Verint Systems Inc. (VRNT) Earnings Call Transcript & Summary

Before we begin, Verint would like to draw your attention to the fact that certain matters discussed today may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws. These forward-looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements. The forward-looking statements are made as of the date of this call, and except as required by law, Verint assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of how these and other risks and uncertainties could cause Verint's actual results to differ materially from those indicated in these forward-looking statements, please see our Form 10-K for the fiscal year ending January 31, 2024, our Form 10-Q for the quarter ended April 30, 2024, our Form 10-Q for the quarter ended July 31, 2024, our Form 10-Q for the quarter ended October 31, 2024, and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures as Verint believes investors focus on those measures in comparing results between periods and among our peer companies. Please see today's slide presentation, the recent earnings release and the Investor Relations section of Verint's website at www.verint.com for a reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from, as a substitute for or superior to GAAP financial information, but is included because management believes it provides meaningful supplemental information regarding our operating results when assessing the business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures the company uses have limitations and may differ from those used by other companies.

Good day, and thank you for standing by. Welcome to Verint's Investor Day. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Matt Frankel, Investor Relations and Corporate Development Director.

Hello, everyone, and welcome to Verint's Investor Day. Thank you for joining us. I'm Matt Frankel, Investor Relations and Corporate Development Director. We're looking forward to sharing the Verint's story with you today. I'm joined by members of the Verint management team, including our CEO, Dan Bodner, who will kick us off by discussing the evolution of the customer experience market. Then Jamie Meritt, our Chief Product Officer, will highlight Verint's AI differentiation. We'll also hear directly from customers who are utilizing Verint AI-powered bots and are generating AI business outcomes now. Following Jamie's remarks, our CFO, Grant Highlander, will walk us through our outlook for the remainder of fiscal '25 and for the upcoming fiscal year. He'll also review our approach to capital allocation. Next, Alan Roden, our Chief Corporate Development Officer, will take us through the long-term growth drivers of the business. And we'll wrap things up for the Q&A session at the end. To ask a question, please use the chat function on the webcast or e-mail us at [email protected]. Now let me turn it over to Verint's CEO, Dan Bodner. Dan?

Thank you, Matt, and good morning, everyone. I would like to start our 2025 Investor Day with a closer look at the evolution of the CX market. For many years, the CX market has enabled brands around the world to engage their customers through a variety of communications channels. Those brands have made large investments in CX with a strategic objective of elevating their customer experience. Looking back at how brands have invested, it was predominantly through growing the workforce. In fact, we estimate that currently brands are investing only 5% in CX technology and the remaining 95% in a large workforce. As we all know, continuing this approach of hiring more and more people is not sustainable. Today, the CX market is in the early stages of addressing this unsustainable labor challenge. The recent advances in AI-powered automation make it possible to fully or partially automate CX workflows. Verint recognized this CX Automation opportunity very early. More than 3 years ago, we started to build our CX Automation platform. With the launch of this new platform 5 quarters ago, our customers have already started automating their manual CX workflows and are reporting groundbreaking AI business outcomes. The primary challenge for brands in their CX initiatives is the unsustainable cost of labor. Today, brands are using many workflows in their efforts to delight their customers with superior customer experience. Because the CX workflows are mostly manuals, anytime they want to improve CX, they are required to increase what is already a large and expensive CX workforce. We estimate that brands employ 50 million CX employees globally. At an average cost of $40,000 per employee per year, we estimate global annual spend on the CX workforce is $2 trillion. CX has always been a strategic priority for brands and is mission critical. However, if brands continue to rely on their existing manual CX workflows, they will have no choice but to continue to hire an even larger workforce. Automating manual CX workflows to reduce costs and elevate CX is a big opportunity, and Verint is leading the way with our differentiated CX Automation platform. With the emergence of innovative AI technology, the variance CX Automation platform is quickly evolving at a pace we've never seen before. Brands are now able to automate more and more steps of their existing workflows and quickly benefit from strong AI business outcomes. These are tangible outcomes driving real measurable value. Because the economic benefits for brands are so significant, CX Automation is now an important solution category in the CX market and an integral part of the enterprise technology ecosystem. Let's take a look at the customer example. In this example, a brand is spending $200 million annually to employ a CX workforce of 5,000 employees. The Brand CX workforce operates manual workflows to engage with its customers across a variety of communication channels and business topics. With the deployment of Verint's CX Automation platform, this brand can successfully automate steps in its many CX workflows, increasing its workforce capacity by 20%. This 20% capacity increase is equivalent to the work of 1,000 employees and therefore, the economic benefit for the brand would be valued at $40 million per year. Deploying Verint's platform would cost them $2 million per year, delivering a 20x ROI to the brand. In other words, the brand invested $2 million in technology and created workforce capacity valued at $40 million. This example demonstrates that it's very compelling for brands to increase CX Automation. This is clearly a win-win opportunity for brands to achieve significant ROI and for Verint to accelerate its growth. Throughout today's event, we will showcase powerful outcomes that our customers are already achieving today. To help me with that, Jasen Williams, a Global Vice President of Corporate Marketing and Kelly Koelliker, our Vice President of Content Marketing will facilitate several customer stories. Let's start with Jasen.

Fiserv is a large fintech provider. They set a strategic goal to ensure that each customer interaction meets all compliance requirements, avoids penalties and reputational damage. Before deploying Verint CX Automation, Fiserv's compliance workflow consisted of numerous manual steps or micro workflows, one of which required a manager to listen to calls and confirm that agents were meeting compliance requirements. This cost of manually listening to calls is very high, and therefore, managers were only listening to a small sample of calls. Fiserv deployed the Verint CX Automation platform to automate this micro workflow. Let's take a look at the AI business outcome. [Presentation]

The numbers from this story are astounding. Without automation, Fiserv would have had to hire 1,200 compliance managers to review all of those interactions. That's about a $90 million annual labor spend, which is obviously not feasible. AI-powered CX Automation from Verint was the only way Fiserv could reach their goal of screening every call for compliance issues. This is a great example of how Verint bot can automate a single workflow and create massive value.

Utilita is an energy and gas supplier in the U.K. They were looking to increase CX Automation in the Contact Center and deployed Verint copilot bots to automate agent workflows and increase agent capacity, one of the micro workflows they automated was call wrap up. During call wrap up, the agent had to create an accurate summary of the call and post it to the Utilita database for future reference by other agents. This manual micro workflow was automated by the Verint bot. Let's take a look at the AI business outcome.

My name is Lenard Smith. My title is Head of Service Insights at Utilita Energy. On after call work time or ACW, we've seen about a 35 second reduction, which to me, just means that the wrap-up bot is doing its job and it's doing it well.

Utilita was able to reduce average call length by 35 seconds. Given an average call of 5 minutes, a 35 second reduction is equal to 10% increase in agent capacity. After the 60-day trial period was complete with an initial group of agents, the AI business outcomes were so clear that Utilita increased their order by 800% for the Verint bot. Volaris is an airline in Mexico, handling 5 million customer interactions each year. Controlling service costs is critical, but the brand was also looking to elevate the customer experience at the same time. Volaris uses the Verint CX Automation platform to automatically respond to customer questions complete tasks and drives sales, and they plan to expand platform usage to copilot bots that automate agent workflows for increasing agent capacity. Let's take a look at the AI business outcomes Volaris has achieved so far.

My name is Iker. I am the Senior Manager of Customer Care, I work for Volaris, it's a Mexican airline. We are receiving 3x more volume than we received in the past with the same number of agents with 30% higher CSAT, 20 hours less in response time. And 70% less costs per customer management. So we use the bot for frequently asked questions and also for transactional processes, and the containment rate is higher than 85%. With this solution, we are not only solving customer service requests, we are also improving their customer experience, increasing sales. We are adding AI to our agents. It's like Agent Assist and the idea is to reduce the average handling time.

We heard from Iker that Volaris is containing over 85% of their customer interactions with automated responses resulting in 70% less cost per customer. And at the same time, their CX has been elevated, resulting in 30% higher CSAT score. This means Verint AI-powered bots are responding to customers with high accuracy, eliminating the need to speak with agents. We also heard that Volaris is continuing to expand their use of AI with additional bot consumption. They will be adding our co-pilot bots to automate agent workflows to further increase agent capacity and drive down costs while maintaining an excellent customer experience.

