Cognyte Software Ltd. (CGNT) Q2 2027 Earnings Call Transcript

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cognite Second Quarter Fiscal Year 2027 Earnings Conference Call. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Dean Ridlon, Head of Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone. I'm Dean Ridlon, Cognite's Head of Investor Relations. Thank you for joining us today. I'm here with Alad Sharone, Cognite CEO, and David Abadi, Cognite 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 Investor section of our website at Cognite.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 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, Cognite 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 Cognite's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20F for the fiscal year ended January 31, 2026, 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 cognate.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 information about the financial performance of our business and is useful to 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 would like to turn the call over to Alad.

Thank you, Dean, and hello, everyone. Q2 was a strong quarter for Cognite. We are growing, executing against our operating plan, and strengthening the business as we scale. Total software revenue grew 21% over a year, and recurring revenue grew 18%, both meaningfully faster than total revenue. Profitability expanded significantly faster than revenue, reflecting the leverage we have built into the model. Beyond our performance is a healthy environment across the markets we serve. Governments in our market are prioritizing national security, military intelligence, border security, and public safety, and they are investing to build the intelligence capabilities these missions now require. Threats are moving faster, data volumes are growing, and agencies need technology they can trust, explain, and control. That is why AI and sovereignty are now the center of customer discussions. First, AI is reshaping how intelligence work is done, transforming both the threat and the opportunity. As investigative environments become more data-intensive and time-sensitive, customers are looking for AI and authentic capabilities embedded directly within their operational workflows. AI helps agencies not only work faster, but differently, uncovering hidden connections, surfacing insights that would otherwise be missed, taking the routine work off analysts so their expertise goes where it counts.

But a commercial AI engine on its own does not do that.

It is only a starting point. What turns it into something an agency can use are two things. The first is domain expertise. Knowing how intelligence work is done, what the data means, and where the answer is likely to be. The second is governance. In mission-critical work, an analyst has to know why the technology reached a conclusion and be able to stand behind it. Agencies do not accept the black box, so they are not buying AI tools. They are buying platforms powered by AI, built by domain experts who understand the mission. That is much harder thing to build, and the reason it is hard is the nature of the work. Intelligence work is not made of common cases. It is the rare, the obscure, and the deliberately hidden. A general purpose model handles the common well. That is not where our customers' investigations live. Second, sovereignty. Agencies want their intelligence capabilities under their own control, their data, their infrastructure, their operations. Security agencies can't afford to depend on systems they do not own and control. They want the data to stay where they decide, the systems to run where they decide, and the ability to keep operating whatever happens around them. Putting the AI and sovereignty together with what we shared with you before, the growth in the volume and complexity of data and how fragmented most agencies' environments have become, you can see why the Cognite platform is such a strong fit. Agencies need to work with more data than ever, faster than ever, with AI they can trust and explain, and on infrastructure they control. This is the environment our platform is built to serve. We win for a few reasons. Agencies choose us because we cover the whole spectrum from the field to the decision. They can run it under their own control in the environment they're actually operating. And we bring domain expertise built from working with government customers around the world, which we then keep feeding back into our solutions. These advantages are helping us win against competitors, including in-house build systems, and we saw that translate into strong commercial traction across expansions, upgrades, and new logos. U-Logo activity remains strong across geographies with 14 new customers in H1 compared to 31 in the same period last year. One of them is a 3-1 national security agency in a NATO member nation who were referred to us by another agency we serve. We extended within our customer base. Among our extension disorder, two in Asia Pacific stand out. One, to expand its network intelligence capabilities. Another, to secure its borders, including mitigating unmanned aerial threats. In the U.S., we made progress across all priority segments. In federal, several opportunities have moved into procurement following strong proof of concepts and operational demonstration. And in second local, we won with both new and existing customers. We are on target to achieve $20 million of signed deals in the U.S. this year. That momentum across our growth pillars has continued since quarter-end with several additional significant agreements signed. We'll provide more details on these wins in the coming weeks. The takeaway is simple. Our growth strategy is working, and the momentum is broad and global.

We took part in major events across four continents.

