Cognyte Software Ltd. (CGNT) Q4 2026 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cognyte Fourth Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be advised 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, 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 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 as 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 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, 2026, being filed today 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 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 Elad.

Thank you, Dean. Hello, everyone, and thank you for joining us today. Before we begin, I want to acknowledge and thank our employees, customers, partners and investors for their continued support over the past month. Cognyte's mission is to help make the world a safer place. That mission is constant and our teams continue to execute. We delivered strong results in the fourth quarter and closed fiscal '26 with another year of consistent execution. Revenue grew by double digit with strong gross margin, profitability improved significantly, and we continue to generate solid cash flow. Fiscal '26 played out largely as we expected with strong repeat business from our installed base, continued new customer momentum and strengthening profitability. We expect this growth to continue into fiscal '27 and today provided revenue guidance of $448 million at the midpoint of the revenue range, and we are on track to achieving our targets for the fiscal year ending January 2028. We'll share more details later in this call. We operate in a market environment where the underlying drivers continue to strengthen, threats are becoming more complex, adversary is more sophisticated and the volume of data continues to grow exponentially. At the same time, decisions need to be made faster than ever. This is driving sustained demand for mission-critical intelligence technology, exactly where Cognyte is positioned. Our solutions operate in extremely demanding environment across national security, military intelligence and law enforcement. In these environments, performance is not optional. Our customers are not experimenting. They are deploying systems that must work consistently in real operational conditions. Over time, our value becomes deeply embedded in our customers' workflows and operational systems. This creates durable relationships, high switching costs and a strong competitive position. Over the past year, we executed against our 3 primary growth pillars. First, installed base expansion. Customers continue to expand deployments, upgrade functionality and are also extending into new use cases and operational domains. For example, border intelligence. Repeat business continued to represent a significant portion of our revenue, reflecting the trust our customers place in us and the operational value we consistently deliver. Second, new logos. We added 61 new customers this year as our solutions continue to prove themselves globally and deliver real operational value. This important new business is driven by our proven track record and customer references and is aligned with our land and expand strategy. We increased our footprint within military intelligence agencies, including in NATO countries. And third, North America. This is a key market for us. We recently strengthened our North American leadership, bringing in a seasoned sales executive with deep experience and track record in the federal market. We also added a new channel partner, Carahsoft, who will provide access to federal, state and local procurement channels and will support broader deployments of our solutions. Together, these steps reinforce our commitment to scaling our U.S. presence and aligning with long-term federal modernization programs. Our growth is driven by a balanced approach, installed base expansion, new customer acquisition and U.S. market scaling. In Q4, we secured several significant deals across geographies and customer segments. One example is with a long-standing national security customer in EMEA, where we amended the perpetual agreement into a 5-year subscription at a new annual value of $6 million. This reflects both a significant expansion in scope and a shift in commercial model. The transition to subscription was driven by the customers' need for continuous access to new capabilities, AI-driven functionality and faster upgrade cycles. While most agencies still prefer perpetual deployments, we are seeing a gradual increase in the adoption of subscription models. We also signed several multimillion dollar deals across multiple regions, including new solution deployments, expansions and support contracts. In addition, this morning, we announced an about $5 million deal with one of the largest state law enforcement agencies in the United States. This is a new customer win, replacing an incumbent provider. The deployment will support mission-critical field operations, including fugitive apprehension, missing children cases, criminal investigations and search and rescue. It represents an important step in expanding our footprint in the U.S. Security and intelligence agencies globally are accelerating efforts to address increasingly complex threat environments. Today's challenges extend beyond traditional crime and national security. Agencies must respond to hybrid threats, cross-border activity, cyber-enabled and organized crime, all of which increase the volume and complexity of data they must analyze. This is driving sustained demand for platforms that can fuse, correlate and analyze data to deliver actionable intelligence for real-time decision-making. Across regions, we see a consistent shift toward more integrated proactive intelligence models with greater emphasis on cross-unit collaboration and faster time to decision. Our platform is purpose-built to support exactly this type of complex operational environment. As agencies continue to modernize and scale, our positioning is directly aligned with their immediate and long-term priorities. Today, we are seeing growing adoption and reliance on artificial intelligence. AI is embedded in our platform, shaped by real-world investigative use cases and years of operational experience. AI also plays a part in our customers' growing challenges. It increases the scale and the sophistication of the threat to our customers address. In our market, access to AI models and Gen AI is not the main constraints, operationalizing them is. Having access to advanced AI is not enough for an analyst to process sensitive communication data, correlate it with financial and behavioral signals or generate outputs that meet legal and evidence standards. The challenge is everything required to make AI usable in real investigated environments. That includes integrating fragmented and sensitive data, applying domain-specific intelligence methodologies, operating in strict security and compliance frameworks and embedding AI into investigative workflows that produce actionable, auditable outcomes. As AI capabilities continue to advance, this infrastructure becomes more, not less critical. Customers are not buying AI features. They are buying operational outcomes powered by AI. This is what makes our advanced AI operationally useful, and it's not easy to replicate. We believe AI is a structural tailwind for our business. Earlier this month, we hosted our Intelligence Summit, bringing together senior intelligence and law enforcement leaders from across the globe. The level of participation and engagement reinforced Cognyte's strong leadership position within the investigation and intelligence communities. The conversations were direct and forward-looking. Leaders are not discussing theory. They are executing modernization programs now. They are confronting real operational challenges and sharing practical approaches between them and with us. Across panels and closed door discussions, agencies emphasized 3 priorities: connecting fragmented data into a unified intelligence picture, reducing time from data to decision in live investigations, enabling collaboration across units, agencies and even countries. We were honored to host Jürgen Stock, former Secretary General of INTERPOL and former Vice President of Germany's Federal Criminal Police Office as our keynote speaker. He spoke about the importance of sharing fragmented intelligence across domains and the need to partner with the private sector, specifically in technology to accelerate innovation and operational effectiveness. The summit once again confirmed why customers choose to partner with Cognyte, access to advanced proven technology and methodologies, solutions that translate directly into real-time operational outcomes and the quality, support and long-term trust they can rely on. In summary, we delivered strong results. We operate in a growing high barrier mission-critical market. We are expanding with both new and existing customers. AI is a structural tailwind. We remain focused on execution and long-term value creation and are well positioned for continued growth. We operate where the hardest problems live. This is not a coincidence. It reflects 30-plus years of connecting advanced technology to operational realities. Ultimately, we help eliminate the unknown, so our customers can act with clarity, speed and confidence. With that, I'll turn the call over to David for a deeper review of our results. David?

