Cognyte Software Ltd. (CGNT) Earnings Call Transcript & Summary

Please note that certain matters discussed in this video presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the U.S. 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. Please see Cognyte's SEC filings for a discussion of risks and uncertainties. The financial measures discussed in this video presentation include non-GAAP measures which investors may find useful as supplemental information. For a description of these non-GAAP financial measures, including the reasons management uses each measure and a GAAP to non-GAAP reconciliation, please see the Investor Relations tab on Cognyte's website at cognyte.com. [Presentation]

Think about the ever going tsunami of data security organizations are dealing with every minute of every day.

There are social networks, messaging apps, databases, videos and images to process. Such a torrent of data that security organizations are drowning in it. Making sense of it all presents an enormous challenge.

Technology is advancing at an insane pace. Criminals, terrorists, hackers all over the world leverage sophisticated technologies to hide their actions.

Staying ahead of bad actors is critical and only possible when you are able to process vast amounts of data, connect the dots and produce insights that are fast, accurate and actionable.

This is what we have been empowering security organizations to do more than 2 decades for over 1,000 customers around the globe.

We are passionate about security analytics, equipping our customers with the tools they need to make the world a safer place.

Thanks to TV producers, we all have a sense of what sophisticated criminal investigations look like. Teams arrive on the scene. Investigators suggest theories as to what might have happened and then short list suspects, who have the motivation and the means to carry out the attack. They connect the dots. And more often than not, they catch the perpetrators.

Even if they resolve the investigation, the damage will have already been done. Lives may have been lost. Well what if the threat could have been prevented in the first place? What if security organizations were able to connect the dots and address threats faster, maybe even before the attack had even taken place? This isn't fiction. It's security analytics.

Security analytics isn't a new concept. Connecting the dots has always been important. How many attacks could have been avoided? How many perpetrators could have been stopped in their tracks if security organizations had been able to generate the right insights at the right time.

By using predictive and other analytical capabilities, security organizations can answer critical questions, such as: Where can I find evidence to accelerate my investigation? Can I identify a threat before it unfolds? What is the suspect's next move?

Every security organization around the world is busy answering such questions every day, and the answers are what we call insights. And insights can be a long list of suspects, analytically reduced to just a few, and insight can also be a real-time alert to suspect's activity, connecting them to a potential crime. By applying machine learning to vast amount of diversified data, our customers can produce these insights, enabling them to do the jobs better and faster.

Cognyte empowers security organizations, governments and enterprises to effectively answer these and many other critical questions and gain an edge in maintaining law and order.

Technology has evolved in so many ways that bad actors now have almost unlimited means to communicate, plan and carry out attacks while remaining anonymous.

But within this challenge lies a massive opportunity for security organizations. The vast amounts of data available to them is a huge asset. To stay ahead of their adversaries, they need to fuse the data, transform it into meaningful insights and drive real-time action. This is actionable intelligence for a safer world.

Actionable intelligence for a safer world is our vision. So how does it work in practice?

Daily routines are made up of millions of tiny details. Against this complex backdrop, how do you recognize a threat?

It's impossible without the right insights. It would be like finding a needle in a haystack that keeps moving and which does everything in its power to avoid detection. To succeed requires the constant analysis of billions of data points to generate real-time insights.

Data is converted into actionable intelligence that enable decision-makers to identify, neutralize and prevent threats from being carried out.

In recent years, security challenges have become increasingly complex. Well-organized, well-funded entities are becoming harder to detect as they take advantage of the latest technologies to hide in the shadows.

These technologies are evolving all the time. New ones are emerging every day, and security organizations need new tools to stay ahead of the game.

Customers also realize they need a different approach, a scalable, open analytics platform that keeps space as technology and threats evolve. They need software that is always up-to-date instead of customized projects that quickly become obsolete.

We, at Cognyte, were early in recognizing the need for change. So that's what we did, evolving into a security analytics software company. Today, our AI-driven solutions are used by the world's most demanding security organizations. They see us as a trusted partner to serve their diverse challenges.

For us, that was mind blowing. I mean, it was really seeing our platform, our analytics coming into life, and we could the bottom line for our customers, saving lives. That simple.