These events span the range of intelligence missions, including law enforcement, military intel, and national security. In the U.S., at the largest law enforcement event, Natia, inbound interest was high. In addition, agencies are approaching us directly after reading about Gugnate in the trade and business press, or on referrals from other agencies, or from industry experts. In this market, agencies rely on what their peers have already deployed. And that works in our favor. Reputation is key. What we hear from prospects and customers in these engagements is the same thing we have been describing to you for several quarters. Agencies are drowning in data they already hold. Their environment is fragmented. They are under pressure to move faster than their systems allow. And now, on top of that, they have to decide how to bring AI into work where every conclusion has to be defensible on infrastructure they control. These are the problems we are built to address. Customers are bringing us into strategic conversations early as they share the future plans and think through what next-generation intelligence solutions should look like. That engagement works both ways. They look to us for perspective and innovative solutions and we listen closely to their priorities using that insight to help shape where we invest. Those relationships take years to build and the trust behind them is what lets us keep growing with customers as their missions evolve. On the organization, Adam Philpott joined us as Chief Revenue Officer early last month to lead our global commercial organization. Adam brings deep experience building and scaling go-to-market teams in the security industry globally, and he joins Cognite at an important time with strong customer momentum and a healthy demand environment that presents a significant opportunity. His priorities are the same three growth drivers, expanding with existing customers, winning new agencies, and accelerating their growth in the United States. I'm excited to have Adam on the team and look forward to working with him as we build on the momentum across the business. In closing, Cognite is stronger, more focused, and better positioned than a year ago. The market is moving directly towards what we have built for. Mission-critical intelligence in a complex, high-stakes environment, powered by trusted AI, sovereign control, and continuous innovation, all grounded in deep domain expertise and through long-term relationships with customers around the world. Our strategy is working, our momentum is global, and the quality of our business continues to improve. With strong execution and visibility ahead, we remain confident in our full-year outlook and fiscal 28 targets. We have built a platform, the expertise, and the trust this market now demands, and we are moving forward with confidence and ambition. With that, I'll turn the call over to David for a deeper review of our results and outlook.

