if we look at our competitive landscape, given that we are operating in 100 countries and given that we support law enforcement, national security, and national intelligence agencies, and given we are covering many different use cases, we see different competitors in different territories, but also different competitors for different use cases. So the answer is yes, and it's relevant also in the U.S. We do see competitors in the U.S. that are playing here and not playing outside of the U.S. I'm sure you've gotten the question. It's probably a smaller component here, given North America is a newer opportunity for you guys. But with the resolution now that we know we are going to be under a Trump administration for the next four years, is there any thought processes for how that might impact demand for a solution like Cognyte? Yes. So I've met in the last few months many customers, existing and potential ones. They all believe I can't predict. But they all believe that under Trump administration, the security will get higher priority. And by getting higher priority, maybe more budgets will come. I remind myself I want to be excited about this. But I remind myself that government is a huge ship. It takes time to change things. But I do believe that with the administration or without the change of the administration, for us, given that we are newcomers to this market, the opportunity is significant anyhow. Whether they change the priorities or not, I think there is a lot of room for us to grow in this market. We started very focused, and we plan to expand over time with more offerings, with more customer segments. We will not stop here. Excellent. Going to the financial model for a second. Again, perpetual license model, revenue visibility is something I'd love to talk about. I know that you guys issued guidance. But what is it, as far as leading indicators, that you guys stress test when communicating those numbers out to Wall Street investors? Yeah, sure. So when we look at guidance, we actually consider four factors. The first one is the performance. When we are in quarter two, we understand where we stand in quarter one and quarter two. So the execution of the performance is one element. The second element is the CRPO. The CRPO is the remaining performance obligations that are expected to be converted to revenue in the next 12 months, the recurring revenue, and the market environment, and considering all of this, we felt comfortable to raise guidance again in Q3. Great, and I know that you guys also segment the revenue as well between software versus pro services. We talk about how the gross margin continues to march higher for the software side. Can you talk about how services brings this business full circle for the customer? What is it that services revenue does to ensure the relationship with these customers? Yes. So first of all, we are a software company. And it's important for us to generate most of our dollars from software. This is clear. Having said that, by providing professional services to our customers, we help to accelerate deployment and maximize the value our customers generate from our solutions. We don't do it for all customers. We do it for selected customers where we believe that we'll be able to achieve those objectives, deploy faster, and maximize value. And by doing it, we actually create demand for upgrades and expansions. As you could see in Q3, we had huge deals, two of them over $10 million, two of them over $20 million of existing customers that are coming again and buying something, which is important for us to maintain our customers deploying fast and create lots of value so they have the appetite to go to the next deal. We don't want the professional services to grow much. We think that the current levels, which is low teens. This is the right balance for us, and we plan to maintain it that way, and again, make sure that those professional services will drive more demand for upgrades and expansions, which is very important for us. Coming to profitability as well, you guys currently have guidance out there for mid- to high single-digit EBITDA margins for the full year, which would imply, I guess, total profitability from a dollar perspective in the back half of this year is expected to decline versus where we were in the first half of this year. Can you talk about those investments that you guys are prioritizing to put yourself in a position to execute in the upcoming year? Yeah, sure. So first of all, the profitability is improving significantly. Yes. If you look at the year journey, the profitability is growing much faster than revenue. We expect the revenue for the year to grow for the full year about 11%. This is our guidance at the midpoint of the range, and adjusted EBITDA to grow from nine to 26, which is almost triple, so it's a significant improvement in profitability. In terms of profitability quarter over quarter, this is planned. I mean, we do have events that are planned to certain points of time in the year. For example, I just mentioned the Cognyte Intelligence Summit, the global Cognyte Intelligence Summit we had in Europe. It took place by the end of November. This is our Q4, so this is an expense that will happen in Q4. But we stick to our guidance to maintain OPEX at a certain level. The fluctuation within the quarters is related to specific events and activities that were planned to take place in H2. This is not a surprise for us. It's on track. Great. And I guess where the question is going is with some of these investments you're making in the back half of this year. And again, not to take away from the EBITDA improvement from $9 million last year to the guided $26 million this year. But are those investments in the back half of this year, are they more seasonal in nature? Should we expect a similar dynamic in the second half of next year? Or is it more ad hoc, just based on how demand in the markets are playing together? Yeah. So it's not ad hoc. We plan it in advance. For example, we know that if we want to influence customers' budgets for the next year, we