This is the right time for us to take the next step. We now have the scale with revenues of almost $500 million to become a stand-alone publicly traded company. We are a leader in a fast-changing industry with a total addressable market of $30 billion, which is growing at 10% a year.

We're launching Cognyte to take the business to the next level. The name comes from a combination of cognition and ignite. These 2 words represent our mission, namely: enabling cognition through our advanced analytics and igniting action. We empower customers to make the world a safer place.

My name is Paz. I'm the product marketing manager in Cognyte. Our technology is really cutting-edge because we look not just at the product but also the user that's going to actually use it, and the whole process is really accompanied by the actual need and challenges of the customer.

We're dealing with an asymmetric warfare, where we see tech groups targeting nations and we see nations targeting enterprises and corporate, and this is why it's such a technology with such analytics and such proven intelligence is important.

My name is Robert. I worked 30 years in the Dutch police. Being part of a security organization for so many years allows me to understand better what are the needs of those kind of organizations. Cognyte is selling to 3 main buyers: Head of investigations, Head of Operations and Chief Information Officer. All 3 face the same technology challenges: managing data at scale, fusing data across different silos and generating real-time, actionable insights.

First, there's the need to accelerate investigations, to fuse and analyze ever-increasing volumes of data siloed across organizations. By enabling customers to connect these dots, they can discover new insights that speed up their investigations and ensure they reach an actual conclusion. Second is real-time operational intelligence, providing real-time, mission-critical, actionable intelligence to field teams. And third is threat intelligence, to empower teams at security operation centers with tools to protect people and assets from security threats.

Government customers with their broad range of security challenges use the full breadth of our portfolio to accelerate investigations and identify, neutralize and prevent threats to national security and business continuity. They also deal with a growing number of cyber-attacks. We often work with multiple organizations within each country, enabling us to serve more than 400 government customers worldwide.

The Head of Investigations at the European National Security Organization had a problem. Investigations were taking too long, eating up way more time than they used to. In many cases, they took months to conclude. Sometimes they took years and even then failed to reach a conclusion or provide actionable outcomes. They decided that it's time to go for a different approach. Their main problem was their technology was outdated. The tools the investigative teams were using were no longer fit for purpose.

They could only use limited data sources. Adding new ones could take months. To make matter worse, they were limited in their ability to process and analyze unstructured data, such as text, images and video. In many cases, opportunities to identify threats ahead of time and prevent attacks were missed.

A new approach was needed, one that required software that would help his team analyze their data at scale and quickly extract actionable insights. He had 2 choices: build in-house capabilities or partner with the security analytics software vendor with an open platform and a proven track record.

This is when we enter the picture. We helped the customer to deploy the technology and train their analytics team so they would be self-sufficient and able to address the increasingly complex threats that they now faced. After the Cognyte platform was deployed, their investigation team received a lead that a radical group was planning to drive a large vehicle into a crowd of people in one of its main cities, but they had no intel on who the perpetrator or perpetrators might be. Using the Cognyte platform, they had already identified activity on social media and on the dark web that pointed to a similar potential threat and people who might be involved. Our platform fused and analyzed massive volumes of data sources, including web and social data as well as government databases such as vehicle registry and criminal records. The analytical model dynamically mapped potential suspects based on behavioral analytics and anomaly detection, things like history of radicalization, travel to certain countries and reports on vehicle theft.

Once a list of potential suspects had been identified, the platform automatically ran a link analysis that revealed 5 of the 7 suspects were connected.

This suggests they were working as a part of an organization group to carry out the attack. Using our platform, the investigative team was now able to gather the evidence they needed to arrest the suspects and prevent the attack.

This is just one example of how the Cognyte software platform uses AI to empower security organizations to prevent national security attacks and most importantly, to save lives. My name is Yifat, and I'm the product marketing manager for the Cognyte Analytics platform, my position involves explaining our product to customers and hearing back from them what their requirements are. I'm really proud of the fact that we help organizations around the world keep people safe and what makes us work hard every day, to keep innovating and keep pushing our product forward and making sure we're supporting our customers.

If you mention Cognyte in Spain, you immediately think of actionable intelligence. After 25 years of successful, strong and reliable partnership, we have evolved together, bringing technology value and security analytics to our different customers. Spanish government security organizations, in particular, are benefiting from Cognyte's broad analytics portfolio, which caters to multiple security challenges. This has been further enhanced by Cognyte's software development, which has created a unique technology that is much appreciated by our customers.