Thank you, Elad, and hello, everyone. Elad talked about the quality of the business improving. That is exactly what our financial model is designed to deliver. We drive profitable growth by increasing the contribution from software and recurring revenue, expanding gross margins, and maintaining discipline around operating expenses. That model is working. Revenue was approximately $109 million, up 12% year-over-year. Total software revenue grew 20.9% to $100.8 billion and represent more than 92% of total revenue in Q2. The current revenue grew 18.4% year-over-year to $56.2 million and represented 51.4% of total revenue. Professional services represented less than 8% of total revenue, compared with approximately 15% a year ago, reflecting the increasing software content of our business. This ongoing mix shift supports higher quality revenue, stronger margins, and greater scalability. Put simply, software revenue grew at nearly twice the company overall growth rate. but recurring revenue also grew significantly faster. The result, both are becoming larger contributors to our overall revenue mix. A point to note about recurring revenue is that our model is different from a traditional SaaS model. A portion of our recurring revenue comes from campaign slicing arrangements that are recognized at a point in time, rather than relatively over the life of the contract. As a result, recurring revenue is not the same as ARR and can fluctuate between quarters based on the timing of revenue recognition. What matters strategically is that recurring revenue is growing faster than the company overall and becoming a larger part of our business, enhancing revenue visibility and supporting long-term growth. Now I will review the results in more details. Breaking down the revenue mix, software revenue grew 34.5% year-over-year to $49.2 million. Software revenue is comprised of perpetual licenses, appliances, and term-based subscription licenses. Software services revenue grew by $4.8 million, or 10.3% year-over-year, to $51.6 million. dollars coming many from support contracts and to a lesser extent cloud based past subscriptions total software revenue was one hundred point eight million dollars up twenty point nine percent growing significantly faster than total revenue and up by seventeen point five million dollars year over year software revenue now represent more than 92 percent of total revenue versus approximately 86 percent one year ago professional services revenue was 8.4 million dollars in q2 compared to 14.2 million dollars last year recurring revenue increased by 18.4 percent to 56.2 million dollars representing 51.4% of total revenue on gross margin and profit we continue to improve year-over-year Q2 NAMGAP gross margin was 73.7% an expansion of 154 basis points NAMGAP gross profit grew 14.4% or ten point one million dollars to a total of 80.5 million dollars again faster than revenue our model continues to deliver strong financial leverage and profitability is expanding significantly faster than revenue the majority of the year of the year increase in operating expenses reflected foreign exchange movements primarily the weaker us dollar against the average shekel we continue to partially edge future periods we partially offset that impacts through ongoing efficiency initiatives across the organization including increased use of enterprise ai despite the fx headwinds operating expenses grew more slowly than revenue allowing profitability to grow significantly faster due to non-gap operating expenses were $68.2 million. Gap operating income increased 69.7% year-over-year to $4.7 million against revenue growth of 12%. Non-gap operating income increased 52.5% to $12.2 million. dollars adjusted EBITDA increase thirty five point seven percent to fourteen point nine million dollars non-gap EPS was fifteen cents nearly double the eight cents we generated last year grab diluted EPS was six cents compared with two cents a year ago reflecting the significant improvement in our processability these results demonstrate the operating leverage we have been working to build revenue grew to represent while non-gap operating income grew more than four times as fast looking at the first half the same trends are evident H1 revenue was two hundred and fourteen point seven million dollars at 11.2 percent total social revenue was 198.1 million dollars up 19.8 percent the current revenue was 108.1 million dollars up 14.2 percent gap operating income was 9.1 million dollars up 85.1 percent year over year non-gap operating income was twenty two point nine million dollars up forty seven point two percent importantly we achieved these results despite approximately seven million dollars of net unfavorable foreign exchange impact on operating profitability in the first half of the year so across both the quarter and the first half we are seeing consistent execution against our financial model compared with a year ago sognite is generating more revenue with higher quality more software revenue higher recurring revenue higher gross margins and meaningfully greater profitability turning to rpo total rpo quarter end was 470.2 million dollars including 313.4 million dollars of short-term rpo as we discussed previously rpo remains an indicator of future contracted revenue But movement in the metric can also reflect contract structure, duration, renewals, and the consumption of large multi-year agreements. Reported RPO excludes the countable portion of subscription contract. At July 31, approximately $42 million of future revenue associated with those arrangements was therefore not included in Reported RPO. In addition, approximately $30 million of the change in the RPO reflected the consumption of large multi-year support contracts as we delivered against those agreements and recognized the associated revenue. Short-time RPO is an important component of our revenue visibility, but it does not capture the full picture. When we combine short-term RPO with expected renewals of recurring business and contracts signed since quarter end, we have visibility into approximately 85% of the revenue required to support our plan over the next 12 months. The remaining approximately 15% is expected to come primarily from normal book and ship activity. That level is well within our historical execution range and supports our confidence in our growth objectives. This level of visibility is one of the reasons we believe we remain on track to achieve our FOA 27 outlook and FOA 28 revenue target of $500 million. dollars q2 billings were 76.3 million dollars as billing can vary significantly quarter to quarter based on contract terms we believe the trailing through of months measure is more informative on that basis billing were approximately 95 percent of revenue which we believe reflects the underlying strength of the business turning to cash flow we generated 1.1 million dollar of positive cash flow from operation in Q2 compared to net cash used in operating activity of six point three million dollars in Q2 last year this improvement reflect stronger collections and profitability as well as disciplined working capital management the second quarter also includes our annual incentive payments and other seasonal working capital uses turning to our balance sheet our financial position remains strong we ended the quarter with 102.2 million dollars in cash and no debt providing us with significant flexibility during the first six months of fiscal 27 we repurchased approximately 1.5 million ordinary shares for 13.5 million Since launching our first repurchase program in November 2024, we have repurchased approximately $40.2 million of shares through the end of Q2 FOA 27. Out of the $60 million authorized across the company's repurchase programs, our capital allocation priorities remains unchanged. We continue investing organically to support growth, evaluate strategic M&A opportunities where we see the potential to create returns significantly in access of our cost of capital, and use share repurchases opportunistically when we believe they represent a compelling use of capital. Turning to our outlook, our first-ask performance remains strong and the demand environment is healthy based on our execution to date and the visibility we have into the remainder of the year we are narrowing our full year revenue range around an unchanged midpoint we now expect full year revenue of approximately four hundred and forty eight million dollars plus or minus two percent representing approximately three percent year-over-year growth at the midpoint we continue to expect recurring revenue to go faster than total revenue and become a larger contributor to overall business as we have discussed the increasing adoption of subscription agreements can shift the timing of reported revenue recognition compared with our historical perpetual model but this can affect reported growth in a particular period, we believe the continued shift toward recurring arrangement strengthens the long-term visibility and durability of our revenue base. Total software represented a particularly high percentage of revenue in Q2. We expect quarterly mix to continue to fluctuate based on the timing and composition of customer activity, and our full-year outlook does not assume the q2 mix persist throughout the second half from a quarterly cadence perspective we currently expect q3 revenue to be slightly higher than q2 followed by sequential growth in q4 consistent with the seasonality reflected in our full year outlook we also remain confident in our profitability outlook we expect non-gap gross margin of approximately 73 and a half percent for the year an improvement of 50 basis points from last year we continue to expect non-gap operating income to be about six million dollars growth of more than 50 percent year-over-year and adjust the debida of approximately 68 million dollars growth of about 40 percent we continue to expect annual non-gap EPS of 47 cents at the midpoint of the range on cash flow we continue to expect significant positive operating cash flow for the full year given the customer demand and future growth opportunities we are making targeted inventory investment to support expected customer delivers as a result the timing and the level of cash generation this year is expected to be affected It reflects a deliberate working capital investment rather than any change in the underlying performance of the business. To close, the progress we are making reflects the strength of our strategy and the discipline of our execution. We are building a higher quality business, one with a greater contribution from software, a growing recurring revenue base, stronger margins, and increasing operating leverage as we scale. This is not only about the first half, or even the fiscal year. It's about building a more durable, more predictable, and more profitable overnight for the long time. With healthy demand, strong customer momentum, and clear visibility into the opportunities ahead, Remain confident in our FOA 27 outlook and on track to achieve our FOA 28 targets. For later, we are ready to take questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, you will need to press star 1-1 on your touch-tone telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. First question in queue coming from the line of Eric Matinuzzi with Lake Street Capital Markets. Your line is now open.

