Verint Systems Inc (VRNT) Q4 2021 Earnings Call Transcript

Verint Systems Inc  (NASDAQ: VRNT) Q4 2021 earnings call dated Mar. 31, 2021

Corporate Participants:

Matthew Frankel — Investor Relations

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Douglas Robinson — Chief Financial Officer

Analysts:

Daniel Ives — Wedbush Securities — Analyst

Ryan McDonald — Needham and Company — Analyst

Brian Essex — Goldman Sachs — Analyst

Paul Coster — JP Morgan — Analyst

Samad Samana — Jefferies — Analyst

Dan Bergstrom — RBC Capital Markets — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Verint Systems Inc. Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions].

And now, I’d like to introduce your host for today’s program Matt Frankel with Verint Investor Relations. Please go ahead, sir.

Matthew Frankel — Investor Relations

Thank you, operator. Good afternoon, and thank you for joining our conference call today. I’m here with Dan Bodner, Verint’s CEO; Doug Robinson, Verint’s CFO; and Alan Roden, Verint’s Chief Corporate Development Officer.

Before getting started, I’d like to mention that accompanying our call today is a WebEx with slides. If you’d like to view these slides in real time during the call, please visit the IR section of our website at verint.com, click on the Investor Relations tab, click on the webcast link and select today’s conference call.

I’d 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, 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 ended January 31, 2021, when filed and other filings we make with the SEC.

The financial measures discussed today include non-GAAP measures as we believe investors focus on those measures in comparing results between periods and among our peer companies. Please see today’s WebEx slides, our earnings release and the Investor Relations section of our website at 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 and supplemental information regarding our operating results when assessing our 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.

Now, I’d like to turn the call over to Dan. Dan?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Thank you, Matt. I’m pleased to report a strong fourth quarter for both customer engagement and cyber intelligence with revenue and non-GAAP EPS coming in ahead of our expectations.

Cash from operations was also strong, a $254 million for the year, increasing 7% compared to the prior year. On February 1, we completed the spin of our cyber intelligence business and are now a pure play customer engagement company. Today we will discuss our long-term growth strategies for the new Verint. As everyone [Phonetic] is facing a widening engagement capacity gap, Verint is well positioned with a differentiated cloud platform and extensive resources, including approximately 4,300 professionals worldwide focused on helping brands provide boundless customer engagement.

Looking at the current year, we expect strong cloud momentum consistent with acceleration we experienced in the second half of last year and we are raising guidance for cloud revenue growth which we will discuss later.

I would like to start today’s call by reviewing the fourth quarter results for customer engagement. We had a strong finish to the year and I’m very pleased we are successfully executing the Cognyte spin and accelerating our cloud strategy. Revenue in Q4 came in at more than $225 million ahead of expectations and key cloud metrics accelerated. Bookings in Q4 were also very strong and we exited the year with a record backlog. Behind the strong bookings is our strategy to target a larger $65 billion TAM and our competitive differentiation. We continue to win new cloud customers and displace competitors due to our open cloud platform innovations.

Here are three examples of large cloud deals from the quarter. A $7 million cloud order from a leading global food delivery service company. This win was driven by our open and agnostic partner approach and our ability to scale in the cloud. This is a new customer for Verint and a competitive win. An $8 million cloud order from one of the largest insurance companies in the US. This competitive displacements was due to the strengths of our open cloud platform. And a $13 million cloud order from an existing financial services customer. This large win is driven by the customer’s decision to transition to SaaS and expand relationships. We believe these large orders reflect our differentiated technology and the execution of our cloud first strategy.

We are very pleased with our Q4 cloud performance across all key cloud metrics. Cloud bookings were up significantly. Q4 new SaaS ACV increased 39% year-over-year and new PLE bookings or Perpetual License Equivalents increased 15% year-over-year with the half of our PLE bookings coming from SaaS. Q4 cloud revenue grew more than 30% year-over-year following strong growth in each of the prior quarters. And we exited the year with the remaining performance obligations or RPO of $636 million, representing backlog growth of 29% year-over-year. This significant increase of year-end backlog is being driven by cloud and provides us good visibility for the current year.