Thank you, Elad, and hello, everyone. As Elad outlined, Q4 ends a year of continued strong execution across the business. Our results this quarter and throughout FY '26 demonstrate our durable business proposition, the value of our differentiated solutions and the operational discipline that all drive these strong results. Let me begin with our fourth quarter results. Revenue for Q4 FY '26 was $106.2 million, up $11.7 million or 12.4% year-over-year, reflecting a healthy demand environment and the value of our solutions. Breaking down the revenue mix. Software revenue was $45.9 million, an increase of $8.5 million or 22.6% year-over-year. Software revenue is comprised of perpetual licenses, appliances and some term-based subscription licenses. Software services revenue grew by $3.4 million to $49.3 million. Software services revenue comes mainly from support contracts and to a lesser extent, cloud-based SaaS subscriptions. Total software revenue, which includes the combination of software and software services revenue, grew by $11.9 million year-over-year or 14.2%. Professional services revenue was similar to Q4 of the prior year. Fluctuation in professional service revenue between quarters is expected and are a result of revenue recognition timing. Recurring revenue increased by 5.6% to $50 million, representing 47.1% of total revenue. Note that recurring revenue is calculated from GAAP revenue, driven primarily by support contracts and sub time-based and SaaS subscription offerings that enhances our visibility in both the near and long term. Looking at gross margin, we continue to make significant improvements. Q4 non-GAAP gross margin reached a record of 74.7%, an expansion of 320 basis points year-over-year. Non-GAAP gross profit grew much faster than revenue and increased by $11.8 million or 17.4% year-over-year to $79.4 million. It's important to mention that all the incremental year-over-year increase in revenue flow through to gross profit. This again demonstrates how our differentiation translates into strong gross margins. On profitability, Q4 non-GAAP operating expenses were $67.3 million. GAAP operating income was $5.2 million, up from $697,000 last year. Non-GAAP operating income reached $12.1 million, doubling year-over-year. Adjusted EBITDA continues to expand significantly faster than revenue. It was $15 million, up 62.5% from the $9.3 million generated in Q4 last year. GAAP net income was $5.1 million compared to a net loss of $0.2 million in the same period last year. The improvement is largely due to the significant increase in operating income. Our Q4 performance again highlights the scalability of our model as software revenue grows and the leverage in our model generates significantly higher profitability. While most of our government customers buy through perpetual licenses, we offer both models and have seen some recent wins in subscription. Subscription agreements support greater visibility over time and align with broader software market trends. RPO or remaining performance obligations represents contracted revenue to be recognized in future periods, influenced by factors such as sales cycles, subscription deals, deployment time lines, contract lens, renewal timing and seasonality. The strength of our RPO remains an important pillar of our near- and long-term visibility. While fluctuations are expected in RPO, current levels support our growth expectations. At the end of Q4, total RPO was $557.2 million. Total RPO is a sum of contract liabilities of $123.7 million and backlog of $433.4 million. Short-term RPO rose to $369.5 million, providing solid visibility into revenue over the next 12 months. It's worth noting that had we included cancelable periods of subscription deals in total RPO, it would have increased by approximately $42 million. Q4 billings grew 15.6% year-over-year to $109.9 million. Turning to our full year FY '26 results. Revenue for FY '26 was $400 million, up 14.1% year-over-year. Full year non-GAAP gross margin increased to 73%, up 200 basis points year-over-year, primarily driven by scale and operational efficiencies. We achieved our FY '28 gross margin target 2 years ahead of our plan. Profitability continued to improve significantly, reflecting the leverage we have in our business model. GAAP operating income reached $13.3 million, a significant turnaround from a $5.1 million GAAP operating loss last year. Non-GAAP operating income was $36.7 million, more than double year-over-year. Out of the $49.4 million year-over-year increase in revenue, $21 million flowed through to non-GAAP operating income. Adjusted EBITDA was $48.2 million, up from $29.1 million, a 65.7% year-over-year increase. GAAP net income was $4.6 million compared to net loss of $7.2 million last year. Across the board, FY '26 showcases a disciplined operating model that scales effectively with our strategy. Turning to cash performance. In Q4, net cash from operating activities was $20 million, slightly above the