When it comes to security, the stakes have never been higher. Enterprises risk intellectual property theft that can decimate their business or hacking that could shred their reputation. Against this backdrop, we see strong demand for our security analytics software.

Enterprises are mainly focused on preventing cyber-attacks and maintaining business continuity. They want faster threat detection and mitigation and improved efficiency and effectiveness of their security operation centers. We actually have more than 600 enterprise customers globally.

In the fiscal year ending January 31, 2020, Cognyte's non-GAAP revenues were $463 million, 80% of which came from government security organizations. While enterprise security represents only 20% of revenues, we see a good opportunity for growth in this segment over time.

One of our enterprise customers is a large manufacturer with tens of thousands of employees spread across dozens of offices and factories around the world. As you can imagine, securing this kind of enterprise in its entirety is a huge and incredibly complex task. Each location needs to protect its intellectual property, assets and employees. Each has highly valuable IP, expensive equipment and a large, ever-changing contingent of employees, suppliers and customers entering and leaving the enterprise's various facilities all the time.

In such a large organization, imagine how difficult it must be to keep on top of who's where and ensure that only authorized personnel gain access to restricted areas. Of course, this is just one element of the challenges enterprises face. Cyber threats can be even more damaging, but whether the breach is physical or digital, organizations understand that a single threat can be enough to inflict irreparable damage.

In the case of our global customer, they had experienced a series of that have led them to conclude that the old disjointed way of doing security was no longer fit for purpose. Their intellectual property, their assets and their employees were at risk. Something had to be done.

As a first step, the company's CIO and Head of Operations understood that they needed to improve their security operations center's approach. They needed to shift from standard video and security camera monitoring to a more modern, more integrated and analytics-driven approach. To do so would require the client to manage huge amounts of data from various sources including threat intelligence, sensors and controls.

They would have to analyze it in real-time and then develop insights that can be acted upon quickly to identify threats and successfully mitigate them. That's when Cognyte came into play.

We began by presenting an initial proof of concept. This helped the customer see that the Cognyte analytics platform would integrate seamlessly with their ecosystem, that it would fuse data from multiple sources across the company's highly-distributed operations, analyze it and generate new, advanced and actionable insights about threats they were previously unaware of.

It wasn't long before Cognyte had a chance to prove its worth. The platform identified that an employee's credentials had been exposed and sold on the dark web. Cognyte's platform ingested the data and triggered a threat intelligence investigation. A few days later, a car entered the company's facility using an employee ID badge. The Cognyte platform recognized in real-time the ID badge belonged to the employee whose details had been exposed on the dark web. It also spotted a mismatch between the car license plate and the one associated with the employee. Using facial recognition, it flagged the driver was not the employee.

The platform connected relevant data points and provided insights and alerts to the SoC operators to stop the threat in its tracks, prevented significant damage and provided evidence to support prosecution. Thanks to Cognyte, the company can now identify incidents before they unfold and avoid costly disruption of operations, harm to individuals and potential legal and regulatory issues.

My name is Alon. I've been in the company for 8 years, and I'm a Director of Product Marketing. The impact our solutions have on customers is tremendous. I heard from several customers that the new tools that we provided them enable them to deal with new, challenging and evolving threats that they weren't able to handle before.

The most fascinating thing is understanding what goes under the hood of our platform. Cognyte analytics platform works seamlessly with customers' workflows. It easily integrates with their existing systems, infuses data from their databases and other sources. Our platform is designed with several components at its core. Advanced data fusion technologies that aggregate and enrich structured data such as travel history records and unstructured data, such as images, video and social media from different sources. Data analytics, including real-time modeling and statistical tools to help analysts support investigations. AI and machine learning models to find hidden patterns in massive amount of data. Intuitive workflows, and visualization, for example, using a drag and drop interface, which can be configured by the customer to meet their specific use cases.

Our platform delivers advanced analytical techniques. The first step is classification, labeling and transforming raw and technical information into meaningful data. For example, translating an IP address to a physical location. Next comes prediction.

Prediction [indiscernible] the machine's artificial intelligence, discovering frequent patterns to predict the probability of an event. Take the behavior of noncyber-attackers. By analyzing the activity patterns, the platform can predict potential attack vectors before they unfold.