Overall, we are very pleased with our strong finish to the year and the significant momentum we have going into fiscal ’22. We estimate our customer engagement TAM at $65 billion. With recent trends of accelerating cloud transition and digital transformation, customer engagement has become a top priority for many brands. In preparation for the spin, we worked during Q4 with a third-party to survey more than 2,000 business leaders from 12 countries and across 10 industries about customer engagement priorities, trends, pandemic impacts and future plans. The findings of this research validates our go-to-market strategy.

The four key findings include: First, there is a widening engagement capacity gap, new workforce dynamics, ever expanding customer engagement channels and exponentially more customer interactions, all must be managed with limited budgets and resources; Second, business leaders are concerned with rapid changes. 94% report being worried about understanding and acting on rapidly changing customer behaviors; Third, business leaders have high hopes for AI, but they want to see results. 78% have made AI investments, but only 18% say it helped them manage rising interaction volumes; And finally, data and departmental silos hamper the effectiveness of analytics efforts. Companies need a unified approach and view of data in order to realize the potential of AI and analytics.

Let me discuss our various go-to-market strategy addresses the finding of this recent research. Our open cloud platform helps brands to provide boundaries customer engagement in the contact center, as well as across the enterprise. Platform use cases are enterprise-wide, going well beyond the contact center to back office, branches, digital marketing and compliance. The Verint cloud platform was designed to connect the contact center to other parts of the organization involving customer engagement activities. A trend that has become increasingly important with the acceleration of digital transformation.

From a technology perspective, the platform is designed with a native cloud architecture supporting multi clouds with open access to data making it easier for customers and partners to quickly integrate with their environments. Verint Da Vinci AI and analytics is in the center of the platform as it powers all platform applications with the latest machine learning models and advanced analytics. We believe that our commitment to open access and our API strategy differentiates our platform and will drive further growth.

In Q4, we launched several innovative solutions including a new data management solution to help brands build a unified approach to aggregating interaction data across silos and unlocking the value in their data. This highly innovative cloud solution helps break down data silos and manage all modalities of data across unified communication seekers and enterprise collaboration solutions. A new workforce scheduling solution to help brands optimize their customer engagement workforce across the contact center, back office and the branch. And the new real-time agent assist solution to help brands provide their agents with in the moment guidance to increase efficiency and elevate customer experience. This innovative solution is based on the state of the art linguistic and acoustic model and is especially effective for the agents working at home.

Regarding partners, we have a large partner ecosystem that we have developed over many years. There has never been a better time to partner with Verint with our focus on delivering a world-class partner friendly experience. In addition to supporting our existing partners, this year we launched a new partner program with a focus on system integrators. We believe that digital transformation is providing system integrator new opportunity to help brands with their customer engagement initiatives across [Technical Issues] our open cloud platform [Indecipherable] is well suited for system integrators focused on data management, workforce efficiency and customer experience.

Turning to our outlook for the current year. We expect another year of strong cloud growth with 10% new booking growth on a PLE basis. Given the cloud momentum experienced in the second half of last year, we are raising our outlook for cloud revenue growth to a range of 30% to 35% for the current year. Our guidance reflects the continued market shift to SaaS. This year, we expect the percentage of new software bookings that come SaaS to approach 60%, reflecting a steady increase over the last three years. We also expect on a non-GAAP basis the percentage of software revenue from recurring sources to approach 85%, up from 81% last year and 71% three years ago.

Now, before I turn it over to Doug, I would like to briefly discuss Cyber Intelligence. Cognyte, our former Cyber Intelligence business is now listed on NASDAQ under the ticker CGNT. While Cyber Intelligence is no longer part of Verint, its result for last year are included in our 10-K and I would like to provide a brief review. Cyber Intelligence also had a strong finish to the year with revenue coming in at $124 million and estimated fully allocated adjusted EBITDA coming in at $24 million for Q4. Cognyte will publish their results on Form 20-F at a later time. And they announced today that they will review their fourth quarter results on a conference call in the second half of April.

As noted in Cognyte’s press release, their results may be slightly different than those we published due to the applications of varying allocation methodologies. Cognyte is in a very exciting market and we wish them good luck as an independent public company.

Now, let me turn the call over to Doug.

