Alan Roden - Senior Vice President of Corporate Development Dan Bodner - President, Chief Executive Officer, Corporate Officer, Director Doug Robinson - Chief Financial Officer, Corporate Officer.

Shaul Eyal - Oppenheimer Nandan Amladi - Deutsche Bank Paul Coster - JPMorgan Michael Nemeroff - Credit Suisse Dan Bergstrom - RBC Capital Markets Jonathan Ho - William Blair.

Good day ladies and gentlemen and welcome to the Verint Systems third quarter 2017 earnings conference call. At this time, all phone participants are in a listen-only mode. [Operator Instructions]. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder this conference may be recorded.

I would now like to introduce your host for today's conference, Mr. Alan Roden, Senior Vice President of Corporate Development. Sir, please go ahead..

Thank you operator and good afternoon and thank you for joining our conference call today. I am here with Dan Bodner, Verint's CEO and President and Doug Robinson, Verint's Chief Financial Officer. Prior to this call we issued a press release that includes financial information for our third fiscal quarter ended October 31, 2016.

Our Form 10-Q will be filed shortly. Each of our SEC filings and earnings press releases is available under the Investor Relations link on our website and also on the SEC website.

Before I turn the call, I would 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 and/or implied by the 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 more detailed discussion of how these and other risks and uncertainties could cause Verint's actual results to differ materially from those indicated in forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2016 and other filings we make with SEC.

The financial measures discussed today includes non-GAAP measures as we believe investor's focus on these measures and comparing results between periods among our peer companies. Our financial outlook is provided only on a non-GAAP basis.

Please see today's earnings release and the Investor Relations section of our website for a reconciliation of non-GAAP financial measures to GAAP measures.

Non-GAAP financial information should not be considered in isolation as a substitute or superior to GAAP financial information, but included because management believes it provides meaningful, 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 would like to turn the call over to Dan.

Dan?.

Thank you, Alan. Good afternoon, everyone and thank you for joining us today. In the third quarter, on a GAAP basis, we delivered $259 million revenue or $262 million on a constant currency basis. On a non-GAAP basis, we delivered $260 million of revenue or $263 million on a constant currency basis, similar to our Q2 results.

During our last conference call, we discussed the change from three reporting segments to two reporting segments, customer engagement solutions and cyber intelligence solutions. This change supports our desire to give each business more operational flexibility and agility.

With greater agility, over time each business will be able to adopt its actionable intelligence strategy to the specific requirements of its respective markets to accelerate growth. As we will discuss later, our two businesses have different business models and we are making changes that are designed to extend our market leadership in each market.

Starting with our customer engagement, we expect two-thirds of our revenue this year or more than $700 million to be derived from this segment. Our customer engagement business is primarily enterprise software with a hybrid deployment model that support both on-premises and cloud deployments.

For the current fiscal year, we expect this business to generate mid-single digit revenue growth on a constant currency basis. From a margin perspective, on a fully allocated cost basis, we expect this business to deliver gross margins in the high-60s and operating margins in the low-20s this year.

We believe our hybrid cloud model is driving recurring revenue growth and a financial profile that is consistent with many enterprise software companies of similar size and mix and allow us to be competitive and win market share.

Our customer engagement growth strategy focuses on four pillars, expanding our portfolio, delivering advanced analytics, offering deployment flexibility and growing our partner network. We continue to take further steps to advance our strategy across these four pillars as follows.

First, with regard to ongoing portfolio expansion, we recently announced new digital capabilities for our market-leading Voice of the Customer Solution. With this addition, our customers can analyze and act on feedback collected across all channels digital, voice, text, web and social.

In addition, as part of our omnichannel strategy, we introduced enhancements to our social engagement solution. While many organizations have embraced social media as a marketing and promotion tool channel, consumers are increasingly using it to request service as well.

With the Verint integrated social engagement solution, businesses can rapidly escalate and respond to both simple and complex service issues raised on social media channels. Second, we continue to make analytics ubiquitous across our portfolio and have announced new omnichannel text analytics for email, web chat and social media channels.

Also our robotic solution, which uses software box to automate business processes recently received the Best Practices in the New Product Innovation Award by Frost & Sullivan. Next, relative to our deployments go-to-market strategy, our hybrid cloud model addresses well the various deployment preferences of the market.

