Alan Roden - Senior VP of Corporate Development Dan Bodner - President, CEO, Corporate Officer, Director Doug Robinson - CFO, Corporate Officer.

Shaul Eyal - Oppenheimer & Co. Gabriela Borges - Goldman Sachs Jonathan Ho - William Blair Jeff Kessler - Imperial Capital.

Good afternoon, my name Mariana and I’ll be your conference operator today. At this time I’d like to welcome everyone to Verint’s Fourth Quarter Conference Call. [Operator Instructions]. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to turn the call over to Alan Roden, Senior Vice President of Corporate Development. You may begin your conference..

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 fourth fiscal quarter and fiscal year ended January 31, 2017.

Our Form 10-K will be followed shortly. Each of our SEC filings and earnings press releases is available under the Investor Relations link in our website and also in 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 31st, 2017 when filed and other filings we make with the SEC.

The financial measures discussed today includes non-GAAP measures as we believe investor's focus on these measures and comparing results between periods and 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 for 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 like 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 fourth quarter, on a GAAP basis, we delivered $296 million of revenue and $0.13 deluded net income per share. On a non-GAAP basis, we delivered $300 million of revenue or $302 million on a constant currency basis and $0.90 of deluded net income per share.

Our fourth quarter is typically our strongest quarter of the year. We are pleased with our strong sequential and year-over-year revenue increase in both our segments. A strong fourth quarter revenue drove non-GAAP Q4 operating margins to 24% and Q4 cash from operations to $101 million.

We believe our strong finish to the year reflect on market leadership in actionable intelligence and lays the foundation for continuous growth in both customer engagement and cyber intelligence.

For the current year, we expect another year of growth in customer engagements and we are raising our gross outlook in cyber intelligence based on an improving spending environment and market trends which I will discuss later.

Now, I would like to review a fourth quarter results and provide several additional matrix for the first time to help investors better understand each segment.

Starting with our customer engagements, in Q4 non-GAAP revenue increased 10% sequentially and 7% year-over-year on a constant currency basis driving $715 million of revenue for the year or $726 million on a constant currency basis.

During the year, we continue to see positive customer reaction to our hybrid cloud go to market strategy, in our cloud revenue including software and managed services, increased to more than $100 million.

We believe that and the process today are looking for flexible deployment options including on-premises, private cloud, private cloud or in a hybrid fashion we found solutions deployed on premises and some in the cloud. We expect this year our cloud revenue will continue growing faster than overall revenue and increase by more than 25%.

Driving overall revenue growth in customer engagements to mid-single digits. As the cloud revenue was increased, a greater portion of our revenue has become recurring and today close to 60% of our customer engagement revenue is divide from recovery resources including cloud and maintenance.

In addition to offering our customers increased flexibility with our hybrid cloud strategy, we have three more strategy pillars offering customers a broad portfolio of analytical solutions, helping customers build holistic customer engagement operations and investment in extensive partner network that our customers can leverage.

Here are some additional details on each strategy pillar. First, Verint offers the industry's broadest and most innovative portfolio of best of bridge analytical solutions, contact centers, branch back office operations, customer experience and digital marketing.

Our solutions are designed to generate operational efficiency with greater automation, improve the customer experience and drive incremental revenue. We continue to expand our portfolio with new automation capabilities to address market demand for next generations of service, robotics and mobile engagements.

We believe customers are increasingly looking for automation, to increase efficiencies and reduce cost, while improving the customer experience and we are well positioned to address these trends.

Second, organizations are evolving towards a more holistic customer engagement approach, one that support omnichannel while providing their customers a more consistent and contextual experience. Organizations are migrating their technology solutions at different paces, depending on their prior investments, business priorities and budgets.

Verint is addressing this trend with our extensive portfolio, modular design, automation and start anywhere approach. We believe this resonates well with customers and is consistent with our land and expand go to market strategy.

And finally, our strategy is to invest in extensive part of network that our customers can leverage for maximum flexibility. Some of our partnerships are technology focused and we invest in such technology integration to provide our customers interoperability.

For example, the telephony switching and routing market is highly fragmented and there are many vendors offering ACV products for call distribution. Our approach is been to maintain ACV neutrality and we currently have more than 20 product integrations, we substantially are leading vendors of on-premises and cloud ACVs.