Douglas Robinson — Chief Financial Officer

Yeah. Thanks, Dan. Good afternoon, everyone. Our discussion today will include non-GAAP financial measures, a reconciliation between our GAAP and non-GAAP financial measures is available, as Matt mentioned, in our earnings release and in the IR section of our website. Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition related intangibles, certain other acquisition-related expenses, stock-based compensation, separation related expenses as well as certain other items that can vary significantly in amount and frequency. For certain metrics, it also includes adjustments related to foreign exchange rates.

As Dan mentioned, we finished the year strong with results that came in ahead of our expectations. For Verint overall, including Cyber Intelligence, non-GAAP revenue came in at $1.29 billion, adjusted EBITDA came in at $338 million and EPS came in very strong at $3.60 on a non-GAAP basis. Our operating cash flow for the quarter was also strong and for the full year it was $254 million. For Customer Engagement, non-GAAP revenue came in at $841 million, and estimated fully allocated adjusted EBITDA came in at $249 million.

And as Dan highlighted, our cloud metrics were strong across the board. This is our dashboard that can be found on our IR website. It contains KPIs for Customer Engagement including revenue, bookings, bookings mix and profit metrics. I’d like to highlight that following the spin of Cognyte we will be reporting revenue in two components, recurring revenue and non-recurring revenue versus our historical presentation of product and service, which became obsolete with our move to the cloud. Our dashboard now reflects that breakdown. Given our cloud first strategy, we expect recurring revenue to become a larger portion of our total revenue over time.

Turning to our outlook for fiscal ’22. As we shift to the cloud we believe new PLE growth is a useful metric as it normalizes our bookings growth for perpetual and SaaS. For fiscal ’22, we expect 10% new PLE growth with the percentage of new bookings coming from SaaS approaching 60%. We expect our double-digit new earnings — new bookings growth will translate to low single-digit revenue growth in fiscal ’22 with higher revenue growth in the following years. Underlying our outlook is an expectation for strong cloud growth. And as Dan mentioned earlier, we are raising our outlook for cloud revenue growth to a range of 30% to 35%. We also expect in fiscal ’22 nearly 85% of our software will come from recurring sources.

As we’ve discussed in the past, we will have a one-time step down in adjusted EBITDA due primarily to separation to synergies and we expect $225 million of adjusted EBITDA for fiscal ’22, driving $2.20 of non-GAAP EPS at the midpoint. Our EPS outlook assumes around $19 million of interest expense, approximately a 10% tax rate and $73 million fully diluted shares outstanding. This excludes the second tranche of the Apax investment, which we expect to close in Q1 and any share buybacks that we may do this year.

Let me also discuss how we’re seeing the year progressing. We expect to start the year strong with more than 10% year-over-year PLE growth in Q1. With respect to total revenue, we expect nearly $200 million of revenue in Q1 with more than 30% cloud revenue growth. From an expense perspective, given our strong Q4 and in anticipation of double-digit new PLE growth in fiscal ’22, we increased our hiring in Q4 and our first quarter expense run rate will be higher than Q4 and will increase sequentially throughout the year.

And now, I’d like to review our fiscal ’22 cloud revenue growth in more detail. Our cloud revenue has steadily been increasing and we expect $380 million of cloud revenue at the midpoint of our guidance. There are two sources of our cloud revenue growth, new deployments and support conversions. We expect around half of our cloud revenue growth to come from new bookings and half to come from support conversion. This mix reflects strong momentum for our cloud solutions including the success of transitioning our existing base to the cloud. We ended last year with a $300 million base of support revenue and we expect our support revenue to migrate to cloud over time.

Finally, I’d like to review our capital structure following the Cognyte spin. We have a very strong balance sheet with $2.5 billion of assets, approximately $660 million of cash and expect to get another $200 million of cash from the Apax investment in April. We now have a current net debt to adjusted EBITDA leverage ratio of less than one times. Going forward, our excess cash will primarily be used to support our growth. In addition, I’m pleased to announce that we’re putting in place a new annual stock repurchase program in which we use part of our strong cash flow generation to buy back stock. We plan to buy back up to the number of shares to be issued under our annual incentive equity program.