We will hear from several more customers in a few moments. But first, let me take a deeper look at our platform. We launched the Verint CX Automation platform 5 quarters ago and already have many customers reporting strong AI business outcomes, such as the ones you just heard from. Leveraging more than 2 decades of CX market leadership in the workforce engagement category, we've extended our platform to now also become the leader in the new CX Automation category. As a WFE leader, we have deployed software that powers CX workflows across 4 million agents, across many of the largest brands in the world. We've gained strong domain expertise and intimate knowledge of how CX workflows are designed and how they can be automated. Today, our platform is highly differentiated in its ability to deliver stronger AI business outcomes than any other CX vendor is offering, and also in its ability to deliver these strong outcomes into a customer's existing ecosystem without disrupting the customer's operation. We designed a platform in a manner that allows brands to adopt automation gradually and prove the value of the platform in the customer's own environment. Our AI monetization strategy is to enable customers to start with a low level of automation consumption and then increase the level of automation over time as they see the ROI our platform can deliver. Later on, we will expand on our AI monetization strategy and how we drive incremental revenue for Verint. Our platform currently offers more than 50 different AI-powered bots. Each bot is uniquely designed to fully or partially automate specific steps of a manual CX workflow, each of which we refer to as micro workflow. We invented a differentiated approach to CX Automation, based on automating these micro workflows with bots that are uniquely designed for each specific task. As a result, each of the Verint bots automate a specific micro workflow and does it very well. Due to this high precision of the box, we're able to drive the desired AI business outcomes for customers. This best-of-grade approach to AI-powered bots is resonating well with our customers. We continue to innovate at a very fast pace, introducing new bots in our platform quarterly, and increasing automation value delivered to customers as new AI models becomes available in the market. Later, Jamie will elaborate on our strong platform differentiation. During CX category leadership is evidenced by the success of our customers, more and more of whom are reporting strong AI business outcomes. Many iconic brands have already upgraded from Verint WFE to the Verint CX Automation platform, to increase the automation of their manual CX workflows. Enterprise customers are in early stages of adopting AI-powered bots and we see two key customer requirements emerging in the market. First, the ability to deploy best-of-breed automation quickly into existing technology ecosystems without long disruptive and expensive infrastructure changes. Second, the ability to consume the automation gradually, first proving the AI business outcomes in the customers' own operations and then easily expanding AI consumption and only paying for automation that drives proven value. The Verint CX Automation platform addresses both of these requirements extremely well, which is open hybrid cloud architecture and our unique approach to AI-powered bots. Next, I would like to review Verint's strong differentiation across 4 areas. First, Verint is laser focused on automating CX workflows. Second, our CX Automation platform is highly differentiated with a hybrid cloud architecture. Third, our large customer base includes many of the world's leading brands and working with these customers provides us with deep domain expertise. And fourth, many of our customers have adopted our CX Automation platform and are already reporting strong and differentiated AI business outcomes. Regarding our competitors, there are several classes of vendors delivering technology to the CX market, some focused on communication channels, some delivering CRM software, and some delivering technology infrastructure. None of these vendors have the same focus and domain expertise in automating CX workflows the way Verint does. We believe our competitive differentiation is sustainable and positions us well for CX Automation category leadership. I would like to end this portion of today's agenda, with an overview of our financial model. Over the last 3 years, while developing our new CX Automation platform, we also completed transitioning our customer base from a perpetual license model through a recurring subscription model. In fiscal '25, our subscription business represented approximately 80% of our total revenue. And going forward, we expect the growth of our subscription business to accelerate. Regarding perpetual licenses, we have certain customers that continue to purchase in this model, mostly in the financial services sector with a focus on compliance use cases. Going forward, we expect our perpetual license and professional services revenue to remain relatively flat. The transition to subscription model requires significant efforts and its completion is a key milestone. With this completed, we expect our subscription ARR to accelerate growth in fiscal 2016, driven by AI adoption. We believe many customers are now ready to invest in CX Automation as they see the strong AI business outcomes reported by more and more of their peers. Later, Grant will discuss our outlook in more detail. And now let me turn it over to Jamie to review our platform differentiation. Jamie?

Thank you, Dan. As we've expanded the Verint market position from WFE category leadership to CX Automation category leadership, we've designed an open cloud platform with behavioral data and DaVinci AI at the core. I'll now dive a bit deeper into Verint's unique platform and how we're able to deliver these differentiated business outcomes for our customers. Let's start with what is a Verint bot? Each Verint bot automates a particular step of a manual CX workflow. These manual micro workflows are carried out by agents or other employees across the enterprise. The Verint bot is designed to replace that manual effort with automation of some or all of the workflow. The Verint bot is designed for one task and does it very well, driving a tangible AI business outcome. Verint bots offer customers a complete end-to-end automation solution, which leverages the latest GenAI models as needed. Alternatively, customers may choose to develop automation themselves. Many AI vendors offer toolkits that allow customers to program with generative AI. Such customers will need to train AI models on relevant data, perform ongoing AI tuning and build an automation solution that's embedded into their existing workflows. Customers that choose this approach will need to invest significant development resources as they need to develop many different automation solutions for the various manual workflows in their CX operations. Deploying bots from the Verint platform is much less expensive than internal development, and delivers business outcomes now with the best-of-breed results. Verint offers more than 50 different bots today, and we continue to innovate adding bots every quarter because each bot is designed to automate a specific micro workflow, customers can choose to increase automation gradually by increasing bot consumption from a comprehensive CX automation platform. The differentiated AI outcomes that you are hearing our customers discuss today are driven by a variety of bots. While each bot is doing one task, they're created in the platform in the same way. This makes the Verint platform highly scalable and enables us to continue to innovate quickly ahead of the market. Let's take a look at the key pieces of Verint platform used to create Verint bots and deliver amazing AI business outcomes with each pot deployed. Once we identify a CX workflow that is right for automation, we create a new bot in the platform bot factory. The Verint DaVinci infrastructure allows us to evaluate a multitude of GenAI, proprietary and open source models to assess the performance needed for the specific workflow we're trying to automate. Models vary widely in terms of accuracy, language support, latency, context size and cost. So choosing the right model is not a one-size-fits-all approach. This open approach to models allows us to incorporate the latest and greatest models and capabilities such as agentic AI as they become available. This allows our customers to keep up with the breakneck pace of AI innovation and future proof their investment in the Verint platform. As the new bot emerges from the bot factory, we train it on Verint's unique data set that includes CX data spanning every industry and workflow for the last 3 decades. This training provides superior outcomes from our bots on initial deployments. However, all AI degrades over time, so we created a continuous training process that makes Verint's bots increasingly accurate for each customer by specifically tuning to that customer's data. The same bot deployed across 2 customers will have unique models because of the continuous training on that customer-specific data. The final important step is to integrate the bot into the applicable CX workflow, which requires strong domain expertise in best-in-class CX operations. Over 50 Verint bots use a wide array of AI models because there is no single model that delivers differentiated outcomes across all of these CX workflows with the right balance of price and performance. Another differentiation of the Verint platform is the speed at which we can deliver Verint bots into increasingly complex customer environments. Our open platform architecture, specifically our hybrid cloud approach, is a tremendous accelerator for customer adoption and the special sauce that enables us to deliver outcomes to customers faster than any competitive offering. Why? Because our competitors front-load a tremendous amount of infrastructure work, cloud migration, channel replacement, IT development in order to take advantage of their AI capabilities. Verint takes a dramatically different approach where we minimize change as much as possible and seamlessly integrate the Verint bot into the customer's existing environments. Our approach allows brands to integrate with our on-premises applications without first doing a large migration. This approach lends itself to dramatically accelerated outcomes and facilitate incremental adoption so our customers can start small, prove the tremendous value we can deliver and then scale up from there. Today, we'll show you examples where customers start with one group, one bot and in months scale across their organizations with more bots and much larger teams. Business leaders are growing weary of the unfulfilled promises AI and subpar results from internal projects. Due to these sale deployments, businesses are often paralyzed when trying to move forward with AI, pushing for more and more science projects that lead to no operational value. When I speak to customers, I tell them that there is a better path and real business outcomes are possible today. By partnering with Verint, they can deploy complete AI solutions to real business problems without waiting for internal teams to become AI experts or waiting for IT to develop custom solutions. By taking away much of the AI confusion, Verint is able to focus our customers on massive business outcomes they can achieve now in their existing ecosystem. Now let's hear from VicRoads about their experience. VicRoads is a private company that serves as the department of motor vehicles for the state of Victoria in Australia. As part of privatizing the organization, they set strategic goals for efficiency and CX and started a massive IT and business transformation. They came to Verint looking to automate the agent workflow, to lower operating costs and to elevate customer service to the citizens of Victoria. Using the Verint copilot bots that are already achieving these goals. Let's take a look at their AI business outcome.