We believe this gives our customers a choice to keep their existing ACV products or to upgrade with the vendor of their choice. In addition, a partnership program includes more than 100 companies that chose to resell best-of-breed products bundled with ACV from other vendors.

Our neutrality allows our customers to purchase our best-of-breed solutions from many different sources coupled with their ACV of choice. We believe our large partnership program is a competitive differentiation.

We recently received many orders that reflect the progress of our strategy including a $5 million order from a leading insurance company bringing total orders from this customer to nearly $20 million over the last three years.

This customer is standardized on Verint with customer engagement operations and overtime has added many components of our portfolio, some deployed on-premises and some in the cloud. This customer's evolution is a good example of our hybrid cloud model and broad portfolio supports our land and expand strategy.

A $4 million order from a leading technology service provider, this customer previously deployed our solution in its contact centers is expanding the deployment into its back office operations. We believe our ability to offer holistic solution across the contact center and back office was key to our selection.

In order from a consumer product company for multiple components of our portfolio in the cloud.

This customer previously deployed our reporting quality monitoring and performance management solutions on-premises is moving those applications to the cloud, while adding additional applications from their end including workforce management and desktop analytics.

As our entire portfolio is cloud enabled, we are well positioned to help organizations that are interested in cloud migration. Another cloud example is an order from a public government agency for our self-service solution.

This new customer for Verint is moving from another vendor's legacy on-premises solution to our clouds or service solution to better serve its citizens.

In summary, we believe we are extending our market leadership by building a broad portfolio of innovative solutions offering customers flexible deployment models and expanding our global partnerships. And we look forward to another year of growth and market leadership in customer engagement. Turning to cyber intelligence.

Q4 non-GAAP revenue increased 26% sequentially and 7% year-over-year, driving $357 million of revenue for the year. We are very pleased with our fourth quarter results which we believe reflect a better global spending environments and increase in demand for datamining solutions such as ours.

A strong finish the year as well as our recent order activity gives us greater confidence and an outlook for cyber intelligence has improved. Verint is a leading provider of security and intelligence datamining software.

Our government's critical infrastructure and enterprise customers use our datamining solutions for predictive intelligence complex investigations, threat analysis, electronic and physical asset protection, as well as for generating legal evidence and preventing criminal activity and terrorism.

We believe that over time, our cyber intelligence segment has the ability to grow double digits due to the following growth trends. First, government greater infrastructure provide us and enterprises face ongoing security threats from criminal and terrorist organizations, foreign governments and other groups and individuals looking to do harm.

Increasingly, the security threats come from well-organized and well-funded operations utilizing highly sophisticated assets and technologies. As a result, the testing, investigating, and respond to the threat is becoming more complex.

And organizations are inquisitely speaking advanced datamining solutions to help them generate actionable intelligence. We believe that the increasing complexity and technological challenge related to preventing crime and terror will drive overtime demand for greater intelligence and datamining solutions such as ours.

Next, while security threats are becoming more complex, security spending competes with many other spending priorities. In addition, organizations need to employ a large number of intelligent analyst and data scientists to meet the increasing complexity of security threats.

Even with adequate budgets, there was a shortage of such qualified personnel globally, leading to elongated investigations and increased risk of security threats not being addressed.

We believe that these factors had made organizations six solutions which require less human resources to operate as well as to accelerate intelligence gathering and improve the quality and velocity of investigations.

And third, to facilitate the effective deployment of datamining solutions, in many cases, security organizations think to partner with trusted vendors that can offer relevant domain expertise and can deliver turnkey solutions.

Verint has gained substantial domain expertise over the last two decades and is offering customers a range of deployment models. Verint is well positioned to address this market trends and just remain pillars to our growth strategy. First, historically most of our cyber intelligence revenue have been generated from government customers.

Looking forward, we see an opportunity to increase our addressable market by leveraging our strong government experience to gradually expand new datamining solutions and domain expertise to critical infrastructure providers and enterprises that face many similar security threats.

Next, recognizing the security organizations, our experience in competing priorities and a shortage of qualified personnel. Our strategy is to provide data mining solutions tailored to address specific use cases based on our demand expertise.