same quarter last year, benefiting from both increased profitability and strong collections. For the full year, operating cash flow totaled $40.3 million, reflecting consistent execution and disciplined working capital management. Cash flow from operations came in below our expectation of $45 million due to delays in collecting certain receivables in the quarter. These receivables were collected early in Q1. We ended the year with $116.9 million in cash and no debt, providing significant strategic flexibility. Our capital allocation is consistent and return focused. We maintain the liquidity and working capital necessary to run the business. Above this operating baseline, we allocate excess cash to areas that can generate the highest long-term return, such as acquisitions and share repurchase programs. Earlier this month, the Board of Directors approved an additional $20 million to our existing share repurchase program. This increase brings the total authorized for share repurchases to $40 million and reflects the Board's ongoing commitment to long-term shareholder value creation and confidence in our growth prospects. During Q4, we bought approximately 592,000 ordinary shares for an aggregate purchase price of approximately $5.5 million. For the full year, we repurchased approximately 2.3 million ordinary shares for an aggregate purchase price of approximately $21.4 million. Since the initiation of our first repurchase program in November 2024 until the end of Q4, we have repurchased a total of approximately $26.7 million worth of shares out of the total program authorized for $60 million. Throughout the year, we remain focused on balancing investment in innovation and market expansion, while improving operating efficiency. Our financial model is scaling, and we believe there is an opportunity for additional leverage as revenue continues to grow. And now looking ahead, for fiscal '27, we expect full year revenue of about $448 million, plus or minus 3%. This represents approximately 12% year-over-year growth at the midpoint of the revenue range. We believe the mix between total software revenue and professional services revenue to remain similar to last year. We believe that our strong short-term RPO of $369.5 million and the continuing favorable demand environment support this outlook. We expect Q1 revenue to be slightly below the Q4 levels we are reporting today with sequential growth each quarter throughout the year, aligned with the seasonality of previous years. We expect non-GAAP gross margin to increase year-over-year to approximately 73.5%, above our target for FY '28. This reflects improvement of 50 basis points. Gross margin may fluctuate between quarters based on our revenue mix. This improved gross margin allow us to partially offset the foreign exchange headwinds related to the recent strength of the Israeli shekel versus the U.S. dollar. As a result of the improved gross margin, we expect gross profit to increase at a faster rate than revenue growth. For the full year, we expect our non-GAAP operating expenses to grow slower than revenue, reaching approximately $273 million, an increase of about 7%. A significant portion of the increase is due to strengthening of the Israeli shekel against the U.S. dollar. Operating expense seasonality should be similar to last year with slight fluctuations throughout the year. We expect non-GAAP operating income to be about $56 million, more than 50% year-over-year growth. We expect adjusted EBITDA to be about $68 million, representing about 40% year-over-year growth, all at the midpoint of the revenue range. We expect our non-GAAP taxes to be about 27% or $15 million and noncontrolling minority interest of about $5 million. As a result, we expect annual non-GAAP EPS to come in at $0.47 at the midpoint of the revenue range based on a weighted average of approximately 75 million fully diluted shares in FY '27 and we expect to generate GAAP net income again this year. Turning to cash flow. We expect to generate $45 million of cash flow from operations in fiscal '27. For the full year, we expect total CapEx of approximately $11 million. Regarding our FY '28 targets, given the business momentum, expanding profitability and visibility, we believe we are on track to meet our targets for the fiscal year ending January 31, 2028, revenue of approximately $500 million and adjusted EBITDA margin of over 20%. To conclude, Q4 capped a year of strong performance. We delivered strong growth, expanding margins and strong cash generation. Our AI-driven investigative analytics solutions are built on decades of domain expertise and designed for mission-critical environments. Our balance sheet is strong. Our backlog provides visibility and our execution remains focused and consistent, and we are well positioned to deliver sustained profitable growth and long-term value creation. Thank you again for joining us today and for your continued support of Cognyte. Operator, we are ready to take questions.

