Alan Roden - SVP, Corporate Development and IR Dan Bodner - Chairman, President, and CEO Douglas Robinson - CFO.

Shaul Eyal - Oppenheimer & Company Gabriela Borges - Goldman Sachs Paul Coster - J.P. Morgan Nandan Amladi - Deutsche Bank Daniel Bergstrom - RBC Capital Markets Jeff Kessler - Imperial Capital.

Good day, ladies and gentlemen, and welcome to the Verint Systems Q3 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today's conference is being recorded.

I would now like to turn the call over to Mr. Alan Roden, Senior Vice President of Corporate Development. Sir, you may begin..

Thank you, operator and good afternoon and thank you for joining our conference call today. I am here with Dan Bodner, Verint's Chairman and CEO; Doug Robinson, our CFO who is under the weather and will not be joining the call today.

In his place I will be reviewing our financials and Doug will be available for further questions when he is feeling better. Prior to this call, we issued a press release that includes financial information for our third fiscal quarter ended October 31, 2017. 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 in 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 a more detailed discussion of how 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, 2017 and other filings we make with the SEC.

The financial measures discussed today include non-GAAP measures, as we believe investors focus on those measures in comparing results between periods and among our peer companies. Our financial outlook is provided only on a non-GAAP basis.

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

Non-GAAP financial information should not be considered in isolation from, as a substitute for, or superior to GAAP financial information, but included because management believes it provides meaningful supplemental information regarding operating results when assessing our business and useful to investors for information on comparative purposes.

The non-GAAP financial measures Verint uses have limitations and it differs from those used by other companies. At the end of today's call I would discuss our plans for an Investor Day in May 2018 as well as some near-term Investor events. But 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 $281 million revenue representing 8% year-over-year growth. On a non-GAAP basis we delivered $284 million revenue representing 9% year-over-year growth.

We're pleased with our third quarter results and our positive momentum and would like to highlight several accomplishments. First, revenue increased sequentially and year-over-year in both our customer engagements and cyber intelligence segment.

Second, we expanded operating margins both sequentially and year-over-year driven by top line growth as well as continued operational efficiencies. And third, we overachieved our non-GAAP revenue and EPS outlook every quarter this year. We believe our strong results throughout this year reflect our market leadership in actionable intelligence.

Looking ahead to next year we believe our momentum will continue and that we're well positioned for another successful year in both segments with earnings growing faster than revenue.

We also believe we will benefit next year from the investments we made this year as well as the completion of our operational agility initiative which I will discuss a little later. Now I'd like to review our third quarter results by segment. Starting with customer engagements, Q3 GAAP revenue was $182 million.

Non-GAAP revenue was $185 million representing approximately a 6% year-over-year increase. We are pleased that revenue increased sequentially in both Q2 and Q3 and we expect to finish the year strong with another quarter of sequential growth in Q4.

Our Q3 estimated non-GAAP fully allocated operating margin which we refer to as our segment margins came in at 24.5% representing approximately one percentage point of margin expansion over the same period in the prior year. Overall for the current full year we expect the foreign results for our customer engagement segment.

For revenue cloud continues to be a strong growth driver and we expect around 5% revenue growth overall with the cloud portion of our revenue growing faster at a rate of approximately 25%.

We expect approximately 60% of our revenue to be generated from recurring sources and are pleased with the rapid growth of our cloud business accompanied by expanding margins. For margins we expect segment margins to expand to around 24% this year.

Behind our strong results is our market leadership, commitment to innovation, and competitive differentiation. Verint is a customer engagement company focused on helping organizations simplify and modernize customer engagement. We are market leader offering one of the broadest portfolios of cloud and hybrid solutions in the industry.

Our solutions incorporate advanced artificial intelligence and analytics technology to help our customers unlock the potential of automation and drive operational efficiencies. Later I will discuss the automation market trends driven by recent advances in artificial intelligence technology.

Now let's discuss some of the orders we received during the quarter as we continue to execute our land and expand strategy. We received approximately $5 million in orders from a leading business process outsourcer for our speech analytics solutions.

This customer previously deployed multiple components of our portfolio, some on premises and some in the cloud and is now adding artificial analytics solutions. This is a good example of the demand we are seeing for speech analytics and the progress of our land and expand strategy.

Next we received orders from a leading shipping company bringing total orders from this customer to $8 million over the last year for multiple components of our portfolio. This customer is now deploying our new solutions for robotics process automation in the front and back office operations.

This is a good example of customers looking to leverage robotics automation technology to gain efficiencies and improve customer service. We received orders from a BPO company bringing total orders from this customer to nearly $5 million this year.