Today we offer a broad range of solutions for customers in national securities, law enforcement, cyber security, critical infrastructure, border control and enterprise security. And third our strategy is to offer customers multiple options to deploy our data mining solution.

Many of our customers choose Verint to deploy turnkey projects which include hardware, software and services other customers choose to implement Verint data mining software in conjunction with component they purchase separately.

Regardless of our customers deploy our solutions we are committed to developing freaking technology updates to enable our customers to stay ahead of evolving security threats. During the quarter we received several large orders which reflect the success of our growth strategy.

These orders include the $35 million order we recently announced as well as one order in excess of $15 million and three orders each in excess of $10 million. We believe our ability to win large deals is due to having very strong data mining technology combined with the main expertise and flexible deployment morals.

We are now investing in cyber intelligence to address the recent increase demand and to prepare for long term growth. In summary, organizations around the world needs sophisticated security and intelligence data mining solutions and we believe we are well positioned to sustain long term growth.

Before discussing our guidance, I would like to provide an update on our previously discussed initiative for increased operational agility. As a reminder, we discussed Verint’s history of leadership in accessible intelligence and the affect our business segments require different business models.

Today our customer engagement segment is going to market with a hybrid cloud model and on the other hand our cyber intelligence segment is securing big government projects.

To increase operational agility, we continue to strengthen the management teams in each segments, work with each management team to evolve our systems and processes to better support our specific needs, track additional metrics, and design compensation plans to drive success in each segment.

We believe the steps we are taking to improve our agility will result in improved business performance for each segment. Turning to guidance, for the year ending January 31, 2018 we continue to expect mid single-digit revenue growth in customer engagements and are improving outlook to high single-digit revenue growth in cyber intelligence.

We continue to invest in our two businesses to drive long term growth and expect our earnings this year to grow slightly faster than revenue with some margin improvements. Now let me turn the call over to Doug to further discuss our financial results and guidance.

Doug?.

Thanks Dan. Good afternoon everyone. Our discussion today will include non-GAAP financial measures. 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 items that can vary significantly in amount and frequency.

For certain metrics that 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 fourth quarter, we generated $300 million of non-GAAP revenue or $302 million on a constant currency basis.

Segment revenues were $191 million in customer engagement or $193 million on a constant currency basis and $109 million in cyber intelligence. This compares to $282 million of non-GAAP revenue in the fourth quarter of the prior year with $180 million in customer engagement and $102 million in cyber intelligence.

In terms of geography, in Q4 we generated non-GAAP revenue of $166 million in Americas, $92 million in EMEA and $42 million in APAC. This compares to $140 million in Americas, $87 million in EMEA and $55 million in APAC in the fourth quarter of the prior year.

For the full-year we generated $1.073 billion of non-GAAP revenue or $1.083 billion on a constant currency basis. Segment revenues were $716 million in customer engagement or $726 million on a constant currency basis and $353 million in cyber intelligence.

This compares to $1.135 billion of non-GAAP revenue in the prior year with $698 million in customer engagement and $437 million in cyber intelligence. In terms of geography we generated non-GAAP revenue of $582 million in Americas, $323 million in EMEA, and $168 million in APAC.

This compares to $583 in Americas, $353 million in EMEA, and $199 million in APAC in the prior year. Q4 non-GAAP gross margins were approximately 66%. 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, our non-GAAP gross margins were 65.1%. From a segment perspective, our customer engagement business is primarily software and services and our non-GAAP gross margins in that segment were in the high-60s for the year, similar to other software companies with that same product mix.

Our non-GAAP gross margin in cyber intelligence were lower than Verint of overall margins reflecting the mix of hardware, software and services including from third party vendors in that business.

During the fourth quarter we generated non-GAAP operating income of $72.4 million with an operating margin of 24.2%, for the year our non-GAAP operating income was $205 million with an operating margin of 19.1%.

On a fully allocated basis, our customer engagement operating margins were in the low-20s and our cyber intelligence operating margins were just about 10%.

You can approximate our segment operating margins by distributing our unallocated expenses, which are shown in our 10-K segmentation footnote, excluding our non-GAAP adjustments provided in the earnings release proportionally to segment revenue. Our adjusted EBITDA for the quarter came in at $79.9 million or 26.7% of non-GAAP revenue.