Of course, many patterns are harmless, part of the noise of everyday life. Sometimes though, there are outliers in the data, anomalies that don't normally happen. For example, people who suddenly change their location, time of travel, financial transaction methods and ways of communicating. Such an anomaly might indicate a possible threat. Some threats are by lone wolves, but some are by organized groups. That's why the ability to identify relationships, connections between different bits of data can be crucial.

Security investigation teams need to know who's connected to whom. By analyzing relationships, our platform produces insights to predict events and when and where they might take place.

For example, if someone happens to live in the same building as a criminal, the relationship would be weak. But if we see multiple communications between them over social networks, this would broaden the circle to identify new suspects.

In the security analytics domain, real-time insights are critical. For example, in enabling the discovery of identity theft in real-time on the dark net and informal investigative teams or identifying cyber-attacker's movement's inside the network and immediately alerting security operations center teams to mitigate the threat.

Over the past few years, security organizations have increasingly understood that homegrown solutions can no longer keep up with evolving technologies. They are unscalable and difficult to maintain. They also lack the deep domain expertise that can only be achieved after being applied to multiple use cases.

Customers' requirements are evolving. They expect faster delivery times, higher-quality products and easier update cycles. To that end, Cognyte has more than 2,000 people, including developers, data scientists and product experts with substantial security experience that are laser-focused on security analytics software. We have built a scalable, always up-to-date software platform that can provide real-time, actionable insights to help solve security challenges. That's why we win.

Leading government and enterprise security organizations around the world partner with Cognyte to address complex security challenges. These organizations rely on our security and analytics software every day to generate critical actionable intelligence. Without it, they would be flying blind and more vulnerable to potential threats. Threats are evolving rapidly, and our customers view us as an important strategic partner who can help address the challenges of today and tomorrow. That's why we enjoy a very high rate of repeat business and why over 90% of our annual revenues come from existing customers. We also win multiple new customers every year, based on our strong competitive differentiation. Our total addressable market of around $30 billion is fragmented. We compete with big data analytics companies and point solution security vendors. However, our biggest opportunity is in replacing homegrown solutions with our open analytics platform and deep domain expertise. Let me share some examples of what we hear from customers. We need better analytics. It's getting harder to find the needles in the haystacks. We need open solutions, software that can be easily refreshed and keep pace with the growing complexity. Our growth strategy, which is based on 2 pillars, stems from conversations with our customers and our ability to address the current and future needs of our existing customers as well as new ones. First, our technology and domain expertise are unparalleled. We are committed to staying ahead of the demand curve with our open analytics platform. We have nearly 1,000 people in R&D, primarily based in Israel, focused on developing the world's most sophisticated security analytics software. Second, as the market recognized that homegrown customized projects could not keep pace with the evolving threats, they have increasingly sought open security platforms. We identified this market need early and are leading with our open platform that provides many benefits to our customers, including faster innovation and more frequent updates with the latest analytics and artificial intelligence technologies. We believe our open platform will enable us to go even deeper and wider with our customers and accelerate adoption of our portfolio over time. We also believe that our open software model will enable us to more easily expand our partners' ecosystem and grow our presence in the enterprise market over time. Looking ahead, we are excited about our future as an independent public company and expect this strategy to drive faster revenue growth with continued margin expansion.

Our long history of profitable growth has been driven by our deep domain expertise and cutting edge innovation. More recently, strong execution of our open platform has led to a significant increase in our margins and sets us up for faster revenue growth going forward.

You can see the positive impact the shift to an open software model has had on our financials over the last 3 years.