This customer is expanding deployment of our cloud self-service solution to shift interactions from the contact center to automate self-service responses and improve the customer experience.

And finally we received nearly $4 million in orders from global logistic company as part of a new strategic initiative to modernize their customer engagement operation. This customer is adding multiple components of our portfolio including knowledge management, chat, and e-mail solutions.

This is a good example of an organization evolving their operations in multiple sets to achieve the long-term strategic objectives and modernize their customer engagement operations.

We are pleased with many competitive wins during the quarter and believe customers are choosing Verint solutions due to our competitive differentiation in three areas; offering customers a broad and expanding solution portfolio, offering customers cloud flexibility, and offering customers advanced automation solutions.

In cloud we continue to see a preference from our customers for deployment flexibility so they can choose between cloud on premises or hybrid deployment models. We have now achieved scale and efficiency in our cloud operations positioning as well as a strong cloud vendor for our customers.

We also enabled our many partners including ACV cloud partners with a strong cloud portfolio. We recently entered into a global agreement with a leading cloud infrastructure provider that provides our customers an efficient option for worldwide cloud deployments.

Overall we believe we're well positioned to continue to benefit from the cloud growth trends. And next in automation organizations are increasingly recognizing that their effective adoption of automation is potentially game changing and driving increased loyalty, satisfaction, revenue and efficiencies.

Verint's strategy is to help our customers simplify and modernize their customer engagement operations by infusing automation throughout our portfolio driven by artificial intelligence technologies such as machine learning, robotics, and natural language processing.

Here are some examples of leading edge automation capabilities we have recently announced. We introduced a new automated quality management solution that we believe is the biggest innovation over the last decade in call center quality monitoring.

Traditionally quality management is a manual process performed by supervisors listening and evaluating sample calls, a time consuming and often subjective process. Verint's new solutions offers organizations consistent and unbiased automated scoring of all interactions.

Benefits of our new solution include reducing the amount of time spent on tedious tasks, generating consistent and continuous performance feedback, and improving compliance at hearing and training.

Another example is the introduction of our new mobile and artificial intelligence capabilities into our workforce management solutions designed to drive effectiveness across the workforce. Our new mobile capabilities enable agents to more easily control their schedules including requesting time off and swapping shifts.

Artificial intelligence enables visual assistance capabilities to help agents more easily manage their schedule. With these new capabilities organizations can improve employee satisfaction and deliver enhanced customer experiences.

In the area of robotics process automation we continue to advance our solution as many organizations have repeated tasks that don't require human decision making and are good candidates for automation.

Robotic process automation can perform this repetitive, time consuming, tedious tasks through robots enabling employees to focus on more important customer related activities. Overall we believe automation plays a vital role in the future of customer engagements and represents a new growth opportunity for Verint.

We are well positioned in this area today and we will continue to invest and plan to launch new automation capabilities during Q4. In summary we believe our customer engagement competitive differentiation is largely a result of our broad and expanding portfolio, cloud flexibility, and automation innovation.

Our strategy is to continue to lend and expand leveraging our base of more than 10,000 customers and to continue to invest to address growth trends in cloud and automation. Now turning to cyber intelligence, our Q3 revenue increased 15% year-over-year to $99 million.

Our Q3 cyber intelligence segment margin was close to 11% representing approximately one percentage point of expansion over the same period in the prior year. We're pleased with our Q3 results. This was the third quarter in a row of double-digits year-over-year revenue growth. Our 50% growth in Q3 follows 19% year-over-year growth in Q1 and 12% in Q2.

Also revenue increased sequentially in both Q2 and Q3 and we expect revenue to again increase sequentially in our fourth quarter to over $100 million. This will result in around 10% growth for the year overall. I would like to note that last year we had a very strong fourth quarter and as a result this Q4 will be relatively flat compared to last year.

During the quarter we continued to win many deals around the world including three large deals each worth between $5 million and $10 million. We have a strong pipeline expect to win several additional large deals in Q4.

It is important to note that we have customers across many parts of the security industry including national security, law enforcement, cyber security, enterprise security, and critical infrastructure.

And some of our customers prefer to obligate requirements and award large contracts which are deployed over time while other customers purchase our solutions in small pieces for faster deployments.

Regardless of our customers purchasing preferences for large or small deals with our broad portfolio we are helping our customers deploy projects of all sizes. We are a leading global provider of security and intelligence data mining software and longer-term we see several growth trends in the cyber intelligence industry.

We believe we are well positioned to benefit from some of these trends and are targeting a return to our historical double-digit revenue growth rate with margin expansion. Today I would like to highlight how we are addressing the following three trends that can have a positive impact on our long-term growth.

