Cognyte Software Raises Full-Year Outlook Following Strong Q2 Performance

Earnings call: Cognyte raises full-year outlook on robust Q2 performance By Investing.com

In a recent earnings call for the second quarter of the fiscal year 2025, Cognyte (ticker not provided) reported a revenue increase of 10% year-over-year to $84 million, with non-GAAP gross profit rising to $60.2 million. The company's strong performance and solid balance sheet, featuring $100 million in cash with no debt, have prompted an upward revision of its full-year revenue outlook to approximately $347 million, which would mark an 11% growth. Key drivers of this growth include significant contracts with international security and law enforcement agencies and a focus on expanding customer engagement with AI-driven solutions. Cognyte has demonstrated a robust financial performance in the second quarter of fiscal year 2025, with a notable increase in revenue and profitability. The company's strategic focus on AI-driven solutions and customer engagement, particularly in critical areas such as human trafficking and cyber threats, has been well-received in the market, as evidenced by substantial follow-on orders from international security agencies. With a strong cash position and no debt, Cognyte is poised for continued growth and is actively working to capitalize on the shift towards subscription-based revenue models. The company's proactive investor engagement suggests a commitment to transparency and growth, further solidifying its optimistic outlook for the future. Cognyte's recent earnings call highlighted a positive trajectory, with a 10% year-over-year revenue increase and an improved full-year revenue outlook. Delving deeper into the company's financial health and market performance, InvestingPro data and tips provide additional insights that are crucial for investors. InvestingPro Data shows that Cognyte holds a market capitalization of $468.03 million, signaling a moderate size within its industry. Despite not being profitable over the last twelve months, Cognyte's revenue growth was 8.02% in the same period, indicating an upward trend in its earning potential. The company's gross profit margin stood strong at 69.39%, reflecting a solid ability to control costs relative to its revenue. One of the InvestingPro Tips highlights that Cognyte holds more cash than debt on its balance sheet, which aligns with the company's reported $100 million in cash and no debt. This strong liquidity position offers Cognyte strategic flexibility to invest in growth or weather economic downturns. Another tip points out that two analysts have revised their earnings upwards for the upcoming period, suggesting that the market is responding positively to the company's performance and future prospects. It's worth noting that while Cognyte's stock price movements have been volatile, the company has experienced a high return over the last year, with a 58.3% price total return. This could be indicative of investor confidence in Cognyte's market position and its AI-driven solutions. For those looking to dive deeper into Cognyte's financials and market performance, InvestingPro offers additional tips -- there are 6 more listed in the full report on https://www.investing.com/pro/CGNT, which can provide further guidance for investment decisions. Operator: Good day ladies and gentlemen. Thank you for standing by. Welcome to the Cognyte second quarter fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will conduct a question and answer session. Instructions will be given at that time. Please note that today's conference may be recorded. I would now like to hand the conference over to your host, Dean Ridlon, Head of Investor Relations. Please go ahead. Dean Ridlon: Thank you Operator. Hello everyone, I'm Dean Ridlon, Cognyte's Head of Investor Relations. Thank you for joining us today. I'm here with Elad Sharon, Cognyte's CEO, and David Abadi, Cognyte's CFO. Before getting started, I would like to mention that accompanying our call today is a presentation. If you'd like to view these slides in real time during the call, please visit the Investors section of our website at cognyte.com. Click on Upcoming Events, then the webcast link for today's conference call. I would also like to draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of 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, Cognyte 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 other uncertainties could cause Cognyte's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20-F for the fiscal year ended January 31, 2024 and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP measures. Please see today's presentation slides, our earnings release and the Investors section of our website at cognyte.