We have delivered consistent revenue growth while our non-GAAP gross profit has increased at a 13% CAGR. A steady improvement in our software and services mix has driven a steady increase in our gross margins every year. A combination of revenue growth and expanding margins has driven a 26% CAGR in our adjusted EBITDA and strong cash from operations. The positive margin trend has continued into the current year. We are very pleased with our results in this unusual year in which we experienced strong sequential revenue growth after the initial impact from COVID and enter Q4 with improved visibility. We continue to execute well on our software model, and our non-GAAP gross margins are expected to reach a record 70%. This represents an approximately 800 basis points increase compared with just 2 years ago and a significant milestone for Cognyte. For the full year, we expect non-GAAP revenue of $445 million and $90 million of adjusted EBITDA. A year-over-year increase of close to 10%. Our improved visibility comes from 3 primary sources: First, the amount of revenue we generate from recurring sources has steadily increased to about 50% this year; second, because of our strong relationships and trust we build with our customers, 90% of our annual revenue is reoccurring generated from repeat customers; and third, we have a large amount of remaining performance obligations of more than $500 million, more than our annual revenue, which provides strong visibility. Looking ahead, we are well positioned with an attractive financial model and positive outlook for the next fiscal year, the year ending January 31, 2022, we expect 10% non-GAAP revenue growth. And 12% non-GAAP gross profit growth as we continue to expand gross margin driven by our open software model. We expect adjusted EBITDA to increase 14% on a normalized basis. To normalize, we adjust our current year EBITDA by the EUR 15 million separation dissynergies that we expect next year. These synergies primarily relate to establishing a public company infrastructure with a stand-alone IT, finance, legal and other public company and compliance function. For modeling purposes, we can assume net interest and other expenses of $0.5 million. Depreciation and amortization of $60 million, a cash tax rate of approximately 8.5% and noncontrolling interest in a joint venture of around $7 million and approximately $69.5 million fully diluted shares. This should drive EPS of around $0.8 for Cognyte on a stand-alone basis in FY '22. As for our 3-year plan, we are targeting non-GAAP revenue growth of 10% next year and gradually increasing over the next 2 years to the low to mid-teens in FY '24 as there is greater adoption of our open software platform. With respect to margins, after a onetime step down next year due to the separation dissynergies, we are targeting mid-teen EBITDA growth in FY '23 and 20% growth in FY '24. Turning to the spin-off. We are starting with a strong balance sheet and expect to generate strong cash from operations. We are headquartered in Israel and will be a 20-F filer listed on the NASDAQ Stock Exchange under the symbol, CGNT. In summary, Cognyte is a category leader with differentiated cutting-edge technology, strong customer relationships, a large and growing TAM, a very attractive financial model with multiple growth vectors and a strong management team.

I'm very excited about the next chapter in Cognyte's growth. The Verint Board of Directors believe that the separation will unlock the potential of both businesses. I spent more than 25 years growing the Cognyte business, and I'm happy to continue the journey and will serve as Chairman of the Board. Regarding the Cognyte Board, we plan for a 7-seat board with 3 directors coming from Verint, including myself, 3 new directors and the CEO. I'm very proud of our employees and their hard work and dedication. Together, we've built a category leader and a strong foundation for continued success and growth.

When I started working here, I was a young support engineer. Over the years, we've grown from what was a small company with revenues in the tens of millions to a leading global player with a presence in more than 100 countries and revenues of almost $0.5 billion. We have a diverse and talented team of 2,000 men and women who embody our mission to help security organizations make the world a safer place.

This is a very exciting time for us in the company. We're going through a big change. I think it's going to open us up to even bigger and better things. From the moment you walk into one of our centers around the globe, you can feel the energy, the passion, the innovation and creativity.

It's a family company. It's a growth company. We really add to security. That makes me proud of this company and proud of what I'm doing.

When you have a solution that's both cutting-edge but also really appeal to the customers, that's just amazing.

And we're also big technology geeks, so we really enjoy working with cutting-edge technologies.

Waking up every day to know I will go to the office and help make this world a safer place to live in makes the life this organization extremely exciting.

I think what makes me proud being part of Cognyte is the fact that you have an amazing triangle. You have purpose, you have technology, and you have people, and all of that together is what is making Cognyte so special and unique in our industry.

I know the future is bright for Cognyte. Demand for our software is growing fast. We have incredible technology, industry-leading security analytics software, strong relationships with our customers and a management team that has shown it can deliver. We're uniquely positioned for continuous growth in market leadership. It's been quite a ride up to this point, growing this Verint, and now the spin-off, a new and very exciting chapter in our story, as Cognyte.

This is Matt Frankel with Investor Relations at Cognyte, and that concludes our presentation. We'll now take questions. So if you have any questions, please submit them through the chat function. And we've received a couple already, which I'll start with, but also I'll wait a few more seconds here, and as I see another couple coming in. Okay. I got the first question here. So the first question is regarding Palantir. How are you similar and different than Palantir? Elad, I think this is a good one for you.