should meet the customers in November. And for that reason, we planned the intelligence summit to happen in November. So we take the expense in the right quarter. And that's how we think about the expenses. We make the expense when we can generate the most ROI out of it. So it's a matter of planning the activities in the right timing so it will create the maximum ROI for us. But again, this is planned. This is not a big surprise. We planned in advance that the intelligence summit will happen in November. If I shift over again to the visibility you guys have, whether it's RPO or CRPO, what are you guys seeing from customers today as far as behavior or thoughts on contract duration? Are customers tending to go to shorter-term contracts in the current environment? Or is contract duration relatively stable? It's stable. We don't see any change in customer behavior. In this respect, they don't move to short term. Actually, as I mentioned before, most of their business is perpetual license. So actually, we get the deal of the first deal of the perpetual license. And then either upgrades or expansions or combination of both. And it comes usually with a support contract. Support contract ranges between one and three years. And this is a typical behavior of those customers, government customers, no change. For billings, the growth there was significantly stronger than revenue. You had spoken about some of those larger deals in the most recent quarter. Was there anything similar across those larger deals that came in in that quarter that, hey, these guys wanted this specific use case? Or it closed because of X? Any similarity across those large deals? No, actually, there was no similarity. What happened in Q3, and the billing was very strong in Q3, what happened is the deal size that landed in Q3 and the milestones timing for billing that took place in Q3. So it's a matter of timing. And this created a very strong billing in this quarter. With those larger deals as well, is there a way to think about the length of that sales cycle versus more traditional sales cycles? Or no, is it more dictated by whether they're an existing customer versus trying to acquire a new logo? Anything on that front? Yes. So if we look at the land and expand strategy, most of our business comes from repeat business from existing customers. And the reason is that in US dollars, when a new customer joins us, usually it starts small and then grows over time. And when it comes to later on large expansions and upgrades, it's already considered as an existing customer. And that's the reason I said that although it's perpetual license, the behavior of the customer is recurring. They come again and again and buy more and more. We continue to focus on land and expand, which means to innovate and add more ROI and analytics and value for our customers in our solutions. So they have all of them, the entire customer base, they have an upgrade path, either cross-sell or upsell or expansion. This is one. Second, we continue to focus on acquiring new customers globally. The reason that we see more new customers this year compared to last year is some of it is related to the fact that we are expanding presence in the U.S. So out of the 30 new customers we mentioned in the previous earnings call, 10 are in the U.S. or in North America. So that's the reason you see the balance changing a little bit between new and existing. But in U.S. dollars, still existing customers, repeat business, upgrades, expansions is a significant customer behavior, which means recurring behavior. Terrific. And I know I have more on my side. Happy to keep going, but want to be true to my word. Are there any questions that anyone wants to lob in while we have a lot here? All right. We'll keep going then. Deal sizes. I know that the company has been more active in communicating some of these large deals and wins with customers, six, seven, 10, $20 million deals. Is the company, I don't know if moving up market is the right term, but are you starting to resonate more with larger agencies potentially? Or is there anything to read into some of these larger wins that you guys have announced in the most recent year? I think it's related to the demand drivers I mentioned before. If data is growing dramatically and customers have to deal with more data, they have to expand. But they also have to improve the analytics layers that they have. And for large customers, usually coming from national security and national intelligence and not from law enforcement, I'll explain why, data can jump dramatically. And for that reason, the upgrades in capacity and functionality become mandatory. Otherwise, they lose coverage. It happens more in national security, national intelligence, because those agencies usually have more liberty and freedom and more data sources that they can access. If you look at law enforcement agency, a standard one, which is usually the blue police, they have to go to court to get a warrant and to specifically target a suspect. In national security, national intelligence, they have different regulations and different rules. Sometimes the data is growing dramatically. When data is growing dramatically, it's not enough just to expand capacity. You must upgrade your capabilities to analyze it. Otherwise, the conversion from raw data, sometimes encrypted with hidden insights, to relevant actionable insights that help customers, it has to maintain its quick behavior in nature. They have to improve also the functionality. Those kinds of dynamics actually dictate these kinds of significant large deals that are coming from existing customers. In Q3, we had four of them. It's a matter of timing. It could happen in other quarters the same way. We do expect to see. We did see it before. We do expect to see these kinds of upgrades also in the future. For those large deals, again, I don't know if it's too early, but I think about your inroads in state and local and now federal in North America as well. Are you at that scale yet? And can we assume that some of these deals are coming from