Yeah, a couple of questions. First off, Elad, for the U.S. federal pipeline, you talked about there's good success there. You've got some transactions that are in the procurement phase. Just curious to know if these are transactions that you expect to be awarded during the current fiscal year, the government fiscal year ended September 30th, or if that's something that's further out on the horizon.

Hi, good morning. Thanks for the question. Yes, actually, we have problems with federal agencies. We had the POC with few law enforcement fed agencies, very successful results, very good feedback from customers. And I do expect some things already in this fiscal year.

Okay. And then for David, the RPO number that you gave, that 470 million total RPO number, that was down versus the April quarter, which was down versus the January quarter. Are we expecting that to trough and recover here? Can you give me a little bit more insight on the total RPO number?

Yeah, sure. So, first of all, it's important to say that demand is very strong and it aligns to our strategy. I think it's reflected in the strong customer expansion we discussed and we shared with you and also with new logos that we have acquired. We also see growing customer preference for subscription-based arrangements. This also improves the quality and visibility of the business, but has some shifts affecting the reported RPO. You know, RTO is an important indicator of visibility, but given the market, the business dynamics today, it doesn't have the full story by its own. And you need to look at it in a wider perspective. This includes RTO that excludes the subscription period, as David mentioned earlier, that remains subject to cancellation. And it's about $42 million by the end of Q2. You have large multi-year contracts that are recognized and consumed over time. We shared a few times before that we had very large renewals for three years. So every year you consume one third of it. So you see that the consumption takes the RPO down. And if you look at it specifically for this quarter, actually this year it's about $30 million. dollars. Other two indicators that are related to RPO are the renewals. Renewals are not included in RPO until they are contractually committed. So it's important to understand that it doesn't really matter whether the customers are buying perpetual or buying subscription. Still, the solutions that we deliver to them are integrated in their environment, deliver a lot of value, so there will be renewal. But until it's committed by the contract, it's not part of the RPO. And also the timing of large deals impacts the quarter and the balance. So if you have to look at the visibility more broadly, you should take the RPO, the expected renewal, the customer activity, the strong start we have seen in Q3 that will share more color in the next few weeks. We believe we have very strong visibility over the next 12 months. And as David mentioned before, it's about 85% coverage for the next 12 months' revenues. And we remain confident in our outlook for this year and also fiscal-gradiate targets. So we are seeing a very healthy demand, very strong market, and very strong execution into this market.