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 meaningful information about the financial performance of our business and is useful for investors for informational and comparative purposes. The non-GAAP financial measures that the company uses have limitations and may differ from those used by other companies. Now I'd like to turn the call over to Elad. Elad Sharon: Thank you Dean. Welcome everyone to our second quarter conference call. This was another strong quarter for Cognyte. We are delivering on our business plan, executing the growth strategy, and generating improved profitability as we leverage our financial model. We delivered another quarter of double-digit revenue growth with gross margin and adjusted EBITDA expanding more rapidly than revenue. This year-to-date performance, solid visibility and healthy demand have given us the confidence to increase our full-year outlook. During Q2, we delivered revenue of $84 million, up approximately 10% year-over-year. Non-GAAP gross profit increased 13% year-over-year, growing faster than revenue, consistent with our focus on margin expansion. We also generated $8 million of positive adjusted EBITDA in the quarter, more than three times the amount that we generated in Q2 last year, and we remain focused on delivering sustainable and profitable growth. A central component of our growth strategy is to deepen and broaden our engagements with existing customers by expanding the use of our solutions and introducing them to additional offerings. Our continued success in this area underscores the significant value we deliver and the strength of our customer relationships. In Q2, we secured three substantial follow-on orders, each valued at over $10 million. These orders came from two international security agencies and a law enforcement agency. Each of these customers has realized significant value from our solutions over the years. We believe our solutions have proven to be indispensable, providing our customers the quality, reliability and power needed to tackle evolving challenges effectively. In North America, we continued to make progress. During the first half of the fiscal year, we won deals with eight new customers. In each case, the customer replaced an incumbent with a Cognyte solution. Many of these new customers were referred to us by existing customers who have experienced the high value and superiority of our technology firsthand. We are encouraged by the progress we are making. I want to shed some light on the evolving world of threats and the intelligence imperative our customers face. Investigation challenges faced by law enforcement and security agencies are becoming increasingly complex over time across various activities, such as organized crime, counterterrorism, drug smuggling, human trafficking, financial crimes and illegal immigration. The growing challenges stem from the fact that bad actors are continually evolving, adopting more sophisticated tactics and exploiting the latest technologies to conceal their activities. They leverage encrypted communications, dark web networks and anonymous [indiscernible] methods to evade detection while increasingly using AI machine learning to mimic legitimate behavior and obscure their operations. This [indiscernible] makes it significantly harder for security agencies to track their activities, uncover networks and stop illegal operations before they take place. To empower our customers to stay ahead of these constantly evolving threats, we deliver cutting edge innovation powered by AI and advanced analytics. Our technology equips agencies to detect patterns, relationships and hidden insights that would otherwise be impossible to uncover. By partnering with and learning from hundreds of agencies worldwide, we continuously incorporate advanced intelligence methodologies, ensuring that our broad base of customers has the best tools to remain many steps ahead of bad actors. In an effort to give you a clear understanding of how our solutions are deployed and the impact they deliver, I would like to focus this quarter on human trafficking, which remains a critical challenge for law enforcement agencies globally. We can only imagine the immense suffering of the victims of human trafficking, making it imperative to identify and resolve these cases as quickly as possible. This illegal activity is highly sophisticated and organized with criminal networks operating across international borders using complex financial transactions and communicating in multiple languages. These groups also leverage the latest communication technologies to conceal their identities and evade detection. One of the key challenges law enforcement faces in tackling human trafficking is extracting actionable insights from the vast amount of digital and traditional data sources first. By deploying the Cognyte platform, law enforcement agencies can uncover digital traces, reveal hidden identities, trace financial transactions, and assess intents and risks. Proactive measures driven by decision intelligence not only enables faster resolution but also helps prevent future crimes. Another highlight of this quarter relates to our cyber threat solution, Luminar. Recently, Cognyte was recognized for Luminar AI insights, one of our AI-driven threat intelligence solutions, in an August 2024 Gartner (NYSE:IT) Report [indiscernible] the future of cyber threat