[Operator Instructions] Our first question comes from Taz Koujalgi with ROTH Capital.

A couple of questions from my side. So if I look at -- if I'm doing my math right, very strong bookings growth this year based on RPO, the RPO number that you disclosed. Can you just give us some puts and takes on the bookings number being so strong? How is the duration? Were there is some large contracts that closed early in this quarter?

If you look at the market, one way to think about this is actually to see firsthand what our customers told us during the Intelligence Summit. We had 2 weeks ago. Actually, we do see that across geographies and customer segments, the demand drivers are very consistent. And actually, we give answers to all of those, which is increasing sophistication of the bad actors, growing volume in fragmented data, AI and also the need to move much, much faster. And given the demand drivers are significant and growing and healthy across domains and across territories, we do see that actually the demand is very healthy. In terms of the large deals that you've mentioned, we had a few of them. I gave an example earlier this call. We had a few more multimillion dollar deal. One example is $10-plus million deal with Tier 1 national security customer in EMEA, which is an expansion and upgrade with functionality. We have these customers with us for over a decade. We had another $5 million order from top NATO member, military organization. So you can see that one national security, the other one is military intelligence, and we had another one in APAC of $5-plus million subscription deal, another customer that is with us for [ 2 ] decades. So actually, what you see is that the need is there. Customers are going to the same direction globally and across segments, law enforcement, national security and national intelligence. And actually, this is what drives the demand. And as you mentioned, the RPO is strong. The cRPO is nearly $370 million. The total RPO is over $0.5 billion, and this gives us the visibility into fiscal '27.

