Management: Thank you, Lisa, and thanks, everyone, for joining us today. As always, please feel free to reach out with any questions you have, and we look forward to speaking to you again soon. This does conclude today's conference call. You may now disconnect.
Joshua Riley (Needham and Company): So if we look at the macro, I guess one of the items we were hoping to dissipate was the AI paralysis impacting contact center spending. And it seems giving the bundled momentum that you have here that's playing out. Can you just speak to the customer confidence in buying solutions now and whether they really are taking this land small approach or are some customers also going for larger deals in the current environment?
Management: Thank you. We do have now a very strong quarter in bundled SaaS revenue, going 23%. But this has been improving all throughout the year. And I believe Variant is very helpful to customers to stop the paralysis with the stronger and faster AI business outcomes. And we do see customers are evolving from just doing AI experiments, which is small scale, to actually AI deployments at scale. So let me give you an example. Fiserv, it's a leading fintech company, and they reported that Variant Quality Bot is doing the work of 1,200 supervisors. So this is Variant Agentic AI that is automating CX workflows. And in Fiserv's case, this is automating a financial compliance work. So the Variant Agentic AI is automating a micro workflow within the compliance workflow and increasing the capacity of the compliance team, but increasing it by a very significant matter. So these kind of examples and companies who are willing to share the success stories publicly is very helpful. And then obviously there's the economics.
So from a point of view of the brand, on average, to replace a SIP with AI, the brand will need to invest $2,000 in AI software, but they save $40,000 on labor. This is a 20X ROI, and once customers see that kind of strong outcome, obviously, they move away from the paralysis. At the same time, for variants, this $2,000 revenue from selling the automation software is much better than the loss of the software revenue from the reduced seat, which is only $200. So we swap a $200 license for a $2,000 AI license. And of course that benefits varying from a nine X increase in revenue. So this is a win-win and we're helping customers to actually see the benefits and it's no brainer to invest. I would say that the big AI bottlenecks that we saw last year and are dissipating, one was the customer had that perception that in order to get AI outcomes, they need to change the infrastructure. And, of course, with the hybrid cloud, as we educated the market, that that's not necessary because you can layer the AI bots from variant on top of your existing infrastructure. So that was a big challenge. objection that now customers see that it's not a real objection.
And the other objection was mostly from IT, where they were skeptical about AI and they wanted to do AI experiments before they allow AI in the enterprise. And now, of course, the strong AI outcomes reported by their peers, they started to see, well, it's real. And of course, with hybrid cloud, they can start small. They can surely start small in their own production environment. It's not a lab environment. And when they see the results in their own production environment, there is no objection, and they would like to scale quickly. And we saw many examples before of customers that more than doubled their ARR. And basically, they kept their non-bundle SaaS ARR was stable. sometimes growing, sometimes declining a little bit. But a lot of the growth that I discussed before was actually adding AI and layering that AI on top of their existing solutions from Variant and from other vendors.
Joshua Riley (Needham and Company): Got it. Thanks. And then if you look at the FY26 guidance, are you assuming that any of the $20 million and kind of pushed unbundled revenue that... you know, didn't come in in the fourth quarter closes? Or have you kind of taken that assumption on the 20 million there out of the full year guidance, including the plus or minus 3% assumption there?
Management: Now we are talking about a couple of deals that are from existing customers that have ongoing rollouts of various software into larger operations. In one case, it's a deal that the customer was in the middle of a rollout to more business units, and we expect them to continue the rollout. The timeline the customers have changes, obviously. We see customers actually prefer to invest their budget dollars in AI rather than rolling out infrastructure changes across their operation, but we believe that we have a very large range of outcomes when it comes to unbundled SaaS, right, and that's why we're guiding revenue with plus minus 3%, but from an ARR perspective, you know, everything is runnable, and unbundled or bundled booking basically are not making any impact on ARR, so when we go to the 8% growth in fiscal 26, it's really disregarding the impact of any booking mix. And, you know, when you look at Q4, which we just finished, and a booking mix, we actually assumed in booking Q4 that we will have $25 million of new sales CV. And that was a good number, right? This will be 20% growth year over year.
Actually, we had a record booking of $32 million, so we came with 30% growth. Even without those unbundled deals, that will be now pushed into the future. So if we had those few deals that slipped, we would be at 40 million, which is even more than 40% growth. But 30% growth really is great because it's in AI. We saw customers are preferring to put their budget to work to increase the economic benefits that they get from AI, and they are sometimes deferring their infrastructure change and kind of split it over time.