In Q3, we saw many large enterprise customers interested in deploying our solutions in a private cloud model in order to retain control of the hosting environment. At the same time, we saw a different trend with SMB customers more interested in the multitenant public cloud model to take advantage of lower cost and faster deployment.

We believe our hybrid cloud strategy provides customers of all sizes the flexibility they need and is a competitive differentiator for Verint. And fourth, with respect to channels, in Q3 we continued to expand our partner network adding new cloud partners such as Five9, Telesis, TeleTech and other cloud infrastructure vendors.

Verint's solutions are offered directly by Verint as well as through a broad set of partners that OEM or resell our solutions in the cloud or on-premises. Over the years, we have created a large partner network and our partners know that they can rely on Verint for best-of-breed solutions as well as on our reputation for strong partner support.

With our extensive partner network, we believe we are uniquely positioned for growth in the SMB portion of the market. We are in the process of launching our next-generation offerings for SMB, that will be available both on-premises and in the cloud.

Our new SMB offering includes best-of-breed capabilities across our entire portfolio or pre-integrated in an SMB specific package that is easy to deploy and operate. It is also pre-integrated with leading ACD vendors providing partners business flexibility and at the same time providing SMB end-users more choices of pre-integrated functionality.

In addition, we are launching a dedicated support program to make our channels more effective and to more quickly on-board new SMB channels. During the quarter, we received many orders that are reflective of our four pillars we discussed, including the $6 million multiyear cloud order from a leading automotive company.

This customer decided to upgrade existing Verint applications and at the same time migrate form an on-premises to a private cloud deployment model. This is a good example of how our flexible deployment model helps customers evolve their specific cloud strategies.

Also, an order for more than $3 million from a global payment technology solutions provider who had previously deployed certain components of our portfolio on-premises and is expanding its investment by adding multiple additional applications, including quality management, encryption management, speech analytics and advanced desktop analytics.

This customer decided to consolidate vendors and standardize on Verint to optimize customer engagement and better harness the voice of the customer. In addition, there are two large orders that were expected in Q3 and came in an early Q4, including a $5 million order from a leading package delivery company for multiple components of our portfolio.

We believe the breadth of our portfolio was key to winning this large competitive deal and will help this customer achieve strategic customer service objective with an attractive return on investment. Also, a nearly $3 million order from a government agency to upgrade and expand its investment in Verint solutions.

This customer who previously deployed multiple components of our portfolio is upgrading to our latest version and also adding new capabilities. This is a good example of our broad portfolio support, land and expand strategy.

In summary, we have good momentum and are expecting a strong Q4 in the customer engagement segment, which will drive mid-single digit revenue growth this year on a constant currency basis. Looking ahead to next year, we expect another year of similar revenue growth and expect margins to expand as we continue to scale the business.

Turning to cyber intelligence. We expect about one-third of our revenue this year or approximately $350 million to come from this segment. Our cyber intelligence business model is different than customer engagement as it is primarily project based comprised of both hardware and software and largely deployed on-premises.

We see limited cloud deployments in this segment due to the nature of the security intelligence market. As previously discussed, we expect the revenue this year to temporarily decline, primarily driven by a weakness in emerging markets.

While revenue has declined year-to-date, we are pleased to report strong recent business activity and we expect to finish the year strong.

With increased business activity, for the year we expect the total value of new orders to be higher than revenue even without the contribution from the previously announced unusually large projects having a potential value of over $200 million.

We believe this activity reflects our customer's desire to enhance security and their ongoing need to invest in new cyber intelligence technology. As a result, we expect not only a strong Q4, but to return to growth next fiscal year.

From a margin perspective, for the current year on a fully allocated basis, in cyber intelligence we expect gross margins to be below Verint's overall average with operating margins around 10%. The margin profile is lower than in customer engagement, primarily as a result of software, hardware mix.

Furthermore, our operating margin this year reflects our lower revenue levels during the first three quarters and we expect operating margins to improve in Q4 as we grow revenue.

Historically, our cyber intelligence business generated higher revenue which drove better operating margins and going forward we expect operating margins to improve commensurate with revenue growth.