Got it. Very helpful. And then you mentioned about the strong -- the addition of new partners in the U.S. market. As you think about your goals going forward from $400 million this year to $448 million and then $500 million in fiscal '28, maybe some more color on what is the mix of the U.S. business today, either from a revenue or bookings perspective? And then what are you expecting, I guess, for the next 2 years for the U.S. mix to be to reach that $500 million target in the next 2 years? What is assumed in the guide of the $500 million? How much should the U.S. be, broadly speaking, of that $500 million in the next 2 years? What is assumed in the guide for U.S.?

Yes, sure. So U.S. is one of the largest and most advanced intelligence and law enforcement agency market globally. They face actually similar problems. We had some customers joining us for the Intelligence Summit. So we actually do see that they suffer same problems and they need similar technology. And actually, we do believe that we have a very strong fit into their needs. In terms of fiscal '28, between fiscal '26 and '28, we need incremental $100 million. We do believe that about 50% of it will come from expansions and upgrades of existing customer base. About 25% will come from new customers outside of the U.S. And we believe about 25%, the rest 25% should come from the U.S., and we are taking actions in order to continue and expand presence in the U.S. Including partners, including hiring a new general manager for North America that came from Cellebrite. He was leading the federal sales in Cellebrite, including a lot of sales and marketing efforts. So generally speaking, they do believe that we take the right actions, and that's the assumption. The 25% incremental out of the $100 million will come from the U.S.

Got it. Very helpful. Just one for David. So David, you've seen -- you've shown strong leverage in the model. Your adjusted EBITDA margin this year was 12%. You outperformed your guidance. I think there's a little bit of a -- if I'm looking -- if I'm doing the math right, the free cash flow seems a little bit, I guess, lighter than the guide. So maybe just help us understand the gap between the EBITDA and the free cash flow number this year.

Yes. Thank you, Taz. We had a strong year with the cash collection and cash from operation and free cash flow. During this year, we were able to generate $40 million of cash from operations and $30 million of free cash flow. We came short versus our initial expectation of $45 million, mainly because of certain collection that took place early in this quarter. But if you look at the overall picture, we were able to generate $40 million on a $36 million of non-GAAP operating income. So actually, we were overachieving the operating income. And obviously, you have more things under the line like taxes and things that you paid. So in general, we are pleased with where we are from a cash from operation and free cash flow. And going forward, we guided for next year for $45 million.

Got it. Very helpful. And then if I look at the adjusted EBITDA guide for next year, you're guiding to 15% and I think that jumps to 20% in fiscal '28. Maybe just remind us what are the sources of leverage. You're guiding from 12% to 15% for next year, but then the guide goes from 15% to 20% in fiscal '28. So maybe just some remind us on what the sources of leverage are for the next 2 years?

So actually, we are very pleased with the leverage that we had with the gross margin. As you saw, we achieved 73% gross margin 2 years ahead of our initial plan. So this is one of the area that we believe that we'll continue to create leverage. We guided for FY '27 to 73.5% -- so this is an area -- the gross margin itself, it's a place that we think that will create -- continue to create for us leverage. And obviously, we have also some OpEx leverage. We -- OpEx will grow this year at 7%, while top line will grow 12%. So that creates for us the leverage. And we believe that it will continue with us into FY '28.

Our next question comes from Matthew Calitri with Needham & Company.

Matt Calitri over at Needham here. I'm curious on what the puts and takes are to the initial FY '27 guide, particularly as it relates to the ramp in the U.S., but I would also love to hear any color on why you widened that range by a point versus previous guides and then expectations on new customers versus expansions, group sense contribution, AI, anything of that nature?