So in summary, we had a strong Q4, including double-digit new bookings growth and a record backlog. We enter fiscal ’22 with strong momentum driven by our differentiated cloud platform and our focus as a pure play Customer Engagement Company.

So with that, operator, let’s open up the line for questions.

Questions and Answers:

Operator

Certainly. [Operator Instructions]. Our first question comes from the line of Daniel Ives from Wedbush. Your question please.

Daniel Ives — Wedbush Securities — Analyst

Yeah. Thanks. And great quarter. So, Dan, could you maybe just talk about on the cloud deals, I mean, are the size of the deals, overall, [Indecipherable] at drivers who have big deals in the quarter, can you just talk about that in terms from those dynamics from a pipeline perspective?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Yeah. So I think one area to look at is the increase in backlog in Q4 that you can see, the RPO level increased 29% year-over-year and this definitely reflects more cloud deals and more large cloud deals that contributes very little to the current quarter, but obviously create backlogs for multi-years. So we’ve always been very strong with enterprise customers and got large deals, but with the recent introduction of the cloud platform where we put a lot of different applications on the platform that customer consume as cloud services, it is getting easier for customers and partners to consume more of the platform, which will contribute obviously to a bigger deals. But what’s, obviously, the way we position the platform whether the customers buys upfront multiple applications in a big deal or they buy over time, that makes a little different to us. This is basically just turning on cloud services in the platform. So we have customers that have different behaviors, some tend to concentrate their purchases into larger opportunities and some will do it over time.

In terms of the — the terms, it’s really steady. Our average cloud deal is about 2.5 years term. So no major change there. But definitely more cloud deals — the more large deals is a big change in our backlog.

Daniel Ives — Wedbush Securities — Analyst

Great. And then just for you as well Doug. Now with the split successfully has happened with Cognyte, can you just talk about strategically, I mean, obviously, it’s a year and a half in the making, but how things are different internally. Is it just now more sales and marketing, all focused on one area. Even mean from a customer feedback perspective, can you just talk about that anecdotally?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Sure. Happy to. So we actually see a lot of changes and we — many people internally we refer ourselves as the new variants. We became a pure play Customer Engagement Company at the right time where the cloud transition and the digital transformations are presenting enormous growth opportunities. So there is a lot of buzz internally and there is a growing buzz also externally as we tell the story more and more over time. Definitely posting from a Board and management team perspective, we’re 100% focused on a single mission, and that is to accelerate the growth and positioned Verint as a category leader. And we’ve already aligned our compensation plans with our strategic objective.

From a balance sheet perspective, Doug mentioned a strong balance sheet, strong cash flow generation. So we feel like we have the balance sheet that can support any investments we want to make in growing the business. We talked about launching a new partner expansion program. We are being recognized in the market as a partner friendly company and we believe partners are becoming more important with the changes we see in the industry. So definitely a focus for us. We also accelerating the pace of the innovation in our cloud platform and we plan to review many new — launch many new innovations in our upcoming customer engage conference that will be announced shortly.

And then internally, I think it’s very interesting that our employees clearly understand opportunity that we have ahead of us. We had a fantastic Q4 with strength across all key cloud metrics, and we expect to start the year very strong in Q1.

Daniel Ives — Wedbush Securities — Analyst

Great. Thanks.

Operator

Thank you. Our next question comes from the line of Ryan McDonald from Needham and Company. Your question please.

Ryan McDonald — Needham and Company — Analyst

Hi. Good afternoon, and thanks for taking my questions. At the Analyst Day you highlighted, it’s a pretty healthy conversion bookings that were trending strongly. Obviously, it seems like you’re pretty optimistic with the increased guide for cloud revenue growth. Can you just talk a bit about the mix of bookings activity between the conversions versus net new customers. And that’s — how that’s being reflected in the higher outlook for fiscal ’22?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Yeah. So the cloud revenue growth, 30% to 35% and that’s approximately $100 million of growth in cloud revenue that we expect this year, about 50%, Doug mentioned, will come from our conversion program which has been definitely has kicked off in the second half of last year. So we saw more conversions than before. And 50% of that cloud revenue growth will come from, actually, from new cloud deals. And this is a healthy mix that we see between the two trends.