For the full-year our adjusted EBITDA came in at $233.5 million or 21.8% of non-GAAP revenue. Now let's turn to other income and interest expense.

In the fourth quarter non-GAAP other expense net totaled $10.2 million, reflecting $6.1 million of interest and other expense and $4.1 million of foreign currency charges primarily related to balance sheet translations.

For the full-year non-GAAP other expense net totaled $27.1 million reflecting $24.6 million of interest in other expense and $2.5 million of foreign exchange charges again primarily related to balance sheet translations. Our non-GAAP tax rate was 8.1% for the fourth quarter and 8.8% for the full-year.

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 63.2 million average diluted shares outstanding and for the full-year we had 63.1 million average diluted shares outstanding.

These results drove diluted non-GAAP EPS of $0.90 for Q4 and $2.51 for the full-year. Now turning to the balance sheet, as of January 31, 2017, we had $374 million of cash and short-term investments, including short-term and long-term restricted cash.

Cash flow from operations on a GAAP basis in Q4 was $101 million bringing cash from operations for the year to $172 million up approximately 10% from $157 million last year. Regarding our share buyback program, during the fourth the quarter we repurchased an additional 306,000 shares.

Year-to-date, we repurchased 1.3 million shares for $47 million leaving us with approximately $100 million still authorized under our program. We ended the quarter with net debt of $435 million including long term restricted cash and excluding discounts and issuance cost primarily associated with our convertible debt.

Before moving to Q&A, I would like to discuss our guidance for the year ending January 31, 2018. Starting with revenue in customer engagement we expect another year of mid single-digit revenue growth. In cyber intelligence we are increasing our outlook from mid to high single-digit to high single-digit revenue growth.

Overall, we expect revenue of 1.14 billion with a range of plus or minus 2%. From an operating margin perspective we are pleased with the sequential improvement in our operating margins in Q4 and expect operating margins in the current year to improve slightly from last year.

We expect our non-GAAP quarterly interest and other expense excluding the potential impact of foreign exchange to be approximately 6 million. Given volatility and foreign exchange rates, there could be future gains or losses related to balance sheet translations in our future results which are not included in our guidance.

We expect our non-GAAP tax rate to be approximately 9% for the year reflecting the amount of cash taxes we expect to pay this year.

Based on these assumptions and assuming approximately 64.3 million average diluted shares outstanding for the year, we are expecting non-GAAP diluted earnings per share at the midpoint of our revenue guidance to be approximately $2.70.

In addition to our annual guidance we would like to provide some additional color on the progression of the year for modeling purposes. For revenue in Q1 we expect mid single-digit growth on a year-over-year basis so that comes to approximately $260 million.

In Q2 we expect a sequential revenue increase of $10 million followed by sequential increases in Q3 and Q4. Our typical seasonality is the strong second half and that's true this year as well as we ramp up our resources to deliver on our cyber intelligence projects.

Relative to margins as discussed earlier we have experienced significant increase in demand and cyber intelligence that are making investments to prepare to address the demand as well as investing in other growth initiatives.

We expect operating expenses to increase by 10 million in Q1 from Q4 last year and then expect operating expenses to stay at the Q1 level for the rest of the year. In conclusion, we are pleased 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 in each of our operating segment and to extend our market leadership. This concludes my prepared remarks.

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

Certainly. [Operator Instruction] Your first question comes from the line of Shaul Eyal with Oppenheimer & Co. Your line is now open..

Thank you operator. Good afternoon Dan, Alan and Doug. Thanks for the color and improved transparency also on without a doubt the stabilization business model. My first question is to Dan.

So notable improvement on the security side, the cyber intelligence division, can you talk to us about the reasons aside from the typically strong fourth quarter you have experienced.

I know you did touch on some of the drivers, but it appears either there is a renewed spending cycle or at least some renewed momentum following the period of under investment in this category so whatever you can share with us highly appreciated and I have a follow-up?.

Okay, sure. So, improved outlook for cyber intelligence is driven by the market trends as you mentioned.

And yes, we do believe that as discussed security threats at this time are more complex and the type of solutions we have for data mining provides the opportunity for our customers to deal with this complexity without the need to have lot of human resource and manual approach so through automation they can accelerate the quality and the velocity of investigation and this is obviously of great interest to them.