Yes. Thanks, Matt. So first, we are pleased to have Palantir as a public comp. Cognyte and Palantir have similar capabilities, but our go-to-market strategies are pretty different. So how we are similar? First, both companies believe that customers today have homegrown solutions that arrive to be replaced. And the second, both of us share the vision of open analytics and delivering technology platforms that can help customers find a needle in the haystack, and of course, make the world safer. Those are the similarities. Now what are the differences? So Palantir has about 150 customers, and Cognyte has more than 1,000 customers. We have executed a successful lending expense strategy for years, and we plan to continue taking that approach and further expand revenue from existing customers over time as well as landing new customers. And another difference is our global coverage. Over the years and consistent with our profitable growth strategy, we've seen more attractive opportunities outside the U.S. And Cognyte is stronger in the international market, while Palantir is stronger in the U.S. So there is a big opportunity for both companies. And as I mentioned earlier, our biggest competitor is homegrown solutions that the customers develop, but this is also our biggest opportunity to replace homegrown solutions with our open platform and advanced security analytics.

Thanks a lot. So next question here is about the buyers of our software. And it says, can you explain the needs of each of the buyers and whether you have all 3 buyers in the same customer? Elad, I think that's for you as well.

Yes. So the 3 buyers, Head of Investigations, Head of Operations and the CIO, all representing a variety of needs of the customer organization. Earlier, we discussed the fact that our customers have many security threats to deal with. So the different buyers are looking to use our analytics platform to solve different challenges. The Head of investigations, he has to focus on accelerating the investigation cycle and reach conclusive outcomes. The Head of Operations had to focus on field missions and then needs mission-critical, real-time intelligence. And the CIO focuses on internal security. So he looks for an open platform that confuse large data sets and that is easy to integrate with. It's common for us to start the relationship with a customer with one buyer and add more buyers over time.

Okay. Next question here is about our sales process. So what does -- the question says, what does the typical sales cycle look like with both existing and new customers? And how do they differ between the 3 buyers? Elad, for you as well.

Yes. So as we discussed earlier, our customers stay with us for many years and buy more and more of our solutions. About 90% of our revenue each year is generated from existing customers. Very often, such repeat business is not subject to a competitive process. We just sit down with our customers, understand the challenges and deliver a solution. Sales cycles can vary from a few months to a few quarters. And of course, it depends on the scope of the solution. Obviously, sales cycles for new customers can take longer, sometimes over a year. Customers will check references. There will be demos and pilots, and the fact that we have strong customer referrals is an important sales tool for us and helps us with new logos. Overall, we win new customers because of our differentiated technology, because we have proven solutions and a strong track record. We deliver value. As of the question about the 3 buyers, we don't see a real difference in the sales cycles across the buyers.

Okay. Thanks, Elad. Next question here is, can you elaborate on your sales model? David, I think that's a good one for you.

Yes. Thank you, Matt. Most of our solutions are deployed on-premises with special license model. Recently, we've seen an increase in interest in the subscription model. Our model is a typical enterprise software model and include the 3 components: software, software services and professional services. As we shifted from our historical system integration model to our current open software model, we benefit from the mark of professional services coming down. This year, I'm pleased that about 85% of our revenue is from software and software services, and only 15% come from professional services. Most of our professional services are related to implementations. Historically, we also provided some integration services, including hardware delivery and integration. The amount of low-margin integration services provided has come down over the last few years, and you can see this most clearly in our significant gross margin expansion.

Thanks, David. Next question is, can you explain the improvement in your growth rate? Back to you, Elad.

Sure. So the market is growing. There is a strong demand for open security analytics platform. And if you look back, many organizations developed homegrown customized solutions, but they can't keep up with the growing complexity of security threats. We believe budgets are shifting from customized projects to open security platforms. And open security platforms, such as ours, can keep up with the pace of evolving security challenges. So behind our 3 year targets is increasing demand for open security platforms, and we are targeting the growth to accelerate in the next 3 years and reach low to mid-teens in fiscal '24.

Thanks, Elad. So next question here is can you elaborate on the competitive landscape? Elad, please?