Verint's long history of market leadership in the security market was driven by our ability to identify customer challenges early and invest to bring innovative solutions to market to help our customers address these challenges.

During the quarter, we received several large orders including orders in the $5 million to $15 million range, reflecting our market leadership position.

In summary, we believe governments around the world continue to need sophisticated cyber intelligence solutions to address pressing security threats and we are well positioned to sustain long-term growth. Turning to guidance.

In Q4, we expect both businesses to grow sequentially, driving a strong increase in operating margins and strong cash generation. Looking ahead to next year, we expect another year of mid-single digit revenue growth in customer engagement and mid to high single digit revenue growth in cyber intelligence.

We will continue to invest in our two businesses to drive growth and next year we expect our earnings to grow slightly faster than revenue with some margin improvement. And now let me turn the call over to Doug to further discuss our financial results and guidance.

Doug?.

Yes. 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 Alan 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 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. I will start my discussion today with the areas of revenue, gross margin and operating margin. In the third quarter, we generated $260 million of non-GAAP revenue or $263 million on a constant currency basis, similar to our Q2 revenue.

Segment revenues were $174 million in customer engagement or $177 million on a constant currency basis and $86 million in cyber intelligence. This compares to $285 million of non-GAAP revenue in the third quarter of the prior year with $177 million in customer engagement and $108 million in cyber intelligence.

In terms of geography, in Q3 we generated non-GAAP revenue of $138 million in Americas, $75 million in EMEA and $47 million in APAC. This compares to $153 million in Americas, $83 million in EMEA and $49 million in APAC in the third quarter of the prior year. Q3 non-GAAP gross margins were 65%.

As we discussed in the past, due to product, services and revenue mix within or across segments, overall gross margins can fluctuate significantly from period-to-period. For the full year, we expect gross margins of 65%.

From a segment perspective, our customer engagement business is primarily software and services and our gross margins in that segment are expected to be in the high-60s, similar to other software companies with that same product mix.

In our cyber intelligence segment, we expect gross margins to be below Verint's overall average reflecting the mix of hardware, software and services in that business.

During the third quarter we generated non-GAAP operating income of $49 million with an operating margin of 18.9%, slightly better than Q2 results of $48.4 million and 18.3%, respectively.

As Dan mentioned earlier, from an operating margin perspective for the full year on a fully allocated basis, we expect customer engagement operating margins to be in the low-20s and cyber intelligence operating margins of around 10% if we approximate our segment operating margins by distributing our unallocated expenses, which are shown in our 10-Q segmentation footnote, excluding our non-GAAP adjustments proportionally to segment revenue.

Our adjusted EBITDA for the quarter came in at $56 million or 21.5% of revenue. Now let's turn to other income and interest expense. In the third quarter, non-GAAP other expense net totaled $7 million, reflecting $6.2 million of interest and other expense and $800,000 of foreign currency charges primarily related to balance sheet translations.

Our non-GAAP tax rate was 9.6%. As we discussed previously, we expect to enjoy a low non-GAAP tax rate for several years due to our NOLs and the amount of income we generate in low tax rate jurisdictions For the quarter, we had 63.3 million average diluted shares outstanding. These results drove diluted non-GAAP EPS of $0.59 for Q3.

Excluding foreign exchange translation charges, EPS would have been $0.60. Now turning to the balance sheet. As of October 31, 2016, we had $321 million of cash and short-term investments, including short-term restricted cash.

Cash flow from operations on a GAAP basis for the nine months ended October 31, 2016 came in at $72 million and just after quarter-end, we received a payment of $26 million that was originally expected during the quarter. Regarding our share buyback program, during the quarter we repurchased an additional 500,000 shares.

Year-to-date, we repurchased one million shares for $36 million leaving us with over $100 million still authorized under our program which we announced earlier this year. We ended the quarter with net debt of $490 million excluding discounts and issuance cost primarily associated with our convertible debt.

Before discussing guidance, I would like to share with you some of the changes were making to create agility in our business. As Dan said, our two businesses have different models and our goal is to give each business more agility to execute their respective actionable intelligence growth strategies.