Also important to mention that, we estimate that the transition from a customer base to the cloud would be over time. So currently we have about $300 million of support revenue. And we mentioned in our Investor Day that we expect this to be — half of that to be converting by fiscal ’24. So we definitely have seen that pickup in Q3 and Q4 last year that we expect to continue in the current year.

And a lot of the cloud growth, whether it’s coming from the conversion or the new deals is already reflected in the RPO, so we increased RPO by $150 million year-over-year and a lot of that is, obviously, multi-year cloud deals that will contribute to revenue in the current year. So it’s pretty good visibility into how we going to achieve the 30 plus percent cloud revenue growth.

Ryan McDonald — Needham and Company — Analyst

Got it. Very helpful. When you think about the mix of new bookings pipeline and there are new opportunities, new customers, can you talk about the mix you’re seeing between contact center versus opportunities outside the contact center? And perhaps touch on how the Verint platform is resonating, the messaging around that is resonating outside of that core contact center based perspective? Thanks.

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Yeah. That’s a very good point. So the platform basically helps our customers to connect the contact center with other parts of the organization. So it’s not that we need to sell to other parts of the organization, we just help them to connect, which is a trend that we definitely see, not just in our area, but also in the communication infrastructure, we see more customers asking for UCaaS and CCaaS and CPaaS all to be connected through a single vendor. And obviously, we’re very well positioned to help connect enterprise.

So let me give you a few examples of how we connect with our platform. So we got requests from customers that have branches, for example, banks that have contact center and branches and they are scheduling employees for their contact center, they are scheduling employees for their branches, but it’s different scheduling, because they are obviously, different — focusing on different needs. In the COVID year where they got a lot of people working from home, even people in the branch had a lot of downtime and there was a pickup in interest in having Verint help them schedule people in the contact center, in the back office and in the branch so they can have the flexibility to use their workforce to an expert based on peak times and based on resource availability. So that’s connection.

Another example is, customer journeys. In the digital world, which we are all going into digital transformation, a lot of the consumer actually started the journey on the websites. And when they can’t accomplish what they are trying to accomplish on the website they will call the contact center. But the contact center needs visibility to the customer journey 360, so they can continue their journey and — in a most efficient way. As you know, most contact center solutions have no visibility into websites and Verint platform is able to provide them the journey in their website, the reasons why customers left the website, identify when customers call into the contact center and they mentioned, we were just on your website and could accomplish something, so we’ll analyze that data and make the connection between their journey in the website and their journey in the contact center.

So I think two examples to basically explain that we’re not trying to sell to other types of buyers, but we’re trying to help the buyers connect, so they can optimize the customer journey or optimize the resources they have to achieve better customer journeys.

Ryan McDonald — Needham and Company — Analyst

Very helpful. Thanks for the color. I’ll hop back in the queue.

Operator

Thank you. Our next question comes from the line of Brian Essex from Goldman Sachs. Your question please.

Brian Essex — Goldman Sachs — Analyst

Hi, good afternoon, and thank you for taking the question. Nice results. Dan, I was wondering if you can talk a little bit about the margins. Great performance in the quarter, stronger than expected EBITDA margins, and I understand we have a step-down this year. Can you talk a little bit about what you might anticipate in terms of recovery after that step down? And when it might — how long it might take to get to or return to like the kind of 29% operating EBITDA margin level?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Sure. We had 30% EBITDA margin last year, ahead of our expectations for Customer Engagement. Doug can actually take you through the steps we are taking to improve margins over time and the bridge. Doug?

Douglas Robinson — Chief Financial Officer

Yeah. Sure, Dan. Hey, Brian. Yes. As Dan mentioned, we had a really strong performance in Q4. And then for the year, we ended up with about 30% EBITDA margins. It was a strange year for all of us, right? But we did a lot of cost restraints as we kind of went through feeling of the period and then towards the end of the year started to get back the things. So that — kind of with that tough compare in terms of kind of abnormal cost reduction last year kind of drove higher EBITDA margins. And then the dis-synergies this year for the full fiscal year will be post spin. So kind of a more normalized margin, it’s probably around 29%, not to 30. I think that was just kind of unusual cost reduction. And then with the dis-synergies of kind of the burden of part of the company, taking on the full company corporate infrastructure, that steps us down to probably around 26% that you’ll see in our guidance. Then after that, we do expect, as we scale and the business growth over the next couple of years, we’ll have kind of more typical margin expansion off of that.