Yes. So the biggest competitive opportunity is replacing the homegrown solutions, which are customers who build with either their IT departments or system integrators. Such customized solutions are generally expensive to maintain, closed systems that are unable to keep up with the pace of innovation. Sometimes, we compete against big data analytics companies. And our competitive differentiation in this case is our domain expertise, breadth of capabilities and real-time analytics, which are critical for security customers. And then sometimes we compete against point solution vendors, and the competitive advantage in this case is our open platform and the broad portfolio that can address multiple use cases. But we really believe that replacing the homegrown solutions is our biggest opportunity.

We have a follow-up question here. It says, can you elaborate a bit more on your platform differentiation? Elad, I think this is a good one for you.

Yes, sure, Matt. I believe we have a differentiated platform across 2 vectors. First is our technology. Our security analytics platform is open. It's designed to address many security use cases. We have nearly 1,000 people in R&D, who are developing cutting-edge artificial intelligence, machine learning and reterm analytics, and this is critical to generate actionable intelligence. And second is our vision and our road map. We work closely with some of the leading and most advanced security organizations in the world. And we believe that our domain expertise, developed over more than 2 decades, trialed and tested by our leading customers, is unparalleled. This is where we win, competitive deals, and we are well positioned as a category leader.

Thank you, Elad. So the next question here is about the recent SolarWinds hack. So the question is, is there an opportunity to benefit from increased security spending associated with recent cyber-attacks? Elad, for you, please.

Yes. So yes, the recent cyber-attack on government agencies and commercial organizations, by the way, is a really good example of the challenges and it is complexity our customers are facing. Bad actors today, well-funded organizations with very sophisticated technology. Investigative solutions that Cognyte provides are becoming more important in analyzing cyber-attack vectors, mitigating severe damage. We believe an open security platform that can fuse very large amounts of data, analyze it and generate real-time intelligence is exactly what our customers need. Usually, after high-profile security event, like SolarWinds, customers all over the world ask themselves if they are ready to deal with such an attack. And when gaps are identified, they typically allocate budgets and look for modern technology that can help them get ready, and we are well positioned to help them exactly do that.

The next question here is about the enterprise market. So your TAM is 50% government and 50% enterprise, but your revenue mix is 80-20. What's your strategy to grow the enterprise business? Elad, can you take this one, too, please?

Yes, sure. So we see a very good growth opportunity in both the government and enterprise markets. Today, we have a very large base of government customers with about 90% repeat business and many opportunities to sell deeper and wider into the base. We also have a very good track record in the government market and win new customers based on our reputation and word of mouth. As a result, we believe we'll continue to grow double-digit in the government market. At the same time, we started to develop the enterprise market, and already approximately 20% of our revenue comes from enterprise customers. And our strategy is to grow the enterprise market with partners, and we are expanding our partner network. We also expect double-digit growth rate in the enterprise market, similar to the growth we expect in the government market.

All right. Next question here is asking about our appetite for acquisitions. Elad, would you take that one, too?

Yes. So the security analytics market is very fragmented with many acquisition opportunities over time. There are many security companies in Israel with good technology and security domain expertise that could be synergistic. Our 3 targets that we discussed today are based on an organic model. Our nearly 1,000 people in R&D drive a significant amount of innovation based on our domain expertise and the insights we get from our customers. We believe that our current portfolio and R&D investment can drive double-digit revenue growth. At the same time, we are evaluating tuck-in acquisition opportunities on an ongoing basis, and we'll make decisions on a case by case.

The next question here is about margins. What is going to drive your margin expansion over the next 3 years? David, this one is for you.

Sure. Thanks, Matt. As we discussed today, our traditional way from system integrator model, where we help customers build customized solution to our open software model, drove significant gross margin expansion. We were very pleased to have delivered record gross margin in our latest quarter, and we are on track to deliver 70% gross margin this year, which is up nearly 1,000 basis points from 3 years ago. We have substantially completed our R&D investment in software model transition. And going forward, more margin expansion is expected as more customer adopt it.

All right. Thank you, David. And we actually have a follow-up to that question. So we're going to go back to you, David, on this one. You said normalized EBITDA is expected to grow 14% next year. So what do you mean when you say normalized?