In addition to moving the business to two segments, we are also making changes in our systems and processes to better accommodate the different business models. In that regard, we have initiated an upgrade of our ERP in other business systems that will provide additional flexibility and enable us to better track development metrics of each business.

For example, in our customer engagement business, cloud metrics are becoming increasingly relevant, while in our cyber intelligence business project metrics are more relevant. Our businesses systems upgrade initiative should be completed within a year. Turning to guidance. I will start with our outlook for the year ending January 31, 2017.

Because we are currently experiencing different dynamics for customer engagement and cyber intelligence, I would like to discuss our expectations separately for each segment. We expect our customer engagement segment to represent approximately two-thirds of total revenue for the year.

We expect a strong Q4 bringing the full year to mid-single digit revenue growth on a constant currency basis. We expect our cyber intelligence segment to represent approximately one-third of total revenue for the year. We expect a strong Q4 following the temporary decline we experienced over the last three quarters.

For the full year, we expect non-GAAP revenue to be $1.075 billion, plus or minus 2%. Adjustments to our annual guidance are being driven primarily by timing and security. While we are encouraged by the recent order activity in security, the timing of these orders turning into revenue impacts the revenue outlook for the year.

From an operating margin perspective, we are pleased with the sequential improvement in our operating margins in Q3 and expect further improvement in Q4. Since we believe the decline in cyber intelligence revenue this year is temporary, we continue to invest ahead of next year's growth.

While this strategy temporarily impacts our overall margins, as we scale the business next year and for the longer term we do expect margins to expand. We expect our non-GAAP quarterly interest and other expense, excluding the potential impact of foreign exchange, to be approximately $6 million.

Given the continued volatility in foreign exchange rates, there could be future gains or losses related to balance sheet translations in our future results, which is not included in our guidance. We expect our non-GAAP tax rate to be approximately 9% for the year, reflecting the amount of taxes we expect to pay.

Based on these assumptions and assuming approximately 63.1 million average diluted shares outstanding for the year, we are expecting non-GAAP diluted EPS at the midpoint of our revenue guidance to be approximately $2.50.

Now looking ahead to the year ending January 31, 2018, we expect mid-single digit revenue growth in customer engagement and mid to high single digit revenue growth in cyber intelligence. We will continue to invest in our two businesses to drive growth and expect our earnings to grow slightly faster than revenue with some margin improvement.

In conclusion, we expect to finish the year strong and believe we are well-positioned for sustained growth in both customer engagement and cyber intelligence. Longer term, we believe the steps we are taking to increase agility will enable us to better focus each operating segment on their respective markets to ascend our market leadership.

This concludes our prepared remarks.

With that operator, can we please open up the lines for questions?.

[Operator Instructions]. Our first question comes from the line of Shaul Eyal with Oppenheimer. Your line is now open..

Hi. Good afternoon guys.

Dan, some of the changes that you are attempting to bring as it relates to the two businesses, as you indicated operating in two different end markets, could that be also including some strategic steps such as separating the two businesses in order to potentially unlock more value?.

Okay. So as discussed, the two businesses have different financial profile and business models. Clearly customer engagement is a hybrid cloud model and gross margin in the high-60s, operating margin in the low-20s and that's very similar to peer, to enterprise software companies.

While cyber intelligence is not just a different end market, but it's also project based. It has software and hardware mix and that's driving a different financial profile. So what we do now is really, over the next year we are taking steps to increase the agility in each business.

We have been operating with similar business process and system to support the process and we need agility for each business in order to improve the growth rates.

So maybe to best answer the question is to look and expand the answer with some historical perspective, when we started the company, we were developing an actionable intelligence platform and therefore the foundation to go after several markets.

Several years ago, we already realized that as we created scale for enterprise and security, we did combine not just the technology but we combined technology with domain expertise and we started to build two businesses that have dedicated management and R&D teams and sales teams.

But with the recent adoption of the hybrid cloud model in our customer engagement business, we now have very different business models and both businesses are in highly dynamic markets. So agility is very important and it's a competitive differentiation.

And what we do now, we believe that in order to achieve greater agility, we need to enhance our systems and business processes and do it in a way that is specific for the needs of each business and that's what we did. We kicked off this initiative. We expect to complete it by the end of the fiscal year.