I understand.

I appreciate the insight from the questions and congrats on the quarter thank you Eric thank you our next question coming from the line-up task will turn you with broad capital your line is now open yeah thanks for taking my question a couple of five questions so number one for David because of the CRP of bookings Matt David it accelerated it was strong the score again similar to last quarter I think if I'm doing my math right your CRP bookings grew 16% You're guiding to revenues growth of 12% this year and 12% next year. You know, typically the CRPO bookings are a good leading indicator of revenue. So, given the gap between your revenue guide and CRPO bookings that we've seen for the last two quarters, are you just considering whether there's something else that we should be mindful of, given, you know, the CRPO bookings are growing at 16%, but you're guiding to revenues growth of only 12% for this year and for next year?

Thank you, Ted. So, actually, we are seeing a few things that are happening in the business, and we're actually very pleased on that. So, we spoke during the call about the quality of the revenue. You see that we have more and more subscription revenue that's coming, and much more software. If you look at the overall mix, software is becoming a very significant portion, and we have the growth of 21%, and it's the construction growth that we see over the last few periods. So, this is something that we see as a trend. As for the demand and what we have in our hands, it gives us lots of confidence into the end of this year and also when we enter into the next year. The visibility is high. You know, you mentioned percentage, 12% and 15%. The way that we look at that is that we are working with our customers to see deployment and what can be done. and based on that, keeping our guidance. And we are feeling comfortable with their guidance and if we will need to update, we will be more than happy to do it.

Charles, let me add on this, that actually while we are growing top-line, we are improving the quality of the revenue a lot. So as David mentioned, top-line is growing, the recurring revenue is growing, the profitability is expanding. So actually, if you would compare the potential equivalent versus the subscription that we see today, actually the growth would be higher if you continue to deliver the same as perpetual license in a few points. So actually the growth rate is faster than it looks in the numbers.

Yeah, fair point. And then, David, last quarter we had a little bit of weakness on the operating cash flow due to, I guess, the shift to subscriptions and also effects. this quarter also the cash flow looks negative any comment on the last day you last quarter you said the full year guide was maintained at 45 million any comment on the full year expectations for cash flow for this year yeah thank you so cash actually Q2 was strong what we see in Q2 that we were able to generate positive cash flow from operation and actually from the quarter.

Q1, Q2 actually is the queue that we had some specific expenses that's related to annual bonus and stuff like that that's taking place even in Q2 and although these seasonal expenses we were able, seasonal payment, we were able to drive a strong cash flow conversion. Actually if you look at this you were generating $1.1 million of customer operations last year, Q2 was negative 6.3. So actually, if you look at Q2 versus Q2 last year, you're seeing a strong customer operation. On that perspective, given the trends that we've seen in the business and given the that we see actually in hardware and the needs for inventory and supply changes that require the planning a different planning we are making a deliberate decision to increase the level of inventory and it's mainly to support what we see customer demands and deliverables and we don't want to have any risk related to execution and deliverables so we made a decision to increase the levels of the inventory so that also impacted our directly looking into this year cash flow we think that the right thing that is there is to to make the right decision in the short end of including the inventory levels to support future growth and their execution and customary delivery so just to just to clarify so we are expecting cash flow of 45 million for the year so in this phase what we are planning is that we would like to increase the inventory level we as you We can see the balances in the end of Q2, and we continue to do this kind of decision. We believe that this is the right thing to do in this time of the year. It allows us to better plan, better support the future demand. We see significant demand in front of us, and we want to be able to deliver to our customer in time. And that creates for us the right, in our view, the right decision to increase inventory. and we will, you know, we will not, you know, we will invest in the right thing to make the growth into the future.

Okay, thanks. One last one. So I think that last quarter you had expected, you mentioned that you expect about 20 million of bookings from U.S. for fiscal 27. Are we still on track of that or is that, that is, you know, we could be slightly better than what you had expected last quarter for the U.S.?

Actually, yeah, we are on track. Yeah, we are on track to achieve the $20 million signed deal this year. I expect this to come from state local and also some federal contracts should land this fiscal year. Yeah, we are doing a good progress in the U.S.

Thanks, Az.

Thanks, Az.