Similar to most spins, we expect to incur separation dissynergy, primarily due to incremental expenses including stand-alone IT, finance, legal and other public company expenses. We estimate the separation dissynergy to be around $50 million and normalize our current year EBITDA for this incremental expense. Based on normalized EBITDA for the current year, we expect that EBITDA next year will increase 14%, believe normalized EBITDA is useful in understanding the true earning growth for our business, excluding the onetime step down dissynergies.

Actually, another one here for you, David. Can you please take us through guidance for next year again?

Sure, Matt. We are targeting 10% revenue growth, 14% EBITDA growth on a normalized basis and $0.80 of EPS. To help you build your models, we also provide some below-the-line assumptions including net interest and other expenses of $0.5 million, depreciation and amortization of $16 million, a cash tax rate of approximately 8.5%, a noncontrolling interest of around $7 million and approximately 69.5 million fully diluted shares. Looking beyond next year, we are targeting our revenue growth rate gradually increase to the low to mid-teens in FY '24 as there is a great adoption of our software platform. Regarding EBITDA, we are targeting mid-teens EBITDA growth in FY '23 and 20% growth in FY '24.

Next question, Elad, I think, is probably the best suited for you here. It says, you talked earlier about having strong visibility. Can you discuss what is driving your visibility and how it's changed over time?

Yes. So we have strong visibility, and it's improving over time as we have shifted to open software model and scale our business. As David mentioned earlier, we get visibility from 3 sources. First, we have seen a steady increase in recurring revenue over the last 3 years. And today, about half of our revenue is recurring. Second, about 90% of our revenue each year comes from repeat customers. Our customers view us as a strategic partner. And over time, we help them expand and address new security threats. And third, we have a relatively large amount of orders backlog with RPO level being greater than 1 year of revenue. Overall, our 10% revenue growth outlook for fiscal ending '22 is driven by a combination of solid backlog and healthy demand of pipeline opportunities.

Thanks, Elad. So next question here is regarding the location of our headquarters. It says, why did you choose to have the headquarters in Israel? Elad, probably for you.

Yes, sure. So there are a few reasons for that. First, while we are a global company, the majority of our 2,000 employees are based in Israel, and Israel is our largest R&D center. And second, Israel has a unique combination of a talent pool for AI technology and security professionals, and we believe having access to technology talent that also have security domain expertise is giving us a strong competitive edge. From a recruiting perspective, we are a well-known company in Israel, and the fact we are working on very exciting cutting-edge technology helps us continue and attract top talent. And with that to that, that being an independent public company will further help with talent recruitment in Israel. Regardless of headquarter location, we have employees in many countries, as you saw and heard from some of them earlier today. Our global employee base is extremely passionate about making the world a safer place and take significant pride in the work they do.

Okay. Thanks, Elad. So next question here is also for you, Elad, I think. It says, is there anything changing operationally when you are independent from Verint?

Yes. Well, under Verint, we had a long track record of profitable growth, and we see several benefits to Cognyte being an independent public company. First, greater focus. We'll have a management team and Board solely focused on the security analytics market. Second, our brand. We'll have our own identity, Cognyte, making the world a safer place with actual intelligence. And the third, shareholder value alignment. We have a world-class team at Cognyte, and I'm glad that we can incentivize them with equity that is aligned with shareholder value creation. Overall, I believe the timing is great for Cognyte to develop its own brand identity, and we are well positioned for faster growth.

Okay. The last question here is about Board composition. Dan, can you take this one?

Sure. Cognyte will have a 7-person board. We have 3 of the Verint existing directors that will continue with Cognyte, 3 new directors that we are recruiting and the CEO. This structure will provide Cognyte's good continuity and also add fresh perspectives with the right skill set. On a personal note, this is a very exciting moment for me personally. I spent more than 2 decades, building the Cognyte business as a division of Verint. This was a fantastic journey, and I enjoyed working with so many talented employees. We built together a category leader and an extraordinary company with people that share strong values and passion for customer security, and I'm happy to continue my journey with Cognyte as the Chairman of the Board.

Okay. Thank you, Dan. And this concludes our Investor Day. A replay of the presentation will be available shortly on our website at cognyte.com. We'll also be conducting an investor roadshow next week, which is being managed by Evercore. So if you would like to participate or have any questions regarding today's presentation, please contact us at [email protected], and thank you for attending today's Investor Day. Have a good day, everybody.