And our two businesses are expected to grow next year and improve margins. We expect it from both. We talked about the security business decline, but we are very pleased that we had a rebound and the decline is temporary.

We expect it to grow next year and where we will end up next year is with two dedicated management teams that have control over the resources they need in order to focus on their respective markets with distinct business models and with this greater agility we believe that each business is well positioned to accelerate their growth rates..

Got it.

Maybe just as a follow-up, the two contracts you have indicated as slipping late in the quarter, but already signed during the current quarter, was that just a timing issue? Or was there anything else behind it?.

No. I think that, in enterprises these two contracts are related to our customer engagement segment. And in customer engagement in H1, the first half of the year, we achieved mid-single digit growth and that's our expectations also in H2. And that will bring the year to mid-single digit revenue growth.

And with these two contracts, we got the in early Q4. It doesn't change the H2 profile. So we have a little bit less than that in Q3, because those two contracts, a $5 million contract and a $3 million contract, actually already got in early Q4 but they are not changing the H2 view.

So basically if you look at where we are for the year, I want to share my view on how we are making progress, we started the year with expectation of growth in enterprise and a temporary revenue decline in cyber. And we said that the cyber decline will be temporary, but we couldn't really project how long it will take.

And overall, enterprise is basically on track and cyber revenues, yes they are down but at the same time we have such recent strong business activity with orders more than revenue even without the $200 million contract. So that gives us the confidence that the decline is temporary and that we will have growth in Q4 and next year..

Got it. Thank you..

Our next question comes from the line of Nandan Amladi with Deutsche Bank. Your line is now open..

Hi. Good afternoon. Thanks for taking my question. So Dan, you mentioned that some customers are choosing cloud model.

How many of these customers are existing customers making the shift as you come up for maintenance renewals? And is that having any, putting any pressure on the optics of your revenue growth in the enterprise segment?.

It's a good question. So cloud is actually, a lot of things are going on because we have this flexible model and as I said before, we think that's a great differentiator, a competitive differentiation that we are giving our customers flexibility.

But when you look at the different revenue streams that drive cloud and cloud obviously is growing, we have new products that we offer in the cloud from the get-go. So as they grow, there is no comp issue with legacy because they were always in the cloud. We also have channels.

Our channel partners in the cloud are growing the revenue and that's high-margin revenue stream in cloud because the channels are basically hosting the technical managed services. And then we have some products that historically we were offering in mostly perpetual, now a shift from perpetual to subscription, but that's not that much.

We don't see much difference between this year and last year and we are not projecting a lot of different next year.

So overall when we look at all those cloud streams, we don't think that creates a negative impact on any different than where in prior years and we continue to see the overall cloud business growing but with different drivers underneath..

Well, thank you. And a quick follow-up on the security side. You touched on this a little bit. But as we look ahead, you have talked about single-digit growth for the security business after a decline this year.

How much of that megaproject that you signed is factored into that guidance? How much of that will trickle in versus other new business?.

Yes. So our view hasn't changed from what we discussed last quarter, which is we expected about 10% of that project to be in this year and then the majority will be over the next two years. And then it will be somewhat of a tail for the following year. So the majority of the revenue will be next year and the year after.

And what's driving our mid to high single digit outlook for security is obviously some contribution from this project, but also the fact that we have a recovery that even not including the contribution from this project we have orders of value that is greater than our revenue and that puts us in a better position to generate growth next year..

Thank you..

Yes. Sure..

Our next question comes from Paul Coster with JPMorgan. Your line is now open..

Yes. Thanks.

I wondered if perhaps you can give us a little bit of color around the partnership with Five9? When that starts to kick in? And what you are expecting of it? And how much skin you are putting into that game?.

Yes. So we have we have about 40 partnerships with cloud vendors and we are very pleased to add Five9 to our partnership program. This program is already in place for a number of years.

So we are very ready to support any new partners very quickly, both in terms of obviously the multitenant products as well as the enablement and support programs to get the partners growing quickly. And we believe that that's going to be the case with Five9. Obviously, they are driving and we are ready to support them.