intelligence research. In this report, Gartner assess strength impacting the threat intelligence domain, predicting that gen-AI based capabilities will become key as this technology will support faster mean time to respond by more quickly providing indicators about threats and the surrounding context. As generative-AI technologies advance and reshape cyber security, Cognyte has integrated these technologies into our Luminar solution and continues to develop even more advanced capabilities, making Luminar one of the only solutions with this cutting edge offering. In summary, we are making a meaningful difference for our customers, empowering them to address significant, growing and evolving threats. Our mission to make the world a safer place drives everything we do. Our cutting edge solutions accelerate investigations, enable faster decision making, and help mitigate a wide range of threats. We are continuing to grow, introducing new advanced capabilities, deepening the relationships with existing customers as well as expanding our reach with new ones. These accomplishments are strengthening our ability to deliver sustained profitable growth. With the strong first half of fiscal '25 and solid visibility into our revenue for the upcoming quarters, we are once again raising our full year outlook. We are now expecting revenue to be approximately $347 million, plus or minus 2%, representing about 11% year-over-year growth at the midpoint. Given the leverage in our financial model, we increased our adjusted EBITDA guidance and we now expect it to be about $25 million at the midpoint of the revenue range, almost three times what we generated in fiscal '24. Now let me turn the call over to David to provide more details about our Q2 results and updated fiscal '25 outlook. David? David Abadi: Thank you Elad, and hello everyone. We continue to deliver strong results that reflect our solid execution and the leverage we have in our financial model. Q2 revenue was $84.4 million, an increase of approximately 10% year-over-year. The majority of the revenue growth was driven by an increase in software revenue. Recurring revenue is strong. We continue to grow our recurring revenue, and in Q2 we generated $46.6 million of recurring revenue. We were able to drive gross profit growth faster than revenue. Non-GAAP gross margin for the quarter was 71.3%. Our non-GAAP gross profit for the quarter was $60.2 million, an increase of $6.9 million or 12.9% year-over-year growth. The margin expansion demonstrates the leverage we have built into our business model. This is largely driven by higher software revenue and the improved cost structure of our professional services organization. Our strong gross margin reflects the value our customers recognize in our innovative technology and our competitive differentiation. Non-GAAP operating income and adjusted EBITDA grew meaningfully faster than revenue, reflecting the strength of our financial model. We ended Q2 with non-GAAP operating income of $4.4 million and adjusted EBITDA of $8.3 million, resulting in positive non-GAAP EPS of $0.05. Looking at our H1 results, our revenue was $167.1 million and grew by 11% year-over-year, and our non-GAAP gross profit grew significantly faster by 15% year-over-year. The leverage we have in our model helps us generate meaningful improvement in profitability year-over-year. Our H1 non-GAAP operating income was $6.3 million versus an operating loss of $6.5 million during the first half of last fiscal year, and our H1 adjusted EBITDA was $13.3 million versus about breakeven in H1 of the previous year. Our balance sheet is strong. Our short and long term contract liabilities, also known as deferred revenue, are strong and were $111.4 million at the end of Q2. Contract liabilities balances and impacted by multiple factors: renewal timing of support and subscription contracts, advanced payments, and revenue recognition timing including contracts recognized under percentage of completion methodology. As a result, contract liabilities balances may fluctuate between quarters. Our cash position is strong with almost $100 million cash, up over $60 million from year end and no debt. The increase in our cash balance was primarily due to cash flow from operations we generated during the first half of the year. Over the past few quarters, we have shared new KPIs to help show how our business is progressing. One more new KPI we are now sharing is quarterly billings. Q2 billings were $77.8 million, representing 11% year-over-year growth. Billings is defined as revenue plus the change in contract liabilities, contract assets, and unbilled balances. Let me share with you how we performed against each of our other major KPIs. RPO, or remaining performance obligations represents contracted revenue that is expected to be recognized as revenue in future periods. As a reminder, a few factors primarily impact RPO in a given period: sales cycle, deployment cycle, length of contract, renewal timing, and seasonality. Total RPO was $567.7 million at the end of Q2. Short term RPO at the end of Q2 