Hi, everyone. I'm Trish Farrugia. I'm the IT Director of modernization at VicRoads. Within our business, we're really looking at how do we drive efficiencies. We are trying to drive out cost, trying to improve the customer experience. So we're seeing significant savings across all of our interactions with our customers. So the time we spend on a call has been reduced significantly by about anywhere from 30 to 40, 50 seconds. And that's really significant in a call center. Obviously, the shorter the calls, the better. The way that we're using AI is really about improving the customer experience and the agent experience. So being able to analyze what people are calling for allows us to enable them to get through faster paths. It enables the customer -- the agent to actually know what they're calling about.

VicRoads talked about 30 to 50 seconds per call with the Verint copilot bots. This means their agents are assisted by Verint bots in real time, and that resulted in agent capacity increasing 10% to 15%. And Verint copilots automate many of the common tasks that agents carry out during an interaction. An example of one of these tasks is an agent manually searching for content. Through our copilot bot instead of agents manually searching for the right content, while a customer waits on hold, the Verint bot automates the search and delivers the right information to the agent the moment they need it. Another customer is BNP Paribas, a multinational financial services company with over $2 trillion in assets. It's critical for financial organizations to ensure that every customer interaction meets quality standards. Before Verint, BNP Paribas was using a manual workflow to listen to calls and verify quality. This workflow was time-consuming and expensive and resulted in only evaluating a very small sample of interactions. So they turn to Verint to automate this workflow. Let's take a look at the AI business outcome.

I'm Rafal Przewoznik. I'm omnichannel experts in BNP Paribas, Poland. So it would have taken us an additional 750 quality managers to do that what quality bots are doing for us. We have noted 25% improvement in quality. This quality improvement also has a direct impact on our compliance and lowers our exposure.

Again, we see a massive AI business outcome from automating workflows with the Verint bot doing the work of 750 quality managers, BNP Paribas saves tens of millions of dollars. Furthermore, as you heard from the customer, Verint bots are highly differentiated, delivering better results than the customer was achieving with supervisors manually evaluating calls. Another customer is Serco, an Australian BPO. They were looking to improve employee experience and reduce employee churn. One of their CX workflows is related to employees requesting schedule changes. To process the request for a schedule change, the supervisors have to manually run scenarios and identify another agent for the shift. This manual workflow was very expensive. And in many cases, the agent request was denied. Serco deployed Verint TimeFlex to automate this workflow.

My name is Skye Jacometti and I chair the Workforce Management Governance Committee for Serco Community Services within the Asia Pacific region. Now that we've started using TimeFlex, we've seen our attrition drop as a result, statistically significantly so, people are much more likely to stay. So there was a distinct correlation between people who use TimeFlex and people who don't use TimeFlex and their retention. So it wasn't just the idea of being able to have flexibility that drove up retention, but the people who actually used TimeFlex are the ones that we were more likely to retain. So the employees are more engaged. They're less likely to leave. But I've also noticed that we have had significant improvements in scheduling efficiency. So there's actually a real positive to be the company in that regard because our over and understaffed intervals smooth themselves out which means we're getting more value for the labor that we are putting into schedules.

TimeFlex is unique in the market built on Verint proprietary AI. As you have heard from Serco, TimeFlex decreased attrition and improved employee satisfaction dramatically. Replacing an agent costs on average $4,000 including hiring and onboarding expenses and many call centers see annual attrition of 30% of their workforce. By giving employees the work-life balance they need, Serco achieved a significant reduction in employee attrition, thus saving Serco millions of dollars in labor expenses. Now I want to turn your attention to how we monetize AI. Customers are reticent to make large commitments around AI without battle testing it internally, and seeing concrete business outcomes. This is in reaction to failed AI science experiments and vendor promises that have gone unfulfilled. In order to accommodate this new customer dynamic, we've adapted our AI monetization strategy to allow customers to start small, prove outcomes in a risk-free manner and then scale adoption quickly. Let's look at how this plays out in a few customer scenarios. During FY '23, a leading health care insurer was grappling with AI adoption with multiple internal projects and vendors trying to bring AI into their CX workflows. With 30,000 agents in total, representing a spend of $1.2 billion in labor costs, this customer had ample opportunity for CX Automation-driven savings. However, they've been challenged in early projects by vendors that mandated disruptive change in their ecosystem or those that simply couldn't deliver to their scale. In early FY '24, they chose Verint to partner with for initial deployments of Verint bots, because we were able to deliver results faster than any alternative, due to our hybrid cloud architecture. They began small deployments in 8 different bots to automate their CX workflows. Within weeks, they saw significant AI business outcomes. Upon seeing the increase in capacity with the pilot group of 300, they began to scale to larger agent populations within 2 quarters. Our flexible architecture allows each bot to be scaled independently. With one bot, they chose to increase utilization of 30,000 agents while other bots were increased to various levels. This success created momentum for bot adoption, and they expanded to other bots across the portfolio throughout the year, adding 6 additional bots in early fiscal '25 and 4 more in the third quarter. By Q3 '25, the customer has deployed 18 Verint bots at various consumption levels. We believe that these bots deliver more than a 10% increase in agent capacity for the brands. The additional capacity Verint bots create has allowed them to address significant increases in interaction volume during the open enrollment period without having to grow their CX team. We see this pattern across multiple customers with every bot following the same buying cycle. They start small, prove value and then upon success, quickly expand usage and deploy additional bots. In this example, the brand did not immediately reduce their agent count, but instead use the 10% capacity created by our bots to accommodate bursts volume and to reinvest in needed CX improvement to satisfy pent-up demands. To put this in perspective, this brand is spending $1.2 billion in labor costs and a 10% capacity increase is equivalent to $120 million. Later on, Grant will discuss the Verint growth driven by this customer's successful journey. Now let's hear from several other customers about their successful journeys, leading to an increased adoption of the Verint bots.

We started our pilot group with 200 of our team members. And at the moment, we have extended across 6 business units and tripled our TimeFlex licenses.

Over the last 18 months or so since implementing the Verint quality bots, we have ramped up from 100 agents. We are now evaluating just over 1,600 agents. We started off in the sales area. And based on the results and the success we saw in that area, we decided to move on to the collections area. So based on our success so far with the Verint bots, we are looking at implementing the wrap-up bot, as well as real-time coaching in the near future.

In terms of how we're taking the call summarization solution going forwards, we started off with a limited pilot of 100 FTE. We very quickly scaled that to 500 FTE by the end of 2024. The reason we could do that was the quality of the solution and the employee feedback we got. Our plan as things currently stand is that by the end of Q1, we will scale to 1,200 contact center staff for context, that is everyone in our retail business and everyone in our health business, who is customer-facing in the contact centers. By the end of H1, we'll have adopted this in our commercial business, and that will take to 1,700 FTE.

As you can see from the customer testimonials, we're achieving compelling outcomes in the initial deployment, which leads to substantial expansions. Woolworths is now adding 5 more business units in their next deployment. FNB is growing utilization by a factor of 16 while adding 2 additional months. AXA plans to spend 17x from the initial control group in H1 of this year. Verint's monetization approach is ideally suited to these customer dynamics with programs designed to prove value at minimal risk, flexible licensing and packaging to allow for rapid adoption. And with that, let me turn it over to Grant. Grant?