But I would say that generally the cloud partner program, we are expecting growth next year. This is one of the cloud areas that will be growing and obviously it's always been the cloud. So there's no issue of converting perpetual customers to cloud.

Most of these cloud partners are focused on the small and mid market and that's where we want to go with our cloud partners. As you know, we are ACD neutral. We don't own an ACD product. We work with all the leading ACD vendors and our partners are able to basically pre-integrate our offering with any ACD and give their customers a lot of choices.

So we think that's a very good strategy and one that is not only providing flexibility to our partners, but also providing a lot of benefits to the end-users. And we see that as one of the growth drivers in our future..

You said you are making some investments in your ERP system.

What is the magnitude of those investments? Does it appear as CapEx? Or is it just an operating expense? How long do you think that will take? And why are you even doing it if certainly there is less and less synergy between these two businesses? Don't they deserve separate ERPs? And maybe it's misconceived to put it on to a single system at this stage..

No. You are absolutely right. So ERP in other systems and mostly business processes. So we are creating business processes that create agility for each business that are different. It's not the same processes. We are putting system behind those processes to help the automation and ERP upgrade is just one element.

Overall, there is going to be a combination of OpEx and CapEx, but it's built into our outlook next year.

But clearly, the ERP is not driving business process and it's not driving the ability to record a transaction, but also track the business and the metrics in a way that will create better visibility not just to our management teams that need that, but also obviously we are planning to give investors more metrics around the cloud business and our security project base.

And all that requires some update. We have been operating with consistent business process, more unified system and business process and we see that the dynamics in the business require us to do some sort of changes that will create distinct operating models..

Paul, we are on a single system today. Single instance across all of the GVLs and what we are trying to do as part of the upgrade is to differentiate what business process and systems change so that each of the units can operate more deftly for what they need to do..

Dan, how do you respond to the complaint that there seems to be a lot of changes happening at Verint very, very quickly. Some times they seem reactive, some times they are proactive, but they happen in short cycles now. But it's very difficult to really know what we are dealing with in some ways..

Yes. And I think those changes are basically responding to creating that extra agility. So we had three segments. We saw that we better focus on two segments that have more common customer base and needs and we upgrading the management team that have dedicated resources. I think all these changes are creating more focus and agility in each business.

So they are not just you know -- they are being done over time because you can't make the changes overnight, but I am actually pleased that we are making changes, that we are moving forward and I think with comments today, hopefully it's pretty clear which direction we are going..

All right. Thank you..

Sure..

Our next question comes from Michael Nemeroff with Credit Suisse. Your line is now open..

Hi guys. Thanks for taking my questions. So I wanted to understand a little bit more about some of the progress that you have made on some of the past initiatives. Dan, over the last several quarters you have said that you are focusing in a little bit more on the smaller deals, less home runs, more singles and doubles.

And I am curious if maybe we can cut across some of the noise that's market related, that's out of your control and can you tell us or give us some metrics around the number of deals in the quarter, both on the security side and the other side of the business that may in fact show progress that what you are putting in place is actually working?.

Yes. So what we said is that we will land some large projects. We discussed today the $6 million project, for example. It's a $6 million order but it's a subscription order, it's over three years and it's basically an ACV of $2 million. So I think that will be one example of flexible deployment model.

We can start an engagement with a customer when they want to go on-prem or private cloud or public cloud and we end up doing the deal the way they prefer.

So that's the adjustment we made to the go-to-market strategy, is we are not trying anymore to package all of these capabilities we have into large projects that are on-prem, big dollars but we are trying to really be flexible.

And flexibility could be whether the customers want to deploy certain capabilities that may not be into our portfolio or whether they want to do it in an on-prem upfront perpetual or subscription. These are the changes I have discussed today. Another change in terms of an SMB offering, which is more on the small end of the market.

So we are very strong at the enterprise market. We have very large concentration of big enterprise customers. We have many mid-market orders and we also are going to focus more on the small market, small contact centers but through channels.

So there we recognize that we have a very large channel network and we have empowered the channel network to go after the small markets. In the mid-market and enterprise, you will see Verint going direct as well as through partners. And in the small SMB market, you will see Verint going through channels.