increased to $320.6 million, providing solid visibility into revenue over the next 12 months. We believe this level of RPO is healthy and supports our growth. In profitability, we are providing additional disclosure and we break down our RPO balances between deferred revenue and backlog. Our total RPO of $567.7 million is the sum of deferred revenue of $111.4 million and backlog of $456.3 million. Turning to revenue, Q2 revenue grew by 9.6% year-over-year and was $84.4 million. Our software revenue was $72.3 million, an increase of $5.6 million. Recurring revenue is strong. We continue to grow our recurring revenue and in Q2, we generated $46.6 million or 55% of total revenue. Recurring revenue is a contributor to visibility and long term growth and represents mainly support contract revenue and some subscription offerings. The vast majority of our Q2 revenue was from repeat business, similar to previous periods. This is a testament to the significant value our customer generates from our solution and the high confidence level in us for helping them succeed in their critical missions. Non-GAAP gross margin continued to improve and in Q2 was 71.3%, an increase of 209 basis points year-over-year. Our gross profit continued to grow meaningfully faster than revenue. In Q2, non-GAAP gross profit was up 12.9% year-over-year. The combination of revenue growth, better margins and effective cost structure drove significantly improved profitability. During Q2, we delivered $8.3 million of adjusted EBITDA and non-GAAP operating income of $4.4 million. Q2 was another quarter in which we demonstrated the leverage we have in our model and our financial strength. We have been focused on executing our goal to improve our financials and continue to drive margin expansion. Turning to guidance, given Q2 market conditions, our momentum and visibility, we are sharing an increased outlook for the year. For fiscal '25, we now expect full year revenue to be approximately $347 million, plus or minus 2%. This outlook represents approximately 11% year-over-year growth at the midpoint of the revenue range. We believe that our strong short term RPO of $320.6 million and the demand environment supports this outlook. We also believe that the seasonality of our revenue will be similar to historical patterns. We expect future revenue to be slightly above the Q2 level and ending the year with a strong Q4. Because of the leverage we have in our model, we now expect adjusted EBITDA to be about $25 million at the midpoint of the revenue range, compared to $9 million last year. As a result of our increased outlook, we now expect annual non-GAAP EPS loss to come in at $0.03 at the midpoint of the revenue range. We continue to expect to generate about $37 million of cash from operations for this year. To summarize, we have started the year with a strong H1 and we have been executing consistently well and producing strong results. We continue to add capabilities and increase the value our advanced solutions deliver to new and existing customers by leveraging the latest technologies, including AI. We increased our revenue and profitability outlook for the current year and expect fiscal '25 to be a year of continued growth, significant profitability improvement, and strong cash flow from operations. We believe we are well positioned for sustainable growth and have leverage in our model so we can generate additional improvements in profitability in future years. With that, I would like to hand the call over to the Operator to open the line for questions. Operator? Operator: Thank you. [Operator instructions] Our first question comes from Mike Cikos with Needham. Your line is open. Mike Cikos: Hey guys, thanks for taking the questions here. Just wanted to cycle back to the revenue composition when we're looking at it today. I saw the software and software service declined 5% sequentially, which I think was the first time that we've seen this revenue stream decrease since 3Q of fiscal '23, so just trying to get a sense of the software and software service revenue to understand what caused that decline, or was that in line with how you guys had expected? Elad Sharon: Yes, hi Mike. The vast majority of our offering is offered in perpetual license. As you remember, we do offer certain elements of our portfolio in a subscription model, and recurring revenue this quarter grew sequentially and year-over-year. In Q2, the recurring revenue came in at $46.6 million versus $41.2 million in Q2 last year, representing about a 40% increase related to incremental subscription revenue, so if you look at it, the overall software revenue increased year-over-year by $5.5 million, so actually it's a conversion of perpetual license to some offerings that are subscription. Mike Cikos: Got it. If I think about the guidance that we have here for the rest of the year now, can you help us better think through, I guess, this flip you're expecting between software and software service versus the professional services, just again because that professional services was so strong in this past