Thanks, Jamie. Today, I will review three topics. First, I will review our strong AI momentum year-to-date and discuss our outlook for the full fiscal year. Next, I will take you through the key drivers of our fiscal '26 model. And finally, I will review our capital allocation strategy. Let's start with fiscal year-end '25. As Dan mentioned earlier, we have completed our transition to a subscription model and expect approximately 80% of our total revenue this year to be from our subscription offerings, which includes all recurring streams, bundled SaaS, unbundled SaaS, support and optional managed services. We are pleased with this milestone, and we expect our subscription business to continue to grow driven by AI adoption. Regarding the remaining 20% of revenue comprised of perpetual licenses and professional services, we expect this revenue stream to remain flat. With the completion of our transition to subscription, we will begin to report ARR that covers all streams within our subscription business. ARR is a common metric. And first, I would like to explain how it's applied to Verint. ARR represents the annualized quarterly run rate value of active or signed subscription contracts as of the end of the period. For unbundled SaaS deals, we use a ratable view in our ARR calculation. We believe ARR is an important metric for management to understand the performance of our subscription business for 2 main reasons. First, it provides management a view of the true growth of the subscription business regardless of the term length of deals. Second, because we predominantly bill customers one year in advance, ARR for our subscription business is a good proxy for our annual billings. We also believe that ARR is a useful metric for investors since it represents the true growth of our subscription business avoiding any variability associated with ASC 606 revenue accounting. Year-to-date, we have seen good growth in our subscription business driven by strong AI business outcomes. Let's look at this growth across 3 metrics. Bundled SaaS revenue reflects AI-powered solutions that have already been deployed in the Verint cloud. SaaS ACV bookings reflect new deal activity by customers. And as we just discussed, ARR captures both what has been deployed by customers as well as new deal activity. Next, I'd like to take you through our year-to-date performance for each of these metrics. Starting with bundled SaaS revenue. We have seen an acceleration in our bundled SaaS revenue growth rates year-over-year throughout the year. In Q3, bundled SaaS revenue growth accelerated to 19% and up nicely from 15% in Q2 and over 9% in Q1. As we've discussed, our AI innovation is deployed only in the Verint cloud, which we recognize as bundled SaaS but made available to all our customers through our hybrid cloud model. We are pleased with our growth this year and expect a further acceleration in Q4 to more than 20% year-over-year growth or around $80 million of bundled SaaS revenue. Turning to SaaS ACV bookings from new deals. Bookings for new deals increased 34% in Q1, 29% in Q2 and 37% in Q3 on a year-over-year basis. We are pleased with our new deal momentum year-to-date and expect to finish the year with another strong quarter. In addition, due to the success of our hybrid cloud strategy, we expect minimal bookings from conversion deals for existing customers converting from on-prem to cloud. Overall, we are pleased with our new deal activity this year, which is driven by strong demand for AI business outcomes. Turning to ARR. ARR increased sequentially each quarter this year and reached $695 million at the end of Q3. Our ARR growth is being driven by a combination of strong bookings from new deals and solid renewal rates. We expect our ARR to continue to increase sequentially and later, I will provide our outlook for ARR growth for Q4 and for next year. Next, I would like to discuss how we have been monetizing the AI opportunity. Earlier, Jamie took you through an example for an AI adoption journey for a health insurance company. In their journey, the insurance company added 18 different bots at various consumption levels driving an increase of 10% in workforce capacity, which is equivalent to $120 million in value if they were to hire people to do the same work. I would now like to walk you through how our ARR grew with this customer during their journey. As you can see from the slide, prior to beginning the AI adoption, the customer generated $3 million of ARR, most of it in the form of unbundled SaaS associated with our workforce engagement solutions. Their ARR steadily grew as they increased AI usage over the last 2 years, and their ARR increased from $3 million to $14 million. In addition to the significant ARR increase, I'd like to mention that the customer maintained their investment in Verint's on-prem solutions while at the same time, significantly increasing Verint AI consumption in bundled SaaS, reflecting the success of our hybrid cloud model. Finally, I'd like to discuss the ROI this customer achieved. The customer spent $11 million with Verint to achieve an estimated $120 million of greater agent capacity yielding an ROI of over 10x. I believe this customer journey is a great example of Verint's AI monetization strategy, helping customers gradually increase their AI consumption levels without disrupting their existing ecosystems while Verint increases its ARR. As we've discussed throughout today, customers are embracing our hybrid cloud approach to adopt AI without disruption, which means they continue to purchase both unbundled SaaS and bundled SaaS from us as seen in the customer example we just discussed. From a revenue perspective, revenue accounting for bundled SaaS is ratable, but revenue accounting for unbundled SaaS is primarily upfront and can be a bit variable due to 606 accounting. Because of this dynamic, the form, timing and term length of a small number of deals can have a big impact on our quarterly revenue performance, while at the same time, having much less of an impact on our ARR and our cash generation. We have seen this dynamic clearly play out over this past year. In Q1, we exceeded our revenue guidance by $7 million. In Q2, revenue came in $2 million below our guidance. And in Q3, we overachieved revenue guidance by $14 million. The 606 dynamic and its associated revenue volatility will likely continue as customers embrace our hybrid cloud model. Therefore, we believe that subscription ARR and cash metrics are and will continue to be important metrics to help investors understand our business despite this volatility. Turning to guidance for the current year. As we discussed earlier, we are now introducing guidance for subscription ARR for the first time. Following sequential growth in ARR during the first 3 quarters of this year, we expect ARR in Q4 to come in at about $704 million, plus or minus 1%, reflecting 4% growth year-over-year adjusted for a divestiture. I would like to mention that historical information for ARR has been added to the investor dashboard on our website. Regarding total revenue and diluted EPS for the full year, we are maintaining our outlook of $933 million in revenue, plus or minus 2% and $2.90 of diluted EPS at the midpoint of our revenue guidance, each on a non-GAAP basis. Turning to cash flow. Similar to other companies that have revenue volatility related to 606, we will begin to report cash contribution margin and operational efficiency metrics. Starting with cash generation. As discussed, ARR is a proxy for the annual billings of our subscription business. For perpetual and professional services, annual revenue approximates annual billings. Therefore, together, they represent a good proxy for our total annual cash generation which we expect to come in at about $905 million for fiscal '25. To get to our fiscal '25 cash contribution margin, we subtract our estimated annual non-GAAP COGS and OpEx from the cash generation metric. For fiscal '25, this calculation results in just over $210 million of cash contribution margin representing around 23% operating efficiency. To get the free cash flow, cash contribution margin is adjusted for other items such as CapEx, depreciation and amortization, cash taxes, interest expense and change in working capital. As we discussed in our Q3 call, we expect free cash flow this year to grow approximately 30% year-over-year. Now let's look at next year. For modeling purposes, we'd like to take you through some key metrics for our fiscal year-end '26 outlook. I will cover our expectations for ARR and bundled SaaS revenue, which are key growth metrics for our subscription business and free cash flow for our entire business. We plan to provide revenue and non-GAAP diluted EPS guidance for fiscal year-end '26 during our Q4 earnings call once the current year is complete. Starting with subscription ARR, we expect our ARR growth rate to double next year and are targeting 8% ARR growth for Q4 fiscal '26 compared to 4% adjusted ARR growth for Q4 this year. Similar to the current year, we expect ARR to increase sequentially each quarter next year. We are targeting faster ARR growth based on our expectation for another year of strong AI demand. To put our outlook in perspective, year-to-date, we've experienced greater than 30% SaaS ACV bookings growth from new deals and next year, 20% bookings growth will be sufficient to drive the 8% ARR growth we are targeting. Turning to bundled SaaS revenue. As we discussed earlier, bundled SaaS revenue is a proxy for our AI growth, and we are pleased with our bundled SaaS revenue growth in the current year. We expect around $80 million of bundled test revenue in Q4 this year and to end the current year with around $292 million, representing 16% growth for the full year. Looking to next year, we expect our bundled SaaS momentum to continue our model assumes a similar level of annual growth. Turning to free cash flow. For fiscal '26, we expect double-digit growth. Our free cash flow outlook reflects our expectations for operating leverage. For fiscal '26, we are targeting non-GAAP COGS and OpEx to grow slower than cash generation growth, which will result in an operating efficiency improvement of around 100 basis points. The combination of 8% ARR growth and some margin expansion is expected to result in both our cash contribution margin and our free cash flow increasing at a double-digit rate. Finally, with respect to our balance sheet, we continue to be in a very good financial position. Our net debt remains under 1x last 12-month EBITDA, and is further supported by our strong cash flow. We have debt maturing in calendar 2026 and will be proactive about managing our balance sheet with the goal of maximizing value for our shareholders. In addition to strong cash generation, we have broad optionality with access to multiple capital markets. And with regard to capital allocation, we expect the largest use of our free cash flow to be buybacks. As a reminder, we've been steadily buying back shares and started new $200 million stock buyback program in September. In addition to buybacks, we may allocate some of our free cash flow to debt repayment and the tech tuck-ins. Our M&A focus is on small companies with interesting AI technology unique to CX Automation. In summary, we are pleased with our CX Automation category leadership, which is driven by the strong AI business outcomes reported by our customers. We are optimistic about our AI monetization strategy, which gives customers the ability to adopt AI without disruption and increased usage over time as they see value. We are also pleased that our business has been greatly simplified with the subscription model. And looking ahead to fiscal '26, we are targeting ARR growth to accelerate to 8% next year with double-digit free cash flow growth. Beyond fiscal '26, we expect ARR to accelerate to double-digit growth. I would now like to pass the presentation to Alan, who will talk more about our long-term growth drivers. Alan?