Brian Essex — Goldman Sachs — Analyst

Okay. That’s helpful. And then maybe if I can circle back on conversions again. Could you help us understand that installed base of maintenance that you have and how that might convert to cloud? Is that on a one-for-one basis and if we see an acceleration does that mean you kind of [Indecipherable]. I guess, what is the longer-term mix, I guess, after this year that you might anticipate would come from conversion versus new business, I guess, is what I’m getting at.

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Yeah. So we definitely expect PLE, which is the best way to measure the booking growth to be — new booking growth are just perpetual license equivalent and that is expected to be double-digits and we will give guidance for double-digit this year and targeting double digits for the next — for next three years. And we also gave the mix within the PLE. So we achieved in Q4 — half of that PLE came from perpetual and half came from cloud. And we also guided that this year we expect 60% of the PLE to come from SaaS. So definitely as we encourage our customers to move their support and convert it to cloud, also anything they buy new, more likely they are going to buying in class, right? Because they already are on their journey to move perpetual to cloud. And you see that very well in our journey and how we move the mix of the PLE over the last three years to what we expect a 60% — approaching 60% in the current year.

So a double digit — to answer your question now, double-digit cloud revenue growth from new deals is definitely apart from [Indecipherable]. And for this year, we see 50:50 between conversion and new deals in the cloud revenue growth. And conversely could accelerate, that’s something we also saw during COVID. There was very little conversion in the first half of the year and then a big pickup in the second half, more than we saw in the entire year before. So there is now a change in the industry, customers are adopting cloud. Obviously, the very large customers are slower, the mid-market is moving faster.

Hard to project the pace of conversion, but we believe that the goal to convert at least 50% of that support in three years is a very reasonable goals based on what we see now.

Brian Essex — Goldman Sachs — Analyst

Okay. That’s helpful. I guess if I were to ask in another way. I mean do your assumptions, I think, at the Analyst Day, you talked about maybe a longer term 30% cloud growth rate. And within that assumption, are you kind of assuming that your mix between conversions and new stays consistent?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Well, our cloud revenue growth grew also more than 50% without conversion last year. So based on the historical conversion — sorry, for cloud revenue go from new deals and the RPO that we already have that gives us — deals we closed in Q4 that will be contributing to revenue. In the current year, we see this year — half of that revenue growth will come from new deals, that is a reasonable assumption. Conversion can pick up, but if conversion pickup, it’s not going to affect the growth discussed on new deals as well. So that’s [Indecipherable] for conversion picks up should actually contribute to higher growth rates over time.

Brian Essex — Goldman Sachs — Analyst

Okay. Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Paul Coster from JP Morgan. Your question please.

Paul Coster — JP Morgan — Analyst

Yeah. A couple of quick questions. Doug, you talked that the cloud revenue will sort of technically accelerate in ’23 — fiscal year ’23. Can you just talk us through the mechanism that causes that to happen?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Doug, you can take it.

Douglas Robinson — Chief Financial Officer

Yeah. I’m sorry. I thought you said Dan. Yeah. You want to take that Dan, because it’s just kind of the things that we are just talking about in terms of [Speech Overlap]

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Right. So the question is for the mechanism that causes the revenue growth to improve in fiscal ’23 and ’24. And that’s basically the result of perpetual decline starting to diminish. We — our perpetual business went down $180 million from $140 million last year. So it was a big decline for perpetual. We expect the decline to be about 10% this year. So it’s a much moderate decline. And then we expect basically the perpetual decline to stop at $100 million plus as some of our customers will continue to buy perpetual and we discuss some of the very large customers that’s the way they prefer. So a steady cloud revenue growth and a steady PLE growth of double-digit with less decline, less headwind from the perpetual decline is basically the mix change that causes the revenue growth to go up and also the EBITDA to go up, because all the expenses that we have now to bring that backlog and sign up the deal, multi-year deals, we don’t have to increased expense in order to get the revenue in the next periods.