quarter. David Abadi: Yes Mike, it's David. In general, our guidance baked in the subscription revenue that we're seeing that is growing. You can see the trend on overall recurring revenue that is growing and is becoming more than 55% of the total revenue, which is good - it gives us visibility, and you can see that between the growth in the recurring revenue, the portion of the subscription is higher. Now, if you will think about governmental agencies, their purchasing behavior has remained the same - their preference is to still buy in our domain on a capex model, which means in other words perpetual. We do encourage the customer to do this transition and we are very pleased that we were able to do it this year, but from a forecast perspective, our 11% is taking into consideration everything, and we believe that in the long term, there will be more impact related to subscriptions. Mike Cikos: Got it, thank you very much. I'll leave it there and turn it over to my colleagues. Operator: Thank you. As a reminder, if you'd like to ask a question, please press star-one-one. I'm showing no further questions at this time. I'd like to turn the call back over to Dean for any closing remarks. Dean Ridlon: Thank you Michelle, and thank you everyone for joining us on today's call. Elad, David and I will be traveling to Chicago, Milwaukee and Minneapolis in early October to meet with investors, and hope to see some of you then. In the meantime, please feel free to reach out to me should you have any questions, and we look forward to speaking with you again next quarter. Operator: Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone have a great day.

Cognyte Software (CGNT) Q2 2025 Earnings Call Transcript

Elad Sharon - Chief Executive Officer David Abadi - Chief Financial Officer Dean Ridlon - Head of Investor Relations Good day ladies and gentlemen. Thank you for standing by. Welcome to the Cognyte second quarter fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will conduct a question and answer session. Instructions will be given at that time. Please note that today's conference may be recorded. I would now like to hand the conference over to your host, Dean Ridlon, Head of Investor Relations. Please go ahead. Dean Ridlon Thank you Operator. Hello everyone, I'm Dean Ridlon, Cognyte's Head of Investor Relations. Thank you for joining us today. I'm here with Elad Sharon, Cognyte's CEO, and David Abadi, Cognyte's CFO. Before getting started, I would like to mention that accompanying our call today is a presentation. If you'd like to view these slides in real time during the call, please visit the Investors section of our website at cognyte.com. Click on Upcoming Events, then the webcast link for today's conference call. I would also like to draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of 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, Cognyte 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 other uncertainties could cause Cognyte's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20-F for the fiscal year ended January 31, 2024 and other filings we make with the SEC. The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP measures. Please see today's presentation slides, our earnings release and the Investors section of our website at cognyte.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 meaningful information about the financial performance of our business and is useful for investors for informational and comparative purposes. The non-GAAP financial measures that the company uses have limitations and may differ from those used by other companies. Thank you Dean. Welcome everyone to our second quarter conference call. This was another strong quarter for Cognyte. We are delivering on our business plan, executing the growth strategy, and generating improved profitability as we leverage our financial model. We delivered another quarter of double-digit revenue growth with gross margin and adjusted EBITDA expanding more rapidly than revenue. This year-to-date performance, solid visibility and healthy demand have given us the confidence to increase our full-year outlook. During Q2, we delivered revenue of $84 million, up approximately 10% year-over-year. Non-GAAP gross profit increased 13% year-over-year, growing faster than revenue, consistent with our focus on margin expansion. We also generated $8 million of positive adjusted EBITDA in the quarter, more than three times the amount that we generated in Q2 last year, and we remain focused on delivering sustainable and profitable growth. A central component of our growth strategy is to deepen and broaden our engagements with existing customers by expanding the use of our solutions and introducing them to additional offerings. Our continued success in this area underscores the significant value we deliver and the strength of our customer relationships. In Q2, we secured three substantial follow-on orders, each valued at over $10 million. These orders came from two international security agencies and a law enforcement agency. Each of these customers