And as a reminder, to ask a question, please press star 1-1 on your touchstone telephone. Our next question, with you coming from the line of Matthew Kalitri with Needham & Company, Johannes Nelson.

Hey, guys, this is Matt Kalitri over at Needham. Thank you for taking the questions. David, I wanted to stay on the cash flow for a second there. So I understood what the inventory purchases, and obviously that's a proven decision by you guys so credit there um but it there wasn't a slight change in in language there from significant positive operating cash flow versus the 45 million like how should we think about the impact of that level of inventory purchasing and meta i'll start and then i'll I think it's important to understand that we want to be in a position to be able to grow as the demand is growing.

And for that reason, we want to be able to invest in inventory for two reasons, actually. The first one is related to demand, and the second one is related to the supply environment. Supply environment today, the delivery times are long, and the prices are going up, and we want to be in a position that we are able to fulfill the demand, the growing demand of the customer. So that's the rationale behind it. And it's quite difficult to predict how far we'll go with inventory increase, but we'll do it, of course, in a cautious manner, in a way that balances, of course, the level of inventory we have in stock, but also the ability to fulfill the demand on time and to be able to deliver to customers as contractors. So that's the logic and the rationale behind it. Now I'll let you answer the question.

So given that we cannot quantify in this stage the impact of the incremental inventory and what we see changing in this area and the technology that we see much more subscription, We are not quantified what will be the cash flow operation, but overall we see that it will be significantly positive. And the question like, you know, how much exactly will we invest in the inventory level, it will be best for what we see in the market. And currently what we see in the market, we see strong demand. We can see that we already increased the level of the inventory in the first half of the year significantly. and against this inventory there's actually a strong demand and we have the customer planning to be delivered for this inventory so actually we are in a very good situation that allow us to satisfy our customer to plan ahead and avoid the disruption that's related for the supply chain that keeps nothing out of control got it okay that makes sense um and then the the other parts of that is obviously the the impact from the subscription uh recognition and and great too

to see the the continued adoption of subscription like is there a way to think about what growth might look like um how do we not have that sort of revenue recognition headwind um And more than anything, I'm just trying to square away the strong results and underlying currents here and the visibility with you guys keeping the guide on change and some of this RPO and Billings dynamics that you spoke about earlier.

Yes. So, Matt, first of all, I'll share why some customers want a subscription, and then I'll give you our view of how it would be different if it would be perpetual. So let's move in quickly. We said that earlier in the call, agencies need the latest capabilities. Governments, when they go to perpetual license and buy a solution later on to upgrade and expand, it's another new cycle of purchasing, which is a headache for them. So actually, the fact that some of them are moving to subscription gives them the flexibility to get the latest and greatest technology and expand without being required to go through the entire process. And we see it happening gradually, but faster than expected. This is one second. We continue to sell both perpetual and subscription, and perpetual is still the dominant portion. Okay, so we're moving to subscription faster than expected, but we have heavy portion that is still perpetual. It's also important to understand that regardless of contract structure, whether it's subscription or perpetual, our solutions are deeply integrated and embedded into customer operational environment. If you heard earlier in the call, I mentioned AI and sovereignty. Some of it means that customers want on-prem deployment, so it could be that they'll go for subscription agreement but still it will be on-prem. That's usually what happens. So subscription is something that gives the customers flexibility while being able to run faster in terms of technology and make sure that they maintain advantages versus the adversary. So that's the rationale of moving the subscription for customers. Our view is that if we would be in the same pace as last year, for example, selling perpetual versus substitution or mix is not changing, we would see a few percentage more in growth rate. So I think that it's great news that we maintain the top-end growth outlook while more of the revenue is coming from recurring. This is, I think, a good indication that the market is growing faster than it looks in the numbers, and the predictability and the visibility are improving over time. It's reflected in the care recovery, it's reflected in the supplements, and it's also reflected in the postability levels. So I think that the business is improving. Great. Thank you, guys.

Thanks, Mike.

Thank you. And I'm showing there are no further questions in the Q&AQ at this time. I will now turn the call back over to Dean for any closing remarks.

Thank you, Livia, and thank you all for participating in today's call. Should you have any questions, please feel free to reach out to me, and we look forward to speaking with you again next quarter.

Thank you for your participation. You may now disconnect.