But all-in-all, pretty much what we said we are going to do, which is land and expand and allowing our customers to start anywhere in our portfolio and build over time their capabilities..

That's very helpful, Dan. And then as it relates to the emerging markets, I think you called it out again. It's been a couple of quarters. It's been persistent.

So help us understand what needs to happen in the emerging markets before you start to see more of a sustained pickup? Is it currency that's the issue? Is it structural in those countries? Just help us understand what do you expect or what you need to have happened that will cause the increase in demand or the pickup in business activity from the emerging markets? Thanks..

Yes. That's a great question. When we discussed that we see weakness and we guided for the revenue to decline, it was very difficult. We told investors that it's very difficult for us to decline, because the change was so sudden and while we saw, in our history, certain countries having some weaknesses, we didn't see so pervasive as it happened.

Well, we did have confidence that it's temporary and I think that's very important because we see that our customers, despite the fact that they couldn't spend the money, they kept in contact with Verint and they showed a lot of interest in our portfolio.

We recently had a customer event with 300 customers from all over the world and we showcased our portfolio and there was a lot of excitement because what's happening in the security market is that customers not only have growing security threats, but they can't just continue to operate with legacy technology.

The technology change is very rapid, whether it's encryption or new network protocols or social media, there's a lot of change that our customers need to address. So they need new technology. They need to refresh. So we said it's going to be temporary, but we really didn't know how long it's going to take before we see a rebound.

And what we can say today is, we have a rebound. Now, it's not in every country. We still have certain countries that historically we did very good business and this year we did very little business.

So I am not reporting today a broad recovery, but a very substantial recovery to the point that we have more business activity, which is orders and pipeline and discussion with customers about needs and the total value of orders is more than the revenue and that's even without the $200 million contract.

So I hope this is something that is already a data point that explains that the recovery is happening and it's very hard for us to say what's going to happen in each country. Obviously the different dynamics, what we do know that our customers do want products.

They go and try to fix budgets and when they are going to budget is going to be potentially some end of year budget leftovers that they can use or maybe they will have to wait for next year's budget. Obviously these things are hard for us to have visibility.

But already in the last few quarters, we saw a pickup in many countries that we discussed as being emerging market countries that have weaknesses..

Okay. Thank you very much for taking the question. I appreciate it..

Sure, Michael..

Our next question comes from Dan Bergstrom with RBC Capital Markets. Your line is now open..

Yes. Thanks for taking my questions.

Say, on the $5 million and $3 million contracts that pushed, are those being entirely recognized in the fourth quarter or over period of time? And then maybe any more color on the reasons for the push out?.

They will be predominantly in the fourth quarter. Note there is always some service elements that will be potentially more that it will take longer to recognize as we need to implement the solutions.

And the reasons, in the case of, we mentioned the government agency, actually that agency did publish in Q3, they published the fact that Verint has been chosen but according to protocol they have to wait X number of days for competitors or the public to respond to that.

And so it just did not allow enough time from the day they decided to select Verint and from the day they could give us the order. Also the order came through channel. So they needed some time to work with the channel and then for the channel to give us the order. But the selection was announced during Q3.

As much as our sales force is trying to get deals done obviously within the quarter deadline, we work with customers and especially with large orders if they need more time for whatever reason, we will just do what's right for the business..

Great. And then for Doug, maybe.

Just if you know this offhand, just curious about the percentage of a cash balance held domestically versus overseas?.

Yes. We continue to have a lot of our international operations low tax jurisdictions transfer pricing that goes there. It's usually around 20% to 25% of our cash is in the U.S. and the rest international..

Thank you..

Our next question comes from Jonathan Ho with William Blair. Your line is now open..

Maybe your guidance philosophy, as we look towards 2018 and just maybe given some of the prior reductions in guidance that we have seen, are you guys taking a little bit more of a conservative view or maybe adjusting some of your assumptions around close rates and the pipeline?.

Firstly, I think discussing the business today, it's two businesses really and that's obviously a shift from what we used to do. And that a result of the different dynamics in two businesses and that's also what's driving guidance and the way we try to project.

So as we look at this year, we think that our enterprise business pretty much is on track and at this point we have just a similar view for next year. Obviously we continue to do things that we believe will create agility and will improve growth rate.