has realized significant value from our solutions over the years. We believe our solutions have proven to be indispensable, providing our customers the quality, reliability and power needed to tackle evolving challenges effectively. In North America, we continued to make progress. During the first half of the fiscal year, we won deals with eight new customers. In each case, the customer replaced an incumbent with a Cognyte solution. Many of these new customers were referred to us by existing customers who have experienced the high value and superiority of our technology firsthand. We are encouraged by the progress we are making. I want to shed some light on the evolving world of threats and the intelligence imperative our customers face. Investigation challenges faced by law enforcement and security agencies are becoming increasingly complex over time across various activities, such as organized crime, counterterrorism, drug smuggling, human trafficking, financial crimes and illegal immigration. The growing challenges stem from the fact that bad actors are continually evolving, adopting more sophisticated tactics and exploiting the latest technologies to conceal their activities. They leverage encrypted communications, dark web networks and anonymous [indiscernible] methods to evade detection while increasingly using AI machine learning to mimic legitimate behavior and obscure their operations. This [indiscernible] makes it significantly harder for security agencies to track their activities, uncover networks and stop illegal operations before they take place. To empower our customers to stay ahead of these constantly evolving threats, we deliver cutting edge innovation powered by AI and advanced analytics. Our technology equips agencies to detect patterns, relationships and hidden insights that would otherwise be impossible to uncover. By partnering with and learning from hundreds of agencies worldwide, we continuously incorporate advanced intelligence methodologies, ensuring that our broad base of customers has the best tools to remain many steps ahead of bad actors. In an effort to give you a clear understanding of how our solutions are deployed and the impact they deliver, I would like to focus this quarter on human trafficking, which remains a critical challenge for law enforcement agencies globally. We can only imagine the immense suffering of the victims of human trafficking, making it imperative to identify and resolve these cases as quickly as possible. This illegal activity is highly sophisticated and organized with criminal networks operating across international borders using complex financial transactions and communicating in multiple languages. These groups also leverage the latest communication technologies to conceal their identities and evade detection. One of the key challenges law enforcement faces in tackling human trafficking is extracting actionable insights from the vast amount of digital and traditional data sources first. By deploying the Cognyte platform, law enforcement agencies can uncover digital traces, reveal hidden identities, trace financial transactions, and assess intents and risks. Proactive measures driven by decision intelligence not only enables faster resolution but also helps prevent future crimes. Another highlight of this quarter relates to our cyber threat solution, Luminar. Recently, Cognyte was recognized for Luminar AI insights, one of our AI-driven threat intelligence solutions, in an August 2024 Gartner Report [indiscernible] the future of cyber threat intelligence research. In this report, Gartner assess strength impacting the threat intelligence domain, predicting that gen-AI based capabilities will become key as this technology will support faster mean time to respond by more quickly providing indicators about threats and the surrounding context. As generative-AI technologies advance and reshape cyber security, Cognyte has integrated these technologies into our Luminar solution and continues to develop even more advanced capabilities, making Luminar one of the only solutions with this cutting edge offering. In summary, we are making a meaningful difference for our customers, empowering them to address significant, growing and evolving threats. Our mission to make the world a safer place drives everything we do. Our cutting edge solutions accelerate investigations, enable faster decision making, and help mitigate a wide range of threats. We are continuing to grow, introducing new advanced capabilities, deepening the relationships with existing customers as well as expanding our reach with new ones. These accomplishments are strengthening our ability to deliver sustained profitable growth. With the strong first half of fiscal '25 and solid visibility into our revenue for the upcoming quarters, we are once again raising our full year outlook. We are now expecting revenue to be approximately $347 million, plus or minus 2%, representing about 11% year-over-year growth at the midpoint. Given the leverage in our financial model, we increased our adjusted EBITDA guidance and we