But in addition to the market trends that perhaps drive growth long term as we discussed earlier we did see the stabilization in the global spending environment and of course year ago we discussed slow down in emerging market which we said we believe will be temporary so we now see a stabilized environment and plus we had an increased order activity that we experienced in Q3 and Q4 and that's created projects that now we need to execute on.

In addition, I would like to put a strong perspective to my response because excluding the revenue decline that we just had last year when you look at the five years before that we had on average double digit annual revenue growth. So, we believe we can get back to double digit growth over time based on those improved trends.

So last quarter we discussed the fact that in order to accelerate a growth this year we will need to hire resources to deliver the projects that we got awarded and at that time last quarter we said that we did not have the sufficient confidence to resume hiring and we were still monitoring the situation.

So now we do have increased confidence and as Doug mentioned we are making investments and we are hiring in supports of this input outlook and as we mentioned the Q1 operating expenses should increase in Q1 by $10 million and then will remain at same level for the rest of the year and this will be to support investments and to allow us to achieve the improved outlook in cyber intelligence of high single digit..

Got it, thank you for that and my follow-up. So, on operation agility last quarter Dan you mentioned increased investment to drive more agility, indeed you also addressed that during your prepared remarks.

But can you talk to us what you currently spend on the profit and how do you potentially envision the time line associated with such a move? Thank you..

Yes. So, to give you a more fulsome response here, so we are making each segment more operationally distinct to gain more agility to the changes that we have seen in the respective markets and to accelerate growth.

As we discussed last quarter we don't think that the expense here is material and it's obviously part of the guidance that we are providing today. But as discussed more importantly the two businesses have been and continue to be focused on delivering accessible intelligence solutions.

And we also discussed increasing needs to adjust the business models in the respective markets, so in customer engagement we have a hybrid cloud model that is similar to other peers and to software companies.

And in cyber intelligence we deployed primarily data mining software on premise and in many cases upon customer request we also deployed third party products to provide customers with turnkey solutions.

So to be more specific on what we are doing in this initiative for both segments already have two dedicated management teams which are focused on the respective markets and both businesses leverage shared corporate services to create synergies that we can afford with those shared services.

The two management teams are enhancing our system and business processes, each business specifically for the needs that they see in their business.

We are tracking new metrics to help improve operation performance and now that we have both metrics we also share today a few more metrics first time and we also redesign compensation plans to better link the bonuses to the performance of each business.

So we are doing these things as fast as we can and we are happy that two businesses grew well in Q4 and we expect that they will both grow this year and we believe that with even greater agility they can accelerate growth overtime.

I think that and you maybe alluding to this but I think our discussion of operational agility and time line may have triggered some rumors and speculations about the split.

So I would like to basically repeat one message today which is the steps we are taking our designs to improve operational agility in each business which we believe will contribute to improve business performance and value creation. Today we are making investments in both businesses.

As the business has become more operationally separable and gain the appropriate scale overtime it could be possible to separate the businesses [indiscernible] basis into two public companies.

But it's important to emphasis that our focus today is on improving the performance of each business and if we decide to pursue a potential customer spin down the road we should be in a much better position to execute on it..

Got it, thank you, thank you for the color. Good luck..

Okay. Thank you..

Your next question comes from Gabriela Borges with Goldman Sachs. Your line is open..

Great, good afternoon, thank you for taking the question and congrats on the solid results.

Maybe just following up on the previous question, Dan perhaps you can provide some color on some of the criteria that you are looking at that would determine whether you think about the business holistically and keeping those two segments together versus maybe considering strategic optionality around the two segments? Thank you..

Yes. So we are always looking for value creation. We think that what we do now with agility and giving each business tools they need to be successful is providing the opportunity for value creation. And in terms of specific criteria we will be opportunistic about anything that we can do to increase value even further..

That's helpful color. And then maybe a follow-up for Doug if I could, a little bit of discussion on the increased investments in the cyber intelligence segment to meet the growing pipeline of demand.

How should we be thinking about when you start to see more leverage in the mile from an operation standpoint, getting that contribution margin in cyber intelligence back up to the mid teens level? Thank you. .