The cyber intelligence business was very difficult to project this year and the guidance adjustment that we have made this year are really a reflection of the fact that we are facing tremendous weakness in business activity in emerging markets and at the same time we had a lot of discussions with customers that expressed urgency to get those solutions.

So it was very difficult to create a strong focus based on what customers say, because sometimes they just didn't have the means to execute on their needs. But as we had this strong business activity lately, we are able to just take all of this project that we landed and analyze the timing of revenue.

So while the overall activity is very strong, when we look at the timing we needed to adjust guidance for this year. At the same time, that obviously leaves us with revenue from this orders to be recognized next year. So it's a timing issue. A lot of this cyber projects, they start slow.

We have to kick off the project not just internally but also the customer and together we recognize then revenue and then as they ramp up, we recognize more revenue. So that's very typical.

So I think what we are seeing is a rebound in order activity that will translate to revenue with some lagging effects but in the near term, we are guiding down this year based on this security adjustments..

Yes. Thank you. That's very helpful..

I will just add on to that. In addition to the timing how these orders affect the revenue, it also affects the cash. The cash tends to be lumpy. I had mentioned earlier tonight that we have a $26 million of cash come in just at the end of the quarter. So with that, cash would have been up a little bit on a year-over-year basis.

And we expect a strong Q4 for cash too. And then you for the full year by about probably $160 million in cash from operations..

Got it. Thanks for the color.

And then, with regard to all this discussion about agility and the business structure changes that you have announced, I guess I am just trying to understand what specifically are you looking to accomplish? Or what problem areas you are trying to address? Is this more sales execution? Is it trying to improve -- I guess you talked about nimbleness but I am just trying to understand what that mean in terms of the actual business execution?.

Okay. So we will give some example. I will expand.

So in terms of business models, as we see different business models for different businesses, from a go-to-market perspective when we want introduce a new business model and the amount of work we have do in our systems in order to support it in terms of the transactions and also the metrics that allow us to look at the effectiveness of that model, we want to be better positioned to track different metrics in each business and there are different metrics that we are looking to track to support the business model that is changing.

So we would possibly we could go and just do a system enhancement and process enhancement across the company but as we looked at the different needs, we rather decided to do more separate initiatives in the two businesses that will be affecting each business better because they will cater to the needs of that business and the needs of these businesses differently.

So I know that people are struggling with this information. The fact that the end markets are different, this is not a new information today. Customers in cyber intelligence are more government agencies, in the intelligence and law enforcement organizations.

And our customer in customer engagement, obviously, are mostly enterprise and they are the customer operations and marketing area.

So it's not so much the sales force, which is already being specialized and we have separate sales force, but it's more of the processes and systems behind that allow the sales force to be nimble and to adjust quickly to the market needs and each market is changing quite rapidly.

So what we are doing is, an upgrade that will result in creating different processes in each of the businesses..

Great. Thank you..

Sure..

[Operator Instructions]. We have a follow-up question from the line of Nandan Amladi with Deutsche Bank. Your line is now open..

Thanks for fitting me in. So Dan, you mentioned the new SMB offering.

How much of a market expansion do you see the size? And what will the trajectory be of the business relative to your overall enterprise business?.

We historically have been generating a small amount of revenue from SMB. This is not a focus. We see that SMB market is growing and when we look at the channel network that we have, we see an opportunity here. So the offering is mostly about growth.

It's going to be growth from relatively low numbers but we think it's also going to be one that requires relatively little effort because we got the product. It's more of what we are going to do now in terms of packaging and supporting channels in order to be more successful with our offering..

Thank you..

I am showing no further question in queue at this time. I would like to turn the call back to Mr. Roden for closing remarks..

Thank you operator. Before ending the call, I would like to mention several upcoming investor events. Tomorrow, we will be participating in the Imperial Capital Conference in New York City hosted by Jeff Kessler. Next Tuesday, we will be in Boston, hosted by Paul Coster of JPMorgan.

And the following Tuesday, we will be in New York City hosted by Shaul Eyal at Oppenheimer. We hope to see you at these investor events and we hope you have a great evening. Thanks for joining. Take care..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great evening..