now expect it to be about $25 million at the midpoint of the revenue range, almost three times what we generated in fiscal '24. Now let me turn the call over to David to provide more details about our Q2 results and updated fiscal '25 outlook. David? We continue to deliver strong results that reflect our solid execution and the leverage we have in our financial model. Q2 revenue was $84.4 million, an increase of approximately 10% year-over-year. The majority of the revenue growth was driven by an increase in software revenue. Recurring revenue is strong. We continue to grow our recurring revenue, and in Q2 we generated $46.6 million of recurring revenue. We were able to drive gross profit growth faster than revenue. Non-GAAP gross margin for the quarter was 71.3%. Our non-GAAP gross profit for the quarter was $60.2 million, an increase of $6.9 million or 12.9% year-over-year growth. The margin expansion demonstrates the leverage we have built into our business model. This is largely driven by higher software revenue and the improved cost structure of our professional services organization. Our strong gross margin reflects the value our customers recognize in our innovative technology and our competitive differentiation. Non-GAAP operating income and adjusted EBITDA grew meaningfully faster than revenue, reflecting the strength of our financial model. We ended Q2 with non-GAAP operating income of $4.4 million and adjusted EBITDA of $8.3 million, resulting in positive non-GAAP EPS of $0.05. Looking at our H1 results, our revenue was $167.1 million and grew by 11% year-over-year, and our non-GAAP gross profit grew significantly faster by 15% year-over-year. The leverage we have in our model helps us generate meaningful improvement in profitability year-over-year. Our H1 non-GAAP operating income was $6.3 million versus an operating loss of $6.5 million during the first half of last fiscal year, and our H1 adjusted EBITDA was $13.3 million versus about breakeven in H1 of the previous year. Our balance sheet is strong. Our short and long term contract liabilities, also known as deferred revenue, are strong and were $111.4 million at the end of Q2. Contract liabilities balances and impacted by multiple factors: renewal timing of support and subscription contracts, advanced payments, and revenue recognition timing including contracts recognized under percentage of completion methodology. As a result, contract liabilities balances may fluctuate between quarters. Our cash position is strong with almost $100 million cash, up over $60 million from year end and no debt. The increase in our cash balance was primarily due to cash flow from operations we generated during the first half of the year. Over the past few quarters, we have shared new KPIs to help show how our business is progressing. One more new KPI we are now sharing is quarterly billings. Q2 billings were $77.8 million, representing 11% year-over-year growth. Billings is defined as revenue plus the change in contract liabilities, contract assets, and unbilled balances. Let me share with you how we performed against each of our other major KPIs. RPO, or remaining performance obligations represents contracted revenue that is expected to be recognized as revenue in future periods. As a reminder, a few factors primarily impact RPO in a given period: sales cycle, deployment cycle, length of contract, renewal timing, and seasonality. Total RPO was $567.7 million at the end of Q2. Short term RPO at the end of Q2 increased to $320.6 million, providing solid visibility into revenue over the next 12 months. We believe this level of RPO is healthy and supports our growth. In profitability, we are providing additional disclosure and we break down our RPO balances between deferred revenue and backlog. Our total RPO of $567.7 million is the sum of deferred revenue of $111.4 million and backlog of $456.3 million. Turning to revenue, Q2 revenue grew by 9.6% year-over-year and was $84.4 million. Our software revenue was $72.3 million, an increase of $5.6 million. Recurring revenue is strong. We continue to grow our recurring revenue and in Q2, we generated $46.6 million or 55% of total revenue. Recurring revenue is a contributor to visibility and long term growth and represents mainly support contract revenue and some subscription offerings. The vast majority of our Q2 revenue was from repeat business, similar to previous periods. This is a testament to the significant value our customer generates from our solution and the high confidence level in us for helping them succeed in their critical missions. Non-GAAP gross margin continued to improve and in Q2 was 71.3%, an increase of 209 basis points year-over-year. Our gross profit continued to grow meaningfully faster than revenue. In Q2, non-GAAP gross profit was up 12.9% year-over-year. The combination of revenue growth, better margins and effective cost structure drove significantly improved profitability. During Q2, we delivered $8.3 million of adjusted EBITDA and non-GAAP operating income of $4.4 million. Q2 was another quarter in which