Thanks, Grant. To wrap things up, I'd like to talk to you about why we are so incredibly excited about CX Automation and our long-term growth opportunity. Today, brands spend an estimated $2 trillion on CX workforce and a relatively small amount on CX technology. As brands embrace CX Automation, we believe their spending will shift from the CX workforce to CX technology. You can see this expected shift in the slide. The CX workforce spend in Blue gets smaller while the CX technology spend in gray gets larger. The blue reduction is much larger than the gray increase. And overall, we believe brands will receive significant net benefit from the reduction in spending. At the same time we believe the TAM or Verint's platform gets larger, and our revenue opportunity will increase. Earlier today, Dan took you through an example in which a brand with 5,000 employees spent $200 million a year on its CX workforce. And with a $2 million investment in Verint platform will be able to increase its workforce capacity by 20%. Increasing workforce capacity provides customers with flexibility to reduce agent headcount or they can use the extra workforce capacity to elevate CX and increase revenue opportunities. We heard from the Mexican airline Volaris earlier that they dramatically increased capacity and use that to handle 3x more custom interactions with the same workforce. In fact, most of the customers you heard from today I'm not talking about making workforce reductions. They discussed using the increased agent capacity to address pent-up demand for more interactions and improve the quality of the service they deliver to customers. As brands adopt more bots in the Verint platform, there was even larger increases in capacity, and we will eventually get to the point where they can achieve all the CX objectives and still have extra capacity. At that point, we expect brands to begin reducing the size of their workforce. Let's look again at Dan's example that we assume an alternative scenario, and instead assume that customers would use the 20% increased capacity to reduce 20% of their headcount, it will lead to a reduction of 1,000 people from their workforce. In such a case, Verint's WFE revenue would be reduced by around $200,000 based on an average WFE price of $200 per agent per year. At the same time, Verint will pick up about $2 million in AI revenue, representing a 10x revenue opportunity for Verint annually. So regardless of the customer decision of how to use the increased capacity delivered by CX Automation, Verint's revenue opportunity is significant. Given what we're seeing today in the market, let me now discuss our assumptions for how customers will use the increased AI-driven capacity and the positive impact on the Verint economic model. Today, our software helps manage 4 million agents with an average customer charge of $200 per agent per year. Near term, as we increase capacity for our customer base, we are assuming customers will generally make minimum workforce reductions for the reasons we just discussed. Longer term, as customers purchase more bots to increase capacity even further, they will start to trade off Verint agent licenses for Verint bot licenses. Verint's encouraging customers to do this trade-off as it provides us with a 10x growth opportunity. Longer term, we believe that we have a significant growth opportunity as the estimated $2 trillion of CX workforce spend shifts to technology. As Jamie mentioned earlier, we were ending a new chapter of AI adoption as brands shift from science experiments to demanding solutions that deliver tangible results. We believe we are incredibly well positioned for this next chapter with a highly differentiated CX platform and proven AI business outcomes. Today, we showed many examples demonstrating that regardless of the assumptions investors make on the pace of workforce reduction in Verint's customer base, Verint is well positioned to grow revenue. In addition, our proven success within our base of leading global brands makes us well positioned to sell CX Automation solutions not only to our base, but also to new customers. We believe the CX automation market is in its early innings and AI adoption will surely accelerate. Longer term, we're targeting double-digit ARR growth and double-digit free cash flow growth. Overall, we can't think of a time that Verint has been better positioned, and we are very optimistic about our future. With that, let's move to Q&A.

[Operator Instructions] I pass the call back to Matt Frankel.

Thanks, Daniel, and thanks, everyone, who has submitted a question thus far. We appreciate it. We've received many similar ones. So I'm going to combine some together. I'll do a bit of paraphrasing. Let's get going. So first question to kick it off, guys, what gives you confidence in your ARR growth guide of 8% next year? Your customers are getting these kinds of results. Why shouldn't you be growing faster than 8%?

Thank you, Matt. I'll take it. So as we heard from customers, many of them have started introduce AI into the operations at a small scale, and I'm going to scale next year. So we have confidence that customers are on their journey to increase automation as they see greater capacity and amazing AI business outcomes. In addition, we've introduced many new bots this year, and these bots are being now evaluated by many of our customers who we expect also have customers that we'll be adding these new bots next year. So generally, we believe that the demand for CX Automation is going to be better next year. It's also that more and more customers are getting more comfortable as they see the results that are being reported by their peers. So we are optimistic about CX Automation spending. Now to put that into the perspective of the guidance we gave for this year for 8% ARR growth. In fact, we actually don't need demand to accelerate to get to 8%. So let me try to kind of quantify the model. So this year, Q1, Q2, Q3, our booking growth was around 30%. And if we continue to grow at these levels next year, we're going to have ARR more than 10%. So we're assuming booking growth of about 15% to 20% to drive the 8% guidance that we gave for our subscription ARR for next year. And of course, if we do see that demand is continued to be strong and maybe accelerating. And this is our initial guidance, and there will be plenty of opportunities to update it.

Okay. Thanks, Dan. Next question, and I appreciate everyone sending them in. I'm getting as you send in, please continue to do so. The next one, can you talk more about some specific bots that are driving -- that are the driving force behind faster ARR growth?

All right. So I think Jamie, that one is for you.

It feels like mine. So you heard a lot of our customers speak. So -- and a lot of them talked about the Verint copilot bots. So it shouldn't be much of a surprise that, that's -- the copilot bots are going to drive a significant amount of our ARR growth from the adoption of AI. What are the copilot bots do. They help the agent in real time when they're engaging with the customer. So they -- what agents usually do manually those copilot bots are automating different pieces of that activity. So every single interaction with every single agent gets faster. It gives better customer experience. They're answering the question. I gave you an example prior. So that content search example is a great example of a copilot. Instead of putting the customer on hold and then finding the right piece of content and maybe reading a policy document for 2 minutes. Immediately, the copilot shows me that content shows me that knowledge, so I can answer the customer question without putting them on hold and ruining the experience. So those micro workflows, each and every one of those copilot bots built on the rate model, whether that's the latest and greatest in agentic AI, whether that's the latest open source model from Llama, the right foundation model, et cetera. Each model is chosen specifically for the job, trained on the right data and delivers the result in real time. So every single agent interaction better. And why do I believe these are going to be one of the main drivers, both a lot of great customer outcomes and success. But also, I mean, just the agent population is the largest population of CX employees. So we're delivering tremendous business outcomes to the largest population of agents. And as they increase consumption, they started small and start to increase consumption, that will drive additional ARR and revenue growth for Verint.

Okay. Thank you, Jamie. Next question. Our expectations for the CX spending environment next year compared to this year. You talk about CX Automation becoming an emerging category. How is that -- how is it different in contact center infrastructure?