So fiscal '27 guidance actually presents double-digit top line growth, 12% with an adjusted EBITDA growth of 40%. So it means that we expect another strong year in terms of leverage and top line growth. In terms of the range, we added plus/minus 1% to each side, given the volatility and uncertainty in the market, it can grow in both directions, upside and downside, but we feel comfortable with the midpoint. But the reason for the plus/minus 3% is related to the market environment. In terms of what drives the guidance, the way we look at it is we look at the cRPO, we look at our performance, we look at the market environment. We also look at the anticipated conversion timing of the cRPO to revenues. And taking all of those together, we have a very good visibility into the year. So overall, I think that we should expect another strong year. And we're also on track to meet the target for fiscal '28. So we are on track.

Okay. Great. Sticking there for a second, how would you categorize the size of the cohort of customers you expect to renew or expand this year compared to prior years? I know there aren't set dates with the perpetual model, but what are your assumptions based on what you're seeing for pipeline or historical customer trends?

Yes. So the history shows that unlike commercial stuff that you buy and you stick with it in our domain, the challenges are much, much higher and the pace is very fast. Just a few examples, customers that have a certain deployment today, they'll have to support data that is growing. They'll have to support more functionality. They'll have to catch up with technology, including AI-powered analytics and Gen AI. They'll have to address new use cases that are coming, whether it's financial crime or others. We do see that in military intelligence, there are new concerns related to border control and others. So generally speaking, this is a very dynamic environment and customers have to continue and upgrade and expand. And we expect that the upgrades and expansions are actually what we call repeat business, or leverage of our customer base will continue to be strong also going forward. So this is something that is a significant, I would say, baseline for our business. On top of it, we have, of course, the new logos, which is primarily land and expand strategy. Usually, they start small and grow over time with us and the U.S. business, which I discussed earlier, which is a strategic and important market for us and another growth pillar. So overall, I do believe that the repeat business will continue to be very strong, given that the environment is changing and customers have to adapt and run and catch up with this.

Awesome. Great to hear. And then, David, on the cash flow from operations, what caused the delay in collections? And how are you thinking about that conversion rate of adjusted EBITDA to cash flow as you scale towards the '27 and '28 targets?

So actually, we had certain delays that took place due to, I would say, customer delays, and we collect everything in the beginning of the quarter. So this is something that may happen. And then you are relying on customer when they pay. And if we look ahead, you need to take into consideration that on top of the adjusted EBITDA, you need to take other items like tax payment and other expense below the line that may take a place. For this year, we guided for $45 million of cash flow from operation, while the guidance for the adjusted EBITDA is $68 million. I think this is something that you can take as a going-forward view about how it will convert over time.

Okay. Great. And then -- it was also cash flow in '26, the cash flow from operations was very heavily weighted towards the second half. Is that seasonality expected to repeat or any commentary on that?

So actually, there is some seasonality in cash flow from operation. Usually, Q2 cash flow operation is negative due to actually expenses and less about collection. You may have some seasonality related to the size of the deal. So meaning that if there is a large deal that's taking place in a certain quarter, you will see an impact on that quarter. But it's not a given part. It's not seasonality on the nature of between Q1 to Q3. It's more about the specific deal and the mix of the deal in a given quarter, except for Q2, which usually is impacted by certain expenses that are taking place in Q2.

Our next question comes from Eric Martinuzzi with Lake Street Capital Markets, LLC.

Congrats on the good finish to FY '26. Your comment about the seasonality of the Q1 revenue would point towards kind of the lower end of the overall full year guided growth range. Just curious to know, if you expect that to reverse? Is that more of a second half reversal to get to the midpoint? Or is it maybe Q2, Q3, Q4 will kind of grow to offset that slightly lower growth rate in Q1?

So usually, from a seasonality perspective, Q1 is slightly below Q4. It really depends on certain things that are taking place, certain dynamics that usually takes from Q4. If you look year-over-year, it may create some fluctuation between the quarters from a growth perspective. But when we look at the overall year and the pattern of the year, usually, you start in Q1 slightly below Q4 and then growing over quarters. This was a typical year. It's not different versus other years.