Yes. I think we are building out of resources there as we go, but we expect the revenue to ramp and I think you start to see leverage from that in the second half of the year..

That's helpful. Thank you..

Sure. Thank you..

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

Good afternoon and let me add my congratulations as well. I just wanted to start out in terms of your comments around sort of the neutrality benefits that you have with channel partners can you give us a little bit more color in terms of whether you are actually seeing more active engagement from partners, the sections, from competitors.

Is there anything more that you can maybe offer to give us more color in terms of what's happening there?.

Yes. I am pleased that we have very positive reaction from our partners and we do see interest in partners to move over to Verint.

We see that both in terms of the SMB market as well as enterprise markets last quarter we discussed our initiative related to the SMB market or initiative to offer our partners new product bundles and focused on helping them with additional training and enablement support and that SMB focused partners we made good progress.

We introduced to many new partners and received very good reaction to this initiative. Our approach to the SMB market is based on 100% indirect, so we are very committed to our partners and for those partners that sell both SMB and enterprise market obviously the ability to work with single vendor is a big plus.

And regarding the ACD neutrality, I mentioned two metrics we have more than 20 integrations with ACD vendors cloud and on premises so basically we have invested in integration with all leading ACD product and then we have more than 100 channel partners and they can carry ACD from anyone and still be assure that they have the interoperability with Verint and of course that gives customers a lot of choice they can buy and mix different products.

They can keep what they have, they can buy from different partners so we think it's a good approach that we have that customer appreciate and we believe the customers want to invest in taking their customer engagement forward and different customers have different priorities.

We have a broad portfolio, but we also emphasize a modular design and start anywhere and to start anywhere really a lot of customers who focus on the business application that they actually believe is the highest priority because it gives them the most immediate return on investments and if they can choose the highest priority implementation and know that they have the peace of mind for interoperability that's obviously a good way for them to envision and involve the customer engagement into a more modern architecture..

Got it. And Amazon today announced the connect product for contact centers how should we be thinking about that as a competition particularly at the lower end of the market or for distributed enterprise.

And just want to get your thoughts?.

Yes, it's not competition for Verint, so what AWS announced today and of course we are aware of it for quite some time. They announced the call center offering is primarily for routing telephone calls in the cloud including routing to their self service engine which is powered by their Alexa natural language processing.

So as you can see we view this offering as complementary to our frame and also we already, an AWS cloud platform partner..

Great, thank you..

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

Yes hi, this is Mark Strauss on for Paul. Thanks for taking our questions. This is a bit of a follow-up to an earlier question.

But you just talked about the competitive environment within customer engagements specifically within the cloud if there is any metrics or stats you can provide to give you more confidence at the agnostic partnership approach is paying off as opposed to having something in-house, any stats like market share or any other metrics that you can provide? Thanks.

.

Yes. So let me see we provided in a – let me repeat some of the metrics and I think we will put it together in a more holistic picture here. So firstly, we have more than 1,000 cloud deployments so I think we have proven that we have a lot of experience in delivering the cloud.

We gave a lot of examples today about customers buying into our cloud approach with hybrid cloud and transitioning slowly into the cloud some of this solutions still keep on premises and some in the cloud. We also discussed a scale in terms of $100 million, more than $100 million we achieved last year.

We expect to grow the cloud business more than 25% this year and I can also say that we grew the cloud business more than 25% last year. So I think we also feel confident about our ability to grow cloud revenue not just to offer as a cloud revenue the platform to deliver the product.

We have many cloud partners so we talked about 100 resellers many of them offer in the cloud, some actually offer cloud and on premises and we help discuss to enable their platform with our business solutions.

And we are getting better at doing that so our goal here is to especially into SMB market is to make it easy for our partners to be able to offer a bundle we recognized that for the SMB customers there is a preference to buying the cloud and there is a preference to buy from a single vendor all the products because just the complexity is not as high.

And of course, our partners can give them that and they can have best of great solutions from Verint coupled with any ACD of their choice. So we are driving with this cloud revenue, we are driving now almost 60% recurring revenue.

And we believe that there is room to go and we can continue to increase the return revenue because if a cloud revenue seems to grow 25% or more obviously faster than on premises revenue that overtime is going to create more recurring revenue.