the North American market? Or that's too nascent at this point to make that claim? And then I guess the follow-up would be, for the North American market, do you find that they tend to have follow-on orders or expand at a quicker rate versus the other countries that you play in today? Yes, so in North America, we defined what we try to achieve. Operational units in law enforcement agencies in state, local, and federal agencies dictate smaller deals. We will not see $20 million deals. We will see smaller deals because it's law enforcement agencies for their operational units. So it means that it's relatively smaller deals compared to the 20+ million that we saw. Over time, we may change the offering and go with the full offering to the North American market and drive larger deals. But we'll do it step by step, gradually, and make sure that we do the right things and make sure that the brand awareness and the brand strength is built in the right manner, and I'm happy to share that actually we didn't sell yet to the federal agencies. I mentioned it before, only to the state and local. When I go to meet federal agencies, they tell me that they heard from the state and local that our technology is superior to what they have today. I think we are making very good progress. Tomorrow we will be in DC, David and myself, to visit more customers, potential customers in the federal area. I think that the opportunity in the U.S. is significant. And you guys have communicated as well, 30 new logos on a year-to-date basis, 10 of which coming from North America. But if I just think holistically of the go-to-market motion for Cognyte, have you changed anything as far as how you're bringing your solutions to market to acquire or attract these new logos to the Cognyte platform? Yes. So when we look at enhancing market reach, we take different actions that altogether help us to do it in a very efficient manner. One is to have the best sales team, which is direct sales. Second is we partner with resellers and local partners that have the connections and can open doors for us. Third, we hire individuals that can help us penetrate faster. I gave two examples earlier in this session. And third, we target specific markets that you want to over-invest in order to be able to enhance presence faster. That's exactly what we do in North America. We have partners. We started in state and local direct. We now have also partners. We have partners for federal. And we have direct sales. We hired Tim O'Callaghan from the U.S. Marshals. And we'll keep pushing to acquire new customers in specific territories. In North America, we over-invest compared to the rest of the world. Actually, 15% more or less of the sales force expenses are in the U.S., while the revenues from the U.S. is very small. It's a few percent. And that's what we need to do in order to expand presence. Right. And just to sanity check, any? Yeah, please. Who are your two things? One, who are your big competitors? When you say you replace people, you're better than others. Who are you better than? And secondly, you talk about federal customers. How realistic is that? How what, sir? Realistic. OK. It's incredibly difficult for foreign companies. Yeah. Particularly to penetrate the federal government. Yeah. Competitors, you specifically mean the U.S. or in general? However. OK. So the competitive landscape is very fragmented. I mentioned the reasons before, 100 countries, many use cases, different organizations. So we see many different competitors. We see Rohde & Schwarz. We see, in some cases, Palantir, not much. We see Jacobs in the U.S. We see L3Harris. We see JSI. So there are many competitors. In terms of how realistic is accessing federal agencies, we had our own question marks. It's not that we were certain that we can make it happen. But today, I'm more encouraged than before. And the reasons are, first, they're willing to meet with us. We are meeting with them, David and myself, this week. We have a few meetings. And it's not the first time. We have local force, Americans, here on the ground. We hired people and consultants that tell us that there are ways to do business with federal, although you're a foreign vendor, not specifically Israeli, but generally foreign vendor. There are different tools to do that with Proxy Board. Do you have that? Have you created that? We have legal entities in the U.S. We have people in the U.S. We had before, a few years ago, we had a security clearance with Proxy Board. We think that we should do it again. You need a customer to sponsor that. And I believe we'll find a customer to sponsor that. And the most important thing, they were willing to take the technology and try it. I think that if they wouldn't have any intention or they wouldn't have capabilities to make it happen, I don't think they would spend time, money, effort to talk to us, to discuss with us, to meet with us. So I believe that given that now they admit that our technology is superior to what they have today, this is one. Second, they continue to discuss with us. Third, they tell us how they think we should, what they think we should do in order for us to be able to sell to them. I think it gives a lot of confidence that it is doable. Do you run into Cellebrite, Pathfinder at all, like our new investigative analysis software? We don't see Cellebrite competing us head-to-head. Actually, Cellebrite's main business is forensics. And they developed the Pathfinder as a layer on top of it, primarily to fuse forensics data. Pathfinder is not considered as a direct competitor for our platform, which is totally different, I would say. Our platform is dealing with huge amounts of data. So the scale is very high, structured, non-structured, with very strong analytics engines that can actually take anything into it. We have customers that are already using it with huge amounts of data. It's a proven technology. We didn't see Cellebrite competing against that in this respect. Great. And I think with that, we're at time. But thank you to everyone for joining us. Thank you. Thank you.