So we talked in the Investor Day, we gave it [Indecipherable] we talked about — we see that mix shift moving our growth — revenue growth rates to be up and eventually should be similar to our PLE growth rates.

Paul Coster — JP Morgan — Analyst

Okay. So I kind of — it’s a repackaged [Indecipherable] helpful. And then, I guess, the other question is, the capital allocation seems unexciting. I mean, you got absolute boatload of cash. Well, I mean, your balance sheet presented with the opportunity to lever up and do something. But it sounds like you’re investing in yourselves, which is fine, except that, it feels like you can do more than that. Are you just simply keeping your balance sheet in solid shape so you can do something transformational or is this it? Are you just going to be a very kind of conservative user of the balance sheet. I mean, buying back shares is just to cover the cost of dilution from share issuance, it’s not going to get folks very excited. So why should we be excited about the capital allocations as defined here. Yeah. No, no, you’re absolutely right. I agree, we wanted to come out of this spin with a strong balance sheet. But in terms of buybacks, we have a near time restriction from the spin. So we can buy back more shares than the new shares we grant, because we just did a big dividends and you cannot get a tax-free spin and then go buy back shares. So that restriction is going to be for some time, but not forever. And then we have more flexibility in terms of doing buybacks. But at this point, we are limited to the shares that we issue and we intend to buy back that dilution. Okay. Got you. And then what’s the duration for that, Dan?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

So it’s — it depends on many other circumstances. It’s not a hard fact, but it could be a couple of years.

Paul Coster — JP Morgan — Analyst

Okay. So are our going to — I think you are…

Douglas Robinson — Chief Financial Officer

This has to do more with the tax free spin regulations. And the fact that we spun it out the Cognyte division tax free. There is a kind of tax law that prohibits us from then going into kind of recapitalizing that with the stock buyback.

Paul Coster — JP Morgan — Analyst

Got you. I think [Indecipherable] Dan, I think you’re going to talk about the investing in the business versus acquisitions part of my question.

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Yeah. So I think that we are always looking for acquisitions that makes sense. But the three year target we laid out in Investor Day are organic. We definitely think we have a strong platform today, so we’re not just looking to close any specific big gaps that we need to close. But we will definitely make further decisions, what we want to do with our balance sheet, but we are really happy that we — in April, we expect the Apax second tranche. And at that point, we’ll be in — we’ll have more cash than debt and that gives us a lot of flexibility.

Paul Coster — JP Morgan — Analyst

Okay. Got you. Thank you so much.

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Sure, Paul.

Operator

Thank you. Our next question comes from the line of Samad Samana from Jefferies. Your question please.

Samad Samana — Jefferies — Analyst

Hi. Good afternoon, and thanks for taking my questions. Good to connect with you guys again. So maybe first one. Dan, for you. When you think about the conversion activity that you guys seeing and that you’re baking in for 2000 and — for fiscal ’22, is there any particular, like, consistent characteristics of the customers that are converting early. Whether it’s defined by size? Or end market? Or maybe what they’re using for their core ECD? Just any characteristics that we can triangulate upon?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

I think the journey is quite individual in nature. It’s really where they sits in their decision to move to the cloud generally, and then sometimes IT actually drive the shift to the cloud, because they want to focus on something else and they want to move their responsibilities to us and sometimes IT is actually the obstacle, because they want to continue to manage the infrastructure. And I don’t think that there is a general characteristic other than very large customers, probably are just moving slowly perhaps because of security reasons, some large customers actually are buying or building — building cloud architecture internal clouds and we are in discussion that their host themselves the solution into their own clouds. So we are very strong in the mid to high-end of the market and we see a lot of customers that what to work with us on how to optimize their individual journey to the cloud.

Samad Samana — Jefferies — Analyst

Great. And then maybe a follow up. When I think about the new deployments contribution to the cloud growth in fiscal ’22, how should we think about maybe the contribution of new deployments from direct deals that Verint is selling versus partners such as [Indecipherable] Five9’s [Phonetic] of the world. Is there — was there a change kind of within those two buckets when you think about the guidance increase?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

We definitely are investing in being a partner friendly company. So we don’t really care whether we get the order on our paper or on the partner paper. We try to work with partner where it makes sense to customers and the way they want to transact. And in many cases when we work with partners, our direct sales force is involved in actually selling the products, because we have the domain expertise and the partner needs to help from Verint. And we compensate the sales force accordingly. So the focus that I have is on expansion and growth and whether do we it on our paper or on the partner paper is much less important to us.