Okay. I'll take this one. Suspending environment, what we've seen in the last few years, during COVID, we saw customer investing in going to the cloud. So this was mostly around contact center infrastructure. And then over the last year, we see that this investment is starting to slow down is -- there's really no catalyst. So customers still want to move to the cloud, but there was no catalyst to do that the same way it was in COVID. And we see some slowdown in spending in the CX market overall. However, when you look at CX Automation, which is a category in the CX market, this category is focused on automation of workflows. So as we obviously spend all that first hour -- automating workflows has great economic benefits for customers, and it's a very compelling ROI. And they all want to do that. So the issue was, is it mature? Can they trust AI? Can they really get the AI business outcomes that they expect. And I think over the last couple of years, the customers were basically playing and trying to gain confidence. And what we see now is we launched the platform 5 quarters ago. Then we started to have customers getting results from the platform and over the last 3 quarters, we have increasingly reported customers saying, this is working. This is creating the automation that we expect, and automation is creating the capacity and the outcomes that we expect. So when you put all that into prospection of the time line, we're very optimistic about the CX spending environment now and into the coming year around 6 automation. And we believe that when customers have a budget that already set aside for '26 and they need to prioritize how they're going to spend their budget, they will spend that budget on CX Automation solutions that bring ROI before they spend it on the infrastructure projects. So regardless of the overall spending environment in terms of IT budgets, we believe now it's a good time for customers to start to shift more that budget to where they get very compelling ROI.

Thank you, Dan. Next one. I'm glad you're simplifying the business and reporting ARR. I'm less familiar with the cash generation and contribution margin you mentioned. Can you walk us through the calculation and how we think about it?

That's a good one. And Grant, it's yours.

Great. Thank you. So let me -- before I walk you through the metric itself, give you a little context around the metric and how we came about. So we did -- with the transition to our subscription business, we looked at what other companies were using to report on the growth and performance metrics of a recurring or subscription business. And just through that review process, we embraced an approach that PTC has taken toward providing a metric that really helps avoid the 606 related divergence between annual revenue and annual billings. And that's what cash generation does, which is the first metric that I talked about earlier today. So cash generation is really a proxy for just that. Our annual billings of the total company. And to get to that metric, we use subscription ARR, which, again, is a view of the true growth of our subscription business and as a proxy for the annual billings of that subscription business. And as just a reminder, we had previously been providing SaaS ARR. So subscription ARR incorporates SaaS ARR, but also incorporates the other portions of our subscription business like optional managed services and support to give a complete view of the ARR of that subscription business. So -- and again, the reason that SaaS or subscription ARR mimics or as a proxy for the annual billings, just as a reminder, we typically bill customers annually in advance for those recurring streams regardless of what the term length is. And that's where the 606 variability comes in from a revenue standpoint versus what that annual billing segment is for that business. So that's subscription ARR. You then add to that the nonrecurring pieces and you can add the nonrecurring revenue because in perpetual and professional services, our revenue is aligned to the annual billings. So the sum of those two is the cash generation of our business. And then to get to the next metric that I highlighted, which is cash contribution just need to back out the traditional non-GAAP COGS and OpEx, which we report in our -- it's the same numbers that we report in our income statement. And that provides the cash contribution or said differently, that's really a measure of what the cash producing power is we have from the operations of our business. So hopefully, we're very pleased to be able to simplify now. We had a lot of metrics in the past trying to help people navigate and understand the true growth of that subscription business and obviously, SaaS subscription ARR does that.

That's great, Grant. So you explained SaaS ARR is just a component of the ARR that we are reporting now. I think that's clear. Can you also elaborate -- you did, but can you elaborate on why ARR is the proxy for cash generation?

Sure. So subscription ARR being the proxy for cash generation from that subscription business, again, we invoice customers annually in advance regardless of what -- whether it's a 1-year, 2-year or 3-year term for those recurring contracts. So that's why the cash is very closely aligned to the SaaS ARR or subscription ARR from that business.

Be clear -- so the ARR is the run rate, and we take the quarter revenue times 4 plus booking. But because of the billing 1 year in advance, it is right proxy for cash production.

Absolutely.

Okay. Next question, I'm going to combine a couple here. So what gives you confidence from a product perspective that your competitive advantage in contact center applications is sustainable, is in-house -- our customers are potentially trying to build these kinds of solutions in-house seen as competitive as well.

Okay. So -- let's break it into 2 pieces. And Jamie, if you can start with what our customers are doing themselves and then maybe we can go then to what would give us the confidence that we have the competitive differentiation.

Sure. So I talk to a lot of customers. Obviously, it's part of my job. And I hear a tremendous amount of frustration from those customers around the internal science projects, around -- waiting for the results from their AI garments. And I understand how they got into the situation in many ways. We've been, as an industry, trying and as a market, trying to automate customer experience workflows for very long time. And quite honestly, early results were very poor. They saw automations that gave the wrong messages to customers and has led to tremendous increases in risk. They saw failed AI experiments that they sunk a year of development into for no legitimate business outcome. They saw AI that gave the wrong predictions as often as it gave the right prediction. So in response to some of the early attempts at automation that really didn't deliver those types of outcomes, they decided to take a very cautious adoption approach this time and to do a lot of experimentation, and they worked with IT. IT, obviously, for all new technology is going to be where they do the initial evaluations and try to build those skills and build their own AI capabilities. And what we found -- what they've found out is that's really hard, and it takes a really, really long time. So the paralysis and the paralysis and the caution is warranted. But where we've been able to break that log jam successfully is, one, we allow them to start small, prove value, increased consumption as they see outcomes. So it makes it easy for them to believe because they see it in their own environment before they have to make a big purchase decision. And then two, I'd say we can show them, like we showed you today, real experiences from their peers in their sector with those same CX workflows where we've successfully delivered an automated solution that automates that same workflow delivers an amazing business outcome. So it builds the pressure. They already have enough demand, but now they see it's possible my competitors are doing it. I cannot wait any longer for these experiments to pan out. So I think for me, that's a lot of the perspective on internal projects. And yes, there -- I don't view them as competitive because I don't see them delivering a completeness of solution and the same outcome. But I do view them as causing delays and smaller or cautious adoption, I would say.

Well, that's good in terms of what IT is doing. And clearly, in our platform, we also are providing complete solutions, but we also provide tools for IT so they can take our tools and develop unique automation that maybe we don't support today. One of the clear competitive differentiation to the second part of the question is obviously how we build the platform with AI and data core and it's the domain expertise that we have around CX workflows. And CX workflows are unique. They're not the same as other workflows, Enterprises have many, many different workflows, he's trying to bring automation, bring GenAI to automate anything they can. But when it comes to CX workflows, we just have the expertise. We're doing it with a lot of precision because we chose a very differentiated approach to automation. We're not trying to throw GenAI to automate everything. We're trying to do micro workflows, every step of the workflow that is right for automation. We create a bot specifically for that. We're using the relevant AI model, which could be very, very different models. Some are agentic AI, some are GenAI, some are proprietary AI. But we're using the right model. We train the model on the right data because otherwise, it's not creating the right precision in automation. And all that is done automatically in our platform. So that result is a step that was done by person is replaced by Verint bots. And then we have so many bots automating different steps in the platform that, together, we are creating enormous AI business outcomes. That's a very differentiated approach. So I'll say here that not only we create outcomes today like no other vendor in the market, but it's a very sustainable advantage because it's fundamental to how we approach automation. And we didn't approach this as we want to be an AI company. Our approach was we want to be an AI business outcome company. We want to take all the domain expertise and the knowledge that we have learned because we've been actually building workflows for our customers for 20 years, right? We are the WFE leader. This was about building the workflows. Obviously, we have intermittent -- workflows. And now we are not just a WFE leader, but also the CX Automation category leader, taking that in workflows without disruption and helping customers get automation in a very, very tangible way. And you can see from all the examples we gave today. Once they prove it to themselves, we don't have any objection. IT is not objecting, there is plenty of stuff they can develop. So it's not that they want to develop. They just don't know that it can be done by a vendor. Once they see that we have the outcomes that we are delivering, IT is happy to go do something different. And obviously, the business is very happy because they get the outcomes in terms of elevating CX and reducing operating costs, and that brings them compelling ROIs.