Joshua Riley (Needham and Company): Got it. Last question for me is if you look at the fourth quarter there, you did outperform on total AR with 5% growth. My estimate here is that you lost $8 million to $10 million from one of those large unbundled deals that pushed. I guess in terms of making up for that $8 million to $10 million in lost AR plus still beating on a net basis with 5% growth, Was it a series of smaller bundled deals, or was there a few large bundled deals that kind of came in the quarter there that outperformed relative to your expectations? Thanks, guys.
Management: Yes, no, thank you for that. So we do see larger deals now from, you know, for POAI, you know, one of the two deals that I highlighted, there was a Q4 win, was a $10 million TCP order that was for a new bot. But interesting, you know, we mentioned that we've been seeding the market for quite some time and I earlier discussed four different examples of customers that increased ARR significantly over the last year. So when we look at different cohorts and how customers behave, first I mentioned that, you know, when we were looking at the Fortune 500 companies, the leading brands in the world, and we already have 90 of the Fortune 500 that are using Variant AI. So that's obviously great because these are market influencer and there's a lot of potential in large companies. When I looked at a different cohort, which is what is the Variant top 100 customers, and in the Variant top 100, each customer on average is like a $3 million ARR. So these are large customers. This cohort actually grew last year, or Q4 ARR, the growth was 17%. Right, so 5% is our overall ARR growth, but in the top 100, we grew 17%.
And when I look at even a smaller universe, the cohort of our top 25 customer, which they have on average $6 million per customer ARR, these customers actually grew 24% in Q4, versus the 5%. So what we see now is that our largest customers are actually growing much faster than the overall universe. And it's not a coincidence because when we were introducing this innovative AI and strong outcomes to the market, we decided to actually go top down because we have thousands of customers and we can't focus on educating all of them. So our decision was to educate our customer base top down. And we see big success with the top 25 and the top 100 because we spent a lot of time educating and showing them in their own production environment what they can achieve and then obviously buying now bigger and bigger. So it's not small deals, we have bigger deals, to your question. And also, in fiscal 26, all this seeding work we did with the large customers we think will continue to benefit us because they are continuing to expand the AI consumption.
But we have now the bandwidth to focus on the next 100 and the next 100 and go down the customer base and of course we see also acceleration from this effort. As you mentioned in your first question, there was a big paralysis in the market. We're breaking through that paralysis and we're seeing the results now, not just in terms of potential, but also we see very tangible results in our top customer cohorts. Thank you.
Peter Levine (Evercore): You know, I think it's clear you guys have demonstrated or at least, you know, try to relay the message of ARR is the right metric, and I think you're the only company going through the dynamics of term and subscription. But if you look at the dynamics of these customers, can you maybe just share with us your confidence that these customers that pushed their unbundled deals into fiscal 26, what percentage of those do you feel confident are going to close? And then second, are there any other dynamics that happen with these deals? Was it the macro? Was it budgeting? Anything else that kind of played into them pushing out?
Management: I don't think that there is macro issues. I think that actually customers are looking to spend their budgets more where they get tangible results. I think there is now in this environment, there's even more scrutiny on, you know, are we just doing experiments or are we going to see business outcomes now? So that actually works well for Variant because we're not advocating that you need to do a long-term investment. You can start small and prove it and scale only when you see the outcome. So I don't think it's a budget issue. The ARR is so significant that the solutions actually pay for themselves. So in terms of the mix of bundled and unbundled into 26, what will be the mix that we assume? First, the good news is that the mix doesn't matter to our ARR guidance because it doesn't matter. All deals in ARR are reliable. Now, of course, we know that at the end, ARR and revenue are the same thing. The deal, if it's a million dollar deal, it will drive ARR, drive revenue for a million dollar deal. So it's just a matter of timing. And because ARR, we take all dealers as valuable, we basically are indifferent to the mix on our ARR guidance.