At the same time we believe that even if we keep some on premises customers we have very sticky products and we have a lot of repeat sales for existing customer base. So overall, leaving the choice to a customer is the best approach in our opinion.

And they will move to the cloud at the pace that they would like and we are ready to provide them with any deployed model that they prefer..

Okay. Thank you very much. That's it for us..

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

Hey guys this is Alex Hue on for Michael. Thanks for taking our questions and congrats on the results. Dan it's good to see the rebound in cyber intelligence and really appreciate the color you just gave. Just curious how large is your cyber security business today.

What is your expectation for that business relative to your double-digit revenue growth longer term and then also could you provide us update on the $200 million cyber deal and how is that tracking?.

Okay. I will be happy to. So we look at our cyber intelligence business as a capability for data mining that we have different solutions for different parts of the market. So we talked about national security, law enforcement, cyber security, critical infrastructure and enterprise and so forth.

We would like overtime to obviously grow data mining presence in all these areas. Historically, we have been stronger in national security and law enforcement so this is still the majority of our revenue.

Cyber security use case is about 10% and other areas are less than 10%, but we see an opportunity to increase our [indiscernible] overtime from what was predominantly government business to also critical infrastructure and enterprise because they have pretty much the same security threats and they need – they have the same complexity, they have the same issue with shortage of qualified personnel in data sciences and so forth.

And the ability to have data mining solution with the main expertise that specific use cases is very important. So focusing now on cyber security, the cyber security use case we obviously have the ability to look at very large number of data points and there is lots of alerts in the security operation center and automate.

Automates the work of prioritizing the alerts, investigating alerts and finding them that is potentially looking to do harm and that capability is not, for deploying perspective it's very similar to what we do for national security and law enforcement.

You also I think there is a growing awareness that governments and enterprises really need to come together to address the cyber security threats that needs to be more sharing and I think our success in lending large contracts with government and cyber securities will be overtime very, very helpful to also securing bigger projects in enterprise.

So that was the first question.

Does that answer your first question?.

Yes, it does.

And would you mind providing us with an update on the $200 million cyber deal and how is that tracking?.

Okay, sure. So, just to remind [Indiscernible] on the deal. We were awarded the contract by a prime contractor and the end user is a government agency. The contract covers delivery of multiple products from our cyber intelligence portfolio. In terms of their revenue spread, last year we had a few tens of millions that we recognized for the contract.

Most of the revenue will be recognized this year and next year with some going beyond that, and the contract scope includes perpetual license, some hardware that we have to provide as part of the turnkey solution, and implementation services and support following the acceptance of the project and overall it is progressing well..

Okay, great. And just one for Doug, can you tell us what the revenue contribution in the quarter was from Contact Solutions and OpinionLab, as well as your expectation for that business in 2018 please, or fiscal 2018? Thanks..

The Contact Solutions was a tuck-in acquisition we did earlier in the year. OpinionLab is another company we did in Q4, I believe in November. And you know, our M&A strategy has been since we – the last deal, relatively big deal we did was over three years ago with Kana.

Since then our strategy is to do tuck-in acquisitions basically buy small companies with good products. Those companies typically do not make money and they need to scale and when we bring the product to our large sales force and large customer base we have an opportunity over time to scale the business and make it profitable.

In both cases, our approach of bringing new technologies is one of doing it gradually. So we don't want to lose the domain expertise that we have and the focus in Contact Solutions was self service. We believe that self service is an important initiative.

We talked about automation as one of the areas that customers are focused on and we have automation in self service and natural language processing. We also introduced a robotics product, a mobile engagement product to improve automation. So, Contact Solutions was very much in that trend that we see in the market and how we respond.

OpinionLab is the focus in the voice of the customer. So that is another trend where we are already participating with a full portfolio of voice of the customer solution that basically allow our customers to pay attention to what their customers say.

And one way to improve customer engagement, if you take that feedback, made it actionable and put it back in real time into improving operations. So that sounds simple, but collecting the feedback, analyzing the feedback, finding the insight, and [operating] on the insight is basically what our customers are looking for Verint to do.

We have different ways to collect the voice of the customer. We do it through proactive surveying and we also do it through passive listening, by recording and analyzing interactions between customers and agents, as well as interaction with self service robotics.