Okay. Thank you, guys. I'll move to the next one. I received a few questions on guidance. I'm going to paraphrase. You talked about another year -- on SaaS revenue growth next year. Can you basically discuss unbundled -- your thoughts on unbundled next year?

Okay. So what ARR capture everything, right? bundled, unbundle all the same way in a ratable view I do acknowledge that, Grant, if you can give more kind of color on what's going on within our unbundled stream.

Sure. So -- and it's really the success of our hybrid cloud model that we saw this year, which, again, we talked a lot about today, but that enables customers to get access to our AI-driven bots. While -- which are only deployed in the Verint cloud while maintaining their on-prem footprint. And that success enabled us to realize strong growth this year in unbundled SaaS revenue. So next year, we expect most of our bookings are once again going to come from AI adoption, which will recognize in bundled SaaS. However, because we have a number of hybrid customers and they have a large pool of renewals that come up, and we expect to renew again next year, we do expect unbundled SaaS revenue to grow the growth to moderate and should be single digits in fiscal '26.

Right. And I think, Grant, you showed an example of a health care insurance company, right? And they grew over 2 years, ARR from $3 million to $14 million.

That's right.

And the vast majority of that growth was in bundle as they were adopting 18 different bots, but they also grew at the same time in unbundle a little bit, right? So that's what's giving you confidence on the single-digit growth next year. Obviously, not as much growth as we expect in bundle because AI is driving the bundle growth but still some growth in unbundled as hybrid customers are expanding in unbundled as well.

On that topic, just a clarification question that came in, which I think is important for people to understand. Is bundled revenue, 100% bot revenue?

So it's almost 100%. So what we do in our cloud because bundled revenue is defined as revenue from deployments in the Verint cloud. So all these customers that have deployment in the Verint cloud, we continuously update software in the Verint Cloud. And we have updated a lot of our products to include AI. So that means that when you buy a bot, when you buy a new functionality that is delivered by a bot, obviously, that will be in the bundled SaaS revenue. But we also have now AI embedded in almost every application. So the reality is that bundled SaaS revenue is practically equal AI deployments.

Got it. Thank you, Dan. Next question. Hybrid cloud seems like a competitive advantage. How difficult is it for competitors to do this?

Jamie, that's -- I think will -- answer from you, right?

It's a great question. Thank you, whoever did that question because it's one of my favorite topics to talk about. But yes, it's absolutely one of our largest advantages in any competitive scenario. It's not something that happens overnight. We had to really have the foresight to build that into the platform at the core when we started building the platform. If you think about most of the alternatives out there, they don't support hybrid. They were born entirely in the cloud and we're not like a badge, which is fine, but it makes it very, very difficult then for them to support the complexity of the enterprise ecosystem. I mean -- again, I talked to 1 million customers. I talked to lots and lots of enterprises and none of them are 100% in the cloud. So it's our ability to meet them where they are in their ecosystem is a tremendous differentiator. And unless you build it from the ground up to support that the technology is different. The way you integrate is different, the way your network is different. The skill sets you need to support that type of environment aren't really present in many born in the cloud companies. So yes, it's a tremendous differentiator for us. And what it enables just to be clear, I mean, I'm talking about architecture a lot, obviously. But what it enables is that's why we can go and deliver those fast outcomes faster than any competitor because we meet them how they're deployed. We don't introduce a bunch of technology and infrastructure work for them to be able to see those outcomes. We walk in, we connect to what they have from our cloud into their ecosystem in a hybrid capacity. And just focus on getting an outcome from AI as opposed to years potentially of disruptive infrastructure work before they see the light at the end of the tunnel. So it's a huge differentiator for us. And more often than not, the reason many of my customers choose to partner with us because we can just do it faster, better and deliver it quicker than anyone else out there.

Thank you, Jamie.

I'd like to add -- one second, Matt. Let's remind -- so hybrid cloud is hard to build, but kind of let's remind ourselves why is it so compelling for customers. The alternative to hybrid cloud is you have to modernize and move your entire infrastructure to the cloud. And that for enterprise companies, that could be a 2-year project, very disruptive. And at the end of that project, you may or may not get the AI business outcomes that you expect. So not only it's going to take you 2 years and it's going to be expensive and disruptive, but also it doesn't give you the ability to test on a gradual manner -- in a gradual manner, what is really the value you're getting. So by separating that in a hybrid cloud and say, keep what you have in whatever existing infrastructure the way you run it, let's add AI in the cloud to your existing infrastructure in any pace that you like every step you measure the outcomes, you improve the outcome in your environment, and then you decide to grow, that's really why it's so compelling to customers. So it's avoiding risk, and it's getting the benefits now, you get ROI now for 2 years that otherwise you wouldn't get but you also get ROI that you really see it's working as opposed to a promise for an ROI at the end of the 2 years, which many of our customers have -- are skeptical about that -- whether that's going to happen. So it's a -- it's a technology differentiation, right, of building a platform that is hybrid from the core, but it has a very compelling economic benefit that drive customer behavior towards hybrid.

Thank you, guys. So the next question effectively is the stock doesn't reflect the value we're hearing about today. Why do you feel like it trades like it does. That's essentially what to paraphrase.

Alan, can you take this one?

Sure. So I think the way we think about it is that if you look at the CX space overall, stocks generally aren't trading very well. They're under pressure. And our view is that the market just now today distinguishing between companies that are focused on infrastructure and companies that are going after the CX Automation opportunity like we are. For all the reasons we discussed today, we believe we're very well positioned to go after this emerging category. And over time, that should accelerate our growth, but it's just not reflected in our stock price today. Today, we're traded more like an infrastructure company than an AI company. We're not getting credit for the opportunity. We're not getting credit for our leadership, and it's primarily because it's an early stage market. And we haven't shown the full acceleration in our results yet. So I think we hopefully will change that is that over time, as AI adoption drives faster AR growth, investors will be able to see how this is translating into our business better. And I'm hoping that by reporting ARR and also cash flow metrics going forward, investors will have better visibility into our progress towards capitalizing on this opportunity.

Thank you. Next question is essentially came in multiple ways. Discuss the long-term outlook of the business, how are you thinking about things? How should we think about things? Kind of an open-ended question, but I think it's important to me.

I got it. Let me take it. So today, we provided fiscal '26 guidance for ARR. And we talked about, we'll provide the revenue and EPS guidance in our Q4 conference call. The ARR, obviously, is what's driving the growth of the overall business because the rest of the business is perpetual and professional services, which will remain flat. And that's pretty much a view long term. We don't see perpetual as professional services as the growth driver. So from an ARR perspective, we talked about -- ARR is 8% for guidance. I did mention before that that's predicated on a certain booking level. And if we achieve higher booking level, the same we're achieving this year, then this will drive ARR growth to be 10%. So our perspective on long-term growth really did not change. ARR and cash generation and cash contribution, these are metrics that helps investors to simplify the way they measure the business, they don't change the growth rate of the business, but they will simplify because they basically neutralize the variability that comes with the 606 accounting. But in terms of the true growth of the business, we're committed to the operating leverage that we have in the business. So we'll continue to expand margins next year and the year after. And we are planning to continue to accelerate double-digit ARR growth. And all that will drive revenue and EPS and the Rule of 40 target that we've discussed before.

Okay. Thanks, Dan. A question related to that, can you discuss your thoughts on the macro environment as we sit here -- 10,000 customers globally, would be interested in your perspective.