And this is why we guided for 8% growth with plus minus 1% range. Now, the mix will make a difference to our revenue, as we all know, because of the impact of 606 on unbundled SaaS. So, different mix will create different results, and this is why we're guiding for plus minus 3% or plus minus $30 million, which is a broad range, but it does reflect the reality is that it's difficult for us to predict because the customers now have the flexibility to change their mind. Hybrid cloud brings a lot of benefits to the customer. One of them is they don't have to make the decision what they need to do first. Normally in software, you would think I have to change my infrastructure and then I can layer on the AI applications and get the benefits. Variant came with a very differentiated approach. You do not need to change your infrastructure. So we're not forcing our customers to continue to convert their premises to the cloud, or whether they need to expand on premises before they can go to the cloud with AI. And it gives them the flexibility to actually decide, sometimes at the very last minute.
Yes, we're gonna spend, we've varied $5 million, but rather than spending it on SaaS, unbundled SaaS, we're gonna spend it on bundled SaaS. And what we're going to do is we're going to say, great, let's do, let's do the bundle slash 5 million. That's going to be more AI, more on consumption. That brings us faster to where actually we want to be as a company. We want to be, you know, the company that basically leads the market with sitting more and more customers and getting bigger consumption in AI. And that's all in the variant cloud hosted in a variant cloud. So we're not pushing our customers to do more unbundled SaaS deals. It just falls where it falls, and that's why we gave a broader range of outcomes for revenue and a very narrow range for error.
Peter Levine (Evercore): Thank you for the color. Maybe one for you, Grant. Can you help us explain if of the customers, unbundled customers that pushed, were these all renewals? Were any of these net new customers? And then as a percentage, there's one merger customer. Maybe just talk about those.
Grant (Title): Sure, Peter. No, thank you for that. And it's important to note, so these were all existing customers, and the deals that we were highlighting, none of them were renewal-oriented. So, in fact, in Q4, all of our revenue streams came in on track or bundled SaaS, as Dan mentioned, was slightly ahead, and that included the unbundled renewals. They all came in exactly as expected and on time. So this dynamic that Dan is sharing simply related to an expansion with some existing customers. And as he highlighted, it really was, they were planning a rollout to some additional business units of some of that software and the timeline for that changed. And we do expect that to materialize much of it as we go throughout fiscal 26.
Timothy Herron (Oppenheimer): Thanks, guys. Can you talk about the channel mix a little bit, you know, as a percentage of revenue, and more importantly, where you expect it to go into? Within the channel, are you seeing certain areas of growth versus other areas? And I guess related to this, what makes you think you have the best AI products and services out there now? Are you hearing that back from channel partners as well as your large customers? Thank you.
Management: Yes. So I'll start with how do we go to market with channels? we have very little bookings and revenue from channels that are completely autonomous. Most of our channels are actually not experts in AI and they rely on the varying sales force and pre-sales and product experts to go deep dive with customers to demonstrate the outcomes and so on. So we're now in a cost selling model with most of our most of our channel partners. Now we do see and expect that some of them are going to pick up some of that knowledge. And we see some partners, you know, that we have more than 50 bots. And so each bot is automating a CX micro workflow. And, you know, we don't expect channels to kind of master all these different workflows that we automating. But we do see partners that are trying to package and become better at selling maybe three or four or five. So they're starting to get more capable in delivering the message to customers in a credible way. Of course, what we hear from channels all the time is the kind of customer reported AI business outcomes we don't hear from anyone else.
So that really helps the confidence, not just with the end customer, but also with our channel partners. They see that what we say we can do and what we do really resonates well with customers. So look, partners are looking to make it easier for them to sell. And the easier it gets with the demonstrated outcomes, the more they're going to invest in learning the variant platform and actively selling it. So in 26, we baked in obviously another year of growth acceleration in ARR which is driven by booking growth and we do dial in some better contribution from channel partners but we think that over the next few years there's a lot of leverage in our many many relationships that will just be growing and what we did in the last couple years is we couldn't wait for the channel partner to lead, so we were leading more with our direct sales force, but definitely we are, as always, we've been very open to our partners, we are very supportive to partners, and we're looking for our partners to be more successful, and I think it will happen over the next few years.
Timothy Herron (Oppenheimer): Great, and then just on the macro side, are you seeing any concerns from your customers that, you know, on macro and I would think if macro is slowing, it should actually benefit you guys because you can obviously reduce their expenses quite a bit and improve productivity, but any thoughts around both would be great.