So now with OpinionLab we really have a full portfolio of listening to the voice of the customer and providing that to the business as intelligence that they can leverage to optimize the customer experience..

Okay, great. Thanks for taking the questions. I appreciate it..

Sure..

Your next question comes from Jeff Kessler with Imperial Capital. Your line is open..

Thank you, and thank you for taking my question.

With regard to the flexibility that you are trying to provide customers, particularly in your customer service side, this requires them to put a lot of trust in you if they are going to take on you as a long-term partner and trust whether or not the hybrid or a fully blown Cloud solution or for that matter just an in-house solution on their part is needed.

It is more than just having a customer service day in a place, what are you doing to make sure that you are getting traction out of your customer engagements so that you have longer-term touch, longer-term stickiness with each and every individual customer you seem to have a different – you are going to have a different situation with.

How much you have to invest in education, support, service and the like to make those customers stay with you longer and increase your recurring revenue?.

I think it is a very good question that goes into customer-centric culture and how do you make your land-and-expand strategy really work over time.

I think that if you remember two years ago, we heard customers saying Verint you have a very large portfolio and you know, we maybe interested in a transformational project, and we were trying to help them to bundle together a lot of capability in a very large project and we reported to investors that really we saw that while there was a lot of interest we cannot transfer that revenue.

I think it is exactly because of what you are alluding to that it is very difficult for customers to trust to do a large transformational project with any vendor, and it takes a very, very long sales cycle and very long approval cycle.

Since then, since two years ago, we adjusted the go to market strategy to start anywhere, and we opened our portfolio. We did a lot of integration with many other vendors and we allowed our customers in a modular approach to start anywhere in our portfolio. They don't need to trust us. They just need to try us.

And they try with whatever they think is the highest priority that they have and if it is working well they will expand over time. One of the examples I gave today was a $5 million order, but from a customer that actually spent $20 million over the last two years expanding over time.

I think if we try to get a $20 million order with this customer we will really need to do a leap of trust, but we just kept getting orders every year and sometimes multiple times in a year to implement over time.

And we are not – the fact that we are not forcing customers to go to a public Cloud, many customers prefer private Cloud because of the heightened security. The fact that we are not forcing them to move away from on-prem. They can do it when it is the right time for them.

I mean all of these things I think are very helpful to our sales force when they become advisors to the customers of what is the best approach to move from where they are to where they want to be because the vast majority of customers are not starting with a clean slate. They already have customer engagement operations.

They are just looking to make it better. They are looking to reduce cost, but they also want to improve the customer experience, they also want to improve revenue and customer loyalty. So their journey could be different for different customers, and we are there to help them in whatever way they decide to do it..

Okay. One quick follow-up question that is a few years ago analytics was somewhat of a bad name in some areas because they didn't – the software was not up to final expectation of the end users.

What are you seeing today? What areas are you seeing today where the greatest success that not just you but you are seeing in the industry and perhaps what areas are still a little bit need more development in analytics?.

Yes. I can give you a few examples. Robotics, process automation, to automate steps or the entire process and offload work for employees; the Verint process assistance that automatically presents scripts and help guide employees through their work.

Our identity authentication through voice biometrics automates the authentication process, saving an average of 20 or so seconds off the average call; and of course, customers appreciate that they don’t need to answer a lot of security questions for authentication.

Our automated quality that use speech analytics to create more automated quality monitoring process these are all real products that we sell and we hear from customers that they get value. So analytics is not hyped for Verint. Analytics is part of the solutions we provide customers everyday..

Okay, great. Thank you very much..

There are no further questions at this time. I will now turn the call back over to Alan Roden for closing remarks..

Thanks operator. Before ending the call, I like to mention three upcoming investor events. As discussed, our intention is to provide a better understanding of our two segments and in particular our strategy for our Cyber Intelligence segment.

So next Tuesday, the 4th, we will be in New York for an Investor Meeting hosted by Goldman Sachs; on April 12th we will be participating in the William Blair Technology Conference in Boston; and on May 24th we will be participating in the JP Morgan Technology Conference also in Boston. We look forward to seeing you at these and other investor events.

Thanks for joining our call today and have a great evening..

This concludes today’s conference call. You may now disconnect..