Samad Samana — Jefferies — Analyst

Understand. I’ll pass the line [Indecipherable] time, but congrats on completing the spin successfully. And on the strong cloud growth. Thank you.

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Yeah. Thank you. Thank you. Our next question comes from the line of Dan Bergstrom from RBC Capital Markets. Your question please.

Dan Bergstrom — RBC Capital Markets — Analyst

Hey, thanks for taking my question. Nice to see the conversion on the base and commentary around it. You talked about the decline in perpetual in Q&A here in response to Paul. But what are the thoughts around a perpetual tail? What assume some customers want to remain on premise? Is that $100 million mark you talked to are kind of the fiscal year ’23 number? Is that the good proxy for it?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

Yeah. I think it could be a little bit more than $100 million at this point, but we definitely see a decline this year, which is baked into our guidance. And we say this levels off sometimes next year. So that’s a good model. I think that over time perhaps in the very kind of longer than three years horizon, I think that very large customers will also convert who are still converting to their own internal clouds. But it’s very clear, the whole industry is going to cloud. But there are certain customers definitely at this point, told us they’re not interested.

Dan Bergstrom — RBC Capital Markets — Analyst

Great. And then you mentioned increased innovations with the cloud platform and talked to the addition of engagement, data management, workforce scheduling, real time agent assist, how should we think about those products ramping? Are you seeing initial interest here? How should we expect the pace of innovation, I guess, more generally, with the sole focus on customer engagement and the cloud platform now?

Dan Bodner — Chief Executive Officer and Chairman of the Board of Directors

We are innovating and we’ll continue to innovate faster in our cloud platform. It is the nature of the technology and our control over the cloud environment that allow us to release more innovation faster than when you work with very large on premise environments and you have to invest a lot into technology stack to be comparable with different datacenters that customers have. So that’s one benefit of the cloud platform. It’s just a — be able to focus more on innovation and bringing new capabilities to the market. I think that another benefit of the platform is, we concentrated our AI and analytics engines into what we call the Verint Da Vinci AU and analytics, which is part of the platform. And you know that we have a lot of strength in this area as for many years. This is the heritage we also shared with Cognyte when they were part of Verint. Very deep analytics for security and for customer engagement.

And building this AI modeling into the platform basically allow us to share the technology across all applications that are running in the platform. And just another way to accelerate innovation is having access to the latest AI. And we think our AI is differentiated because we manage a lot of data. There’s a lot of interaction data and experience data that goes through our platform. With our strength in data management and experience management. And out of the data there’s a lot of machine learning that helps to bring new innovation into all the different applications around what we call the work of the future, changing workforce putting more automation into workflows to make the workforce more efficient.

So if you look at real-time agent assist, which we — which I discussed earlier, definitely with employees working at home there is increase in demand for real-time assistant or in the moment assistant and guidance to employees. And this is all based on AI, based on their ability to do acoustic and linguistic modeling and alert agents that, look, you speak too fast and the customer is frustrated or you’r pausing for too long, you’r over talking to customer or here’s the customer intends and you’re not really answering to the point. And the ability to do this in the moment across not just voice channel, but also chat and messaging and text channels is really part of that innovation that we are now accelerating. So we are about — the cloud platform is not just a business model, but it’s really an opportunity for us to address some of this customer urgent needs for help, because of the digital transformation the number of interactions is going up exponentially. There is more digital channels, there more digital interactions. But there is only limited people and resources to address the growth in interactions and there is a clear engagement capacity gap that I mentioned before. And the answer is, obviously, automation, which is the focus of our cloud platform.

Dan Bergstrom — RBC Capital Markets — Analyst

That’s great. Thanks, Dan.

Operator

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Matt Frankel for any further remarks.

Matthew Frankel — Investor Relations

Great. Thank you, everybody. Thank you for joining us. And look forward to speaking to you again soon. Have a good day.

Operator

[Operator Closing Remarks]