Management: Yeah, no, I think you're absolutely right. I think that customers really are more hesitating to do infrastructure projects because infrastructure change doesn't really create great ROI and takes a lot of time and it's disruptive, but our message now is resonating better than before, which is No need for infrastructure change, no need for upfront commitment, start small. Look, some of the big customers that I discussed before, I'll give you an example, a customer that started just with a co-pilot bot, and they wanted to just assist 300 agents and see how it goes, and in a few weeks they saw the results, in a few months they expanded from 300 agents to 30,000 agents. And we reported before $70 million was their increase in agent capacity. So they were very skeptical at the beginning. At the same time, the other example I gave, which was the $10 million TCV order in Q4, this was the already initial order for 5,000 to assist 5,000 agents with a co-pilot. So the pricing is also another thing which helps customer because the way we price our AI software is very aligned to creating value.
They have this complete flexibility on how much consumption they desire and that consumption is directly related to the value. So the unit of measure is directly related to the value that they create. So one for bots, for example, price based on the number of minutes that the customer decides to allocate to the bot. And the customers may have, you know, five million minutes that they need to respond to, and they say, well, the bot is going to do, you know, 100,000 minutes, and then the rest, 4.9 million, will be by people. As they see the bots actually creating good outcomes, they can shift more minutes to the bot, which will be more revenue to variant, but obviously, that investment invariant will be with a 20x ROI relative to investment in labor. And they have the flexibility to shift it back and forth. If they see the bot is not working well, they know they can take it away. In reality, they don't because the bot actually is improving performance over time because our bots learn from data. One of the differentiation part of our platform is that we're not just using AI models.
We have the data in a platform, which is behavioral data, and the various AI-powered bots are using hundreds of different models. We pick the right model for the task, which depends on which micro workflow we're automating, but then we also train that bot all the time on fresh data, and bots get actually better, and then customers will consume more time with that bot, send more minutes to the bot, which will increase the revenue and create huge ROI for customers. That dynamics, when you think about the macroeconomic, the trends, what happens with the economy, the message is don't have a big rip and replace project that takes two years and you don't know what's going to be at the end. With Variant, you can take a completely different approach and you can start to measure those tangible outcomes in your own environment, and then scale, and it's very quick to scale because all these bots are running in a very cloud, and basically it's just giving more entitlement to customers to use more of the bots. The scaling is also not disruptive. I think we have a very compelling and differentiated approach with hybrid cloud, and we're starting to see that with ARR accelerating.
Shaw Eel (TD Cowen): Dan or Grant, these handful of SIP deals, are they U.S. or internationally driven?
Management: Basically, there were two large deals that predominantly are the total amount that was slipped, and they were both very large U.S. companies, financial services companies.
Shaw Eel (TD Cowen): Understood. Thank you for that. And from a competitive market dynamics stand, do you think you're gaining market share driven by the bot strategy over the course of the past few quarters?
Management: We're not aware of any other vendor that has that scale of AI deployments that Varian does today. Actually, if you look at a customer base right now, all customers that are running in the Varian cloud have some AI entitlements, which brings our total ARR over $300 million of total ARR for customers that actually using various workflows with some level of automation assisted by AI. And that's a pretty large number. And as I mentioned before, our top customers, our top 25 customers are growing, you know, 24% year over year. And as you saw in the examples before, All the growth is coming from investing in AI, the keeping the legacy solutions from Varian, the WFP solutions, they're keeping them on-prem and they're adding more and more AIs and different level of consumption for different bots, some adding seven bots, some adding 10 bots. So yeah, I think we are creating a very nice market share with leadership position in the CX automation market. and we are totally agnostic to infrastructure. So the customer decision on SICAS, on CRM, even on the AI vendors, we are totally agnostic. We will work with any AI vendors of choice, and we can take different LLM models.
Obviously, we have many different LLM models that we test in our labs, and we recommend to customers what will give them the best cost performance, but we're also very agnostic. So in CX automation, which is, you know, we define that as very simply automating CX workflows. I believe that we are the market leader and we're taking market share.
Management: Thank you so much.
Management: And this does conclude today's Q&A session. I would like to go ahead and turn the call back over to Matthew Frankel, for closing remarks, please go ahead.
Matthew Frankel (Title): Thanks, Lisa. And thank you, everyone, for joining us today. As always, please feel free to reach out with any further questions you have. And we look forward to speaking to you again soon. Have a good night. Take care. Thank you for joining today's conference call. This does conclude today's conference. You all have a great evening.