Okay. And then the -- you talked about a slight preference for subscription versus perpetual. Is that also part of the slightly wider guided range for FY '27, just not being able to predict how customers are expecting to buy? Are you -- are bids being responded to with both a subscription and a perpetual and you just don't know, which the customer is going to choose?

So obviously, when you convert certain deals into subscription, it do have an impact on revenue and over time. But given the fact that we have such a strong cRPO, it gives us more confidence about how the year will look like. So you need to remember that we have $370 million of cRPO. So a big portion of our guidance is covered already. Subscription can play a role, but given the plus or minus of 3% that we gave, it's more about what we see in the market and there is upside and downside that can play a role given the geopolitical situation and what we see in the overall environment, and we thought that this is the right approach for this year.

Okay. And then lastly, more of a macro question. But historically, you have talked about pipeline or top of funnel activity increasing with increased global conflict. Any signs with regard to the Iran war impact on pipeline?

Yes. So actually, if you look at the market, generally speaking, when there are security concerns, usually, it will translate into demand in certain areas, certain territories, certain use cases. It takes time because it's government agencies, it takes certain time to respond. But what I can give you as an anecdote for this question today is for the example, the military intelligence. We do see demand growing in military intelligence, including in NATO countries. The reason is that they have to use this technology with their special forces and also have to improve their broader security. Usually, it's military intelligence. So we do see that certain areas with certain use cases have tailwinds related to the geopolitical situation today in the Middle East. So the answer is that usually security concerns, it create some more demand. Of course, it depends on the territory and depends on the use case. But generally speaking, the answer is yes.

Our next question comes from Charlie Zhou with Evercore ISI.

This is Charlie for Peter, Evercore. I have 2 questions for you guys. Firstly, with the incremental buyback authorization now in place, how should we think about the cadence of buybacks in FY '27? And then maybe just walk through how are you balancing buybacks relative to ongoing investments in growth and expansion?

Thank you, Charlie. So actually, we are very pleased that early this March, we were able to announce additional $20 million, which gave us a total plan since November '24 of $60 million. The remaining capacity under this plan is around $33 million remains for us to execute. Looking in the overall picture, we ended the year with $117 million of cash with a very strong balance sheet and continue to generate cash. What we are trying to do is to take a balanced approach between investing in our value creation for our shareholders and creating a buyback. And this is why we are placing all these plans. Actually, the Board ongoing commitment to long-term shareholders value creation and confidence in our growth prospects allow us to do that. Going forward, we will continue to assess on a regular basis. Now we have enough capacity for the upcoming quarters, and we'll continue to execute that. We are executing it technically under -- we have 2 ways to do it, regular purchase in the market when we are not black out and using a 10b5 plan during the blackout period. So by doing -- using these 2 tools, we're able to execute.

Got it. That makes sense. And second one, maybe for you, David. Both gross and operating margins came in very nicely this quarter. And as you mentioned on the call, the incremental gross margin this quarter came in at around 100%. And based on your gross margin guide, it seems that the incremental gross margin will be around 83% for next year. And maybe can you just help us think about the key drivers of that outperformance first and then how sustainable are those benefits as we move through FY '27?

So we are very pleased with the gross margin improvement. If you look at the last few years, we improved on a regular basis our gross margin, it's a continued improvement. It's actually another indication and validation for us about the value perceived by our customers. Our customers are buying premium solution and willing to pay for that, and we invest a lot on R&D. And the way that you get a return on that is by being able to sell our solution to Tier 1 customers that appreciate this value that we provide them. Looking at the overall trend, you can see that the total software is crossing the 80% gross margin and the professional service continue to increase above 20%. The combination of the 2 of them allow us to improve more margin when the scale is coming. So overall, we believe that this trend will continue. We already guided for this year to be at 73.5%. And we believe that in the long run, we leave more room for improvement on gross margin.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Dean for any further remarks.

Thank you, Kevin, and thank you all for joining us today. 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. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.