we demonstrated the leverage we have in our model and our financial strength. We have been focused on executing our goal to improve our financials and continue to drive margin expansion. Turning to guidance, given Q2 market conditions, our momentum and visibility, we are sharing an increased outlook for the year. For fiscal '25, we now expect full year revenue to be approximately $347 million, plus or minus 2%. This outlook represents approximately 11% year-over-year growth at the midpoint of the revenue range. We believe that our strong short term RPO of $320.6 million and the demand environment supports this outlook. We also believe that the seasonality of our revenue will be similar to historical patterns. We expect future revenue to be slightly above the Q2 level and ending the year with a strong Q4. Because of the leverage we have in our model, we now expect adjusted EBITDA to be about $25 million at the midpoint of the revenue range, compared to $9 million last year. As a result of our increased outlook, we now expect annual non-GAAP EPS loss to come in at $0.03 at the midpoint of the revenue range. We continue to expect to generate about $37 million of cash from operations for this year. To summarize, we have started the year with a strong H1 and we have been executing consistently well and producing strong results. We continue to add capabilities and increase the value our advanced solutions deliver to new and existing customers by leveraging the latest technologies, including AI. We increased our revenue and profitability outlook for the current year and expect fiscal '25 to be a year of continued growth, significant profitability improvement, and strong cash flow from operations. We believe we are well positioned for sustainable growth and have leverage in our model so we can generate additional improvements in profitability in future years. With that, I would like to hand the call over to the Operator to open the line for questions. Operator? Our first question comes from Mike Cikos with Needham. Your line is open. Mike Cikos Hey guys, thanks for taking the questions here. Just wanted to cycle back to the revenue composition when we're looking at it today. I saw the software and software service declined 5% sequentially, which I think was the first time that we've seen this revenue stream decrease since 3Q of fiscal '23, so just trying to get a sense of the software and software service revenue to understand what caused that decline, or was that in line with how you guys had expected? Elad Sharon Yes, hi Mike. The vast majority of our offering is offered in perpetual license. As you remember, we do offer certain elements of our portfolio in a subscription model, and recurring revenue this quarter grew sequentially and year-over-year. In Q2, the recurring revenue came in at $46.6 million versus $41.2 million in Q2 last year, representing about a 40% increase related to incremental subscription revenue, so if you look at it, the overall software revenue increased year-over-year by $5.5 million, so actually it's a conversion of perpetual license to some offerings that are subscription. Mike Cikos Got it. If I think about the guidance that we have here for the rest of the year now, can you help us better think through, I guess, this flip you're expecting between software and software service versus the professional services, just again because that professional services was so strong in this past quarter. David Abadi Yes Mike, it's David. In general, our guidance baked in the subscription revenue that we're seeing that is growing. You can see the trend on overall recurring revenue that is growing and is becoming more than 55% of the total revenue, which is good - it gives us visibility, and you can see that between the growth in the recurring revenue, the portion of the subscription is higher. Now, if you will think about governmental agencies, their purchasing behavior has remained the same - their preference is to still buy in our domain on a capex model, which means in other words perpetual. We do encourage the customer to do this transition and we are very pleased that we were able to do it this year, but from a forecast perspective, our 11% is taking into consideration everything, and we believe that in the long term, there will be more impact related to subscriptions. Mike Cikos Got it, thank you very much. I'll leave it there and turn it over to my colleagues. Thank you. As a reminder, if you'd like to ask a question, please press star-one-one. I'm showing no further questions at this time. I'd like to turn the call back over to Dean for any closing remarks. Dean Ridlon Thank you Michelle, and thank you everyone for joining us on today's call. Elad, David and I will be traveling to Chicago, Milwaukee and Minneapolis in early October to meet with investors, and hope to see some of you then. In the meantime, please feel free to reach out to me should you have any questions, and we look forward to speaking with you again next quarter. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone have a great day.