So the macro is starting with what are the challenges that CX market has been facing. And that challenge actually did not change, right? We talked about $2 trillion of labor spend. And if you want to elevate CX, you have only one choice, hiring more people, and that's not sustainable. It's not a new challenge. It's a challenge that customers have been fighting for many years. And to a large extent, in WFE, which we are a category leader, we've been providing customers productivity tools. Workforce Engagement is basically creating workflows to improve capacity and productivity. So this is not a different experience for Verint, and it's not a new challenge for the market. So what has changed? What has changed is the technology has changed? And now with the emergence of more and more AI -- powerful AI models and a platform like Verint CX Automation platform that take models and quickly train them and keep training them so they don't degrade. So there's continuous training on the relevant data and then embedding them into the workflow. That creates now the opportunity to automate -- automation like didn't exist before. So that's why we refer to this as an emergence of the category or we refer to this as the first innings of the 6 automation category. And we are very, very pleased to be the leaders to step the way and lead the market into demonstrating what actually can be done. So based on the success so far, we believe that the market will accelerate and increase automation. CX Automation is complex. It's -- because it's a real-time environment. The workflows are not straightforward. These are not just cut and paste workflow, much more complex workflows that requires multimedia, multi-modalities, agents are working on different channels. Customers are calling from different places. Topics change very, very quickly as customers have new questions about new policies, new products and so on. So CX is a complex environment. But what Verint is telling the market today, it can be automated. Now you can throw GenAI and hope that everything will be automated. That doesn't work. That was proven not to work. But if you adopt an approach of taking one micro workflow at a time, and automating that micro workflow with precision, that works. So all that, how it's related to the macro. Customers would love to spend money when they are convinced they get 20x ROI. And we talked about customers getting 20x ROI with CX automation. So I think we are at a stage where the market just need to be more confident that this can work and not only that it can work, but it can work for me. Customers want to see that it works in their own environment. Obviously, when we have peers reporting, so when health care companies hear for another health care company about their success, that gives them more confidence. And even more so, if they can test it in their own environment, if they can start small and prove it to themselves, that gives them the utmost confidence that it works. So I think that the spending for CX Automation will increase. I think it will shift from other IT budget into more and more CX Automation. And I think we are in a very exciting area in the market that is about to change not just the way customers are going to deliver ROI, but I think they will be able to deliver better customer experience and then create better customer relationships. And that's going to make our customers more differentiated. I believe that brands that are not going to adopt CX Automation and continue to deliver an okay customer experience will just be left behind. So this is not just a technology and automation that drive cost down. This is giving our customers an opportunity to actually use that technology to create customer loyalty and retention and maximize customer revenue over time. And I will end this by actually pointing out many of the customers that you heard from today actually said just that, that they are not reducing headcount yet, although they see extra capacity. Again, Volaris, the airline in Mexico said, hey, we have the same number of agents, but they are handling 3x the traffic. So we did not have to increase the number of agents, but we were able to give customers much faster responses and they're calling more, and we're creating revenue -- we're increasing revenue. So we're increasing the CSAT score and increasing revenue. So many of the customers today spoke about how are they using the capacity first to increase revenue and customer satisfaction. But clearly, as they buy more and more of the Verint bots and they increase the capacity more and more, there will be a time where they have enough capacity to elevate the customer experience and extra capacity also to reduce the cost overall in their customer operations.

Thanks, Dan. In terms of the agent seat counts and all that, we got a few of those questions. I'm glad you touched on it because I was going to hit on that coming up. I do want to go to on cap structure, if we can. A few questions coming around that. We mentioned debt coming up in 2026. If we can just expand on those securities, our thoughts and plans here in early 2025.

Grant, will you take it?

Sure. Happy to. So yes, I mentioned in our prepared remarks, we do have some debt coming up in calendar '26 is when it comes due. So it becomes current a little bit later this year. And we'll be proactive about managing our balance sheet with that debt in mind. Just as a reminder, we do have strong cash flow and the generation that I talked about. So we have broad optionality, access to multiple markets, and we'll be very proactive in managing that. With regard to the capital allocation thought, right, with the use of the strong cash flow that we have coming in, we obviously expect the biggest use of our free cash flow to be on buybacks. And we've been steadily buying back shares over the last couple of years, and we started a new $200 million buyback program, which -- that was just in September. So that ought to be the largest use of our free cash flow. But in addition to buybacks, we may allocate some of that for debt repayment and some of it for the tech tuck-ins that we talked about as well. So I guess if I share anything, the idea, we'll be very proactive. We do have some of the debt. We have time to finalize our decisions on what we do moving forward, and we'll certainly be sharing that with you during our Q4 earnings at that point.

Thank you, Grant. A question here for Daniel, we'll [indiscernible], but I think I know it's coming too. Do you allow customers to make customizations on their specific workflows? How does this affect the cost structure on both sides?

Jamie?

Yes, I already went off mute. So I don't like the term customization because it suggests like professional services and rebuilding and doing a lot of stuff like that. I'll go with configuration and tuning. But yes, I mean, as Dan mentioned, these CX workflows are sophisticated. They're messy. They have multiple channels. There's multiple back-end systems. We build experiences and customer experience that automates significant portions of those workflows. So we have to talk to a variety of systems in their organizations, even ones that are unique and proprietary to them. So there's always some level of how do we fit it into your workflow, but we provide the automated tuning that happens inside the platform. So like you don't have to tell us about all the new products or new words that emerge in your language. We discover that as part of our DaVinci infrastructure. We have low-code tools. So when you need to call out to a system that you have internally, it's very easy a few button clicks and lets you configure those. So generally, we allow our customers to configure it and tune it for their environment where the platform does a tremendous amount of the tuning on their behalf. With -- and if customers want us to do it, we can also deliver to that as well. But the tools are already made in the platform for customers to be self-sufficient in configuring it in their environment and then connecting it to the variety of systems and other necessary pieces to fulfill the entirety of the workflow.

Thanks, Jamie. Another question. The essence of the questions that have come in around this are about agent licenses in our base, which we talked about 4 million before. What are the implications and potential of that happening and whether it's related to AI or otherwise?

Okay. So the question is related to reduction in our agent customer base. Okay. So 4 million agents today that we power with workflows with Workforce Engagement solutions. We generate, on average, $200 per agent per year. So that's what we are about to lose when a customer is deciding to reduce the number of agents. So it's $200 per agent per year. And we are basically with our bot program, we are already encouraging customers to do just that, to move from agent licenses to AI licenses. And the way we do that is we provide them credit. So if a customer decides to -- that they don't need any more agent licenses during the term of the contract, they will get credit, and they can apply that credit to buy the AI licenses that they need, which is really what they need in order to create a capacity that eventually will cause that agent count to come down. We also provided the examples earlier about the magnitude here. So when we face this with customers that they want to do this trade, we, on average, get a 10x growth opportunity because for the $200 of license for -- agent license per year, we will be receiving $2,000 of bot licenses that create that capacity. Now again, to remind you, while the customer is paying us 10x more, $2,000 instead of $200, they're saving $40,000 because that's the cost of the agent. So it's a 20x ROI for the customer. It's a win-win opportunity. Now I would say that we reported 4 million agents last year in Investor Day, and we're reporting 4 million agents this year. So we haven't seen degradation in the overall number of agents. We do see customers that are actually reducing agents. We do have those, but we also see many, as again, we showed you earlier today that are saying we have great capacity that we are producing, but we want to use the capacity for all kind of things before we actually want to use it for replacing agents. So with that, we talked about for fiscal '26, when we look at the ARR guidance we provided, we think that we're going to see a lot of capacity created, but still not that much degradation in agent counts. But in subsequent years, we're going to start to see more and more of the degradation as they buy more and more AI and continue to increase the capacity. And of course, in that point in time, we'll be happy to do this exchange program for our customers and get the 10x ROI opportunity. So right now, we are in the early stage. They are buying bots, they're creating capacity. They are buying many, many different bots, which is good. They are not necessarily scaling up those bots to full capacity immediately. Each bot is scaled at a separate time. But the fact that our customers -- many of our customers are experimenting with automating very, very different workflows with different bots is part of how they think about proving it and then scaling, pro it and scaling. And again, at some point, they will scale to a point that they will see the headcount reduction, and we will see the 10x ROI kicking in. Probably not in '26 in a material way, but more likely in '27, which will drive more growth for Verint.

Well, thank you, everyone. That's going to wrap it up. I hope I paraphrased most, if not all the questions. For any specific question that we did not get to, I will be in touch with you shortly via e-mail or I'll call you. And for anyone who is still interested in learning more or has any follow-up questions, of course, feel free to reach out, more than happy to chat. Thank you again for your time and joining us today, and we look forward to seeing you again soon.

Thanks.

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