First, criminal and terrorists are getting more sophisticated and it is getting more difficult for security organizations to respond to this evolving threats with existing solutions driving the need for new solutions with enhanced intelligence and predictive analytics.

To address this trend we offer powerful data mining softer developed by engineers with deep domain expertise including real world experience leveraging intelligence methodologies to help fight crime and terror.

Second, there is significant shortage of qualified cyber analysts and data scientists worldwide and security organizations are struggling with resource scarcity and costs.

Our data mining advanced analytics and machine learning technologies help automate, accelerate, and successfully complete investigations reducing dependency on cyber analysts and data scientists.

And third, security organizations are facing a fragmented vendor market and are looking for partners with comprehensive product portfolios capable of executing analytic vision.

Our position as a trusted partner with governments around the world combined with our ability to offer a broad portfolio across intelligence, cyber, and physical security provides us visibility into our customers emerging threats and makes us a strategic partner to customers.

Our strategy is to continue to expand our portfolio both organically and through tuck in acquisitions, to help our customers to meet evolving threats. In summary we are pleased with our cyber, intelligence revenue growth this year and believe we are well positioned to achieve our annual revenue outlook.

Longer-term we believe that the growth trends we discussed today support to stand long-term growth with margin expansion. Before discussing our guidance I would like to provide an update on our initiative to increase operational agility.

In the beginning of the year we discussed the different operating models of our two segments with the hybrid cloud model in customer engagements and a turnkey project model in cyber intelligence. We also discussed our plan to transition to a corporate structure of two operating segments along with the shared services model.

We have largely completed this agility initiative and would like to report on our progress as follows. We have separate management teams for each segment that are directly responsible for sales, marketing, products, and services in their respective markets.

We have established a shared services structure between the two segments and designed a shared services allocation model. We have aligned compensation plans with the performance goals for each segment.

We have upgraded and enhanced our bin [ph] assistance to allow for better tracking and reporting of financial and operational metrics that are pertinent to each segment. And we will shortly launch a new website with new messaging that is more customer centric and focused on the specific needs of customers in each segment.

We're pleased with the changes we've made and believe our greater operational agility has already contributed to improved business performance. Turning to guidance, we are pleased with our momentum in both segments and expect to finish the year with a strong fourth quarter.

Later Alan will discuss our initial outlook for next year which reflects another year of growth in both segments and expanding margins that will drive earnings faster than revenue. And now let me turn the call over to Alan to further discuss our financial results and guidance. Alan. .

Thanks Dan. Our discussion today will include non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available in our earnings release and the IR section of our website.

Differences between our GAAP and non-GAAP financial measures included adjustment laid acquisitions including fair value revenue adjustments, amortization and acquisition related intangibles, and certain other acquisition related expenses, stock based compensation as well as certain items that can vary significantly in the amount and frequency from period to period.

For certain metrics the differences also include adjustments related to foreign exchange rates. I will start my discussion today with the areas of revenue, gross margin, and operating margin. In third quarter we generate 284 million of non-GAAP revenue. Segment revenues were 185 million in customer engagement and 99 million in cyber intelligence.

This compares to 260 million of non-GAAP revenue in the third quarter the prior year with 174 million in customer engagement and 86 million in cyber intelligence. In terms of geography in Q3 we generated non-GAAP revenues of 150 million in Americas, 88 million in EMEA, and 46 million in APAC.

This compares to 138 million in Americas, 75 million in EMEA, and 47 million in APAC in the third quarter the prior year. Q3 non-GAAP gross margins were approximately 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.

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 60's for the quarter similar to other software companies with the same products services mix.

Our non-GAAP gross margins in our cyber intelligence segment are lower than overall gross margins reflecting mix of hardware, software, and services including from third party vendors in that business. For the year we continue to expect our total non-GAAP gross margins to be in the mid-60s similar to last year.

During the quarter we generated non-GAAP operating income of 55.8 million with a non-GAAP operating margin of 19.7%. Our adjusted EBITDA for the quarter came in at 63.3 million or 22.3% of non-GAAP revenue. Now let's turn to other income and interest expense.

In the third quarter non-GAAP other expense net totaled 6.9 million reflecting 5.4 million of interest and other expense and 1.5 million of charges from foreign exchange. Our non-GAAP tax rate was 12% for the third quarter.

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 jurisdictions. For the quarter we had 64.6 million average diluted shares outstanding.

These results for diluted non-GAAP EPS of $0.66 for the quarter representing 12% year-over-year growth driven by revenue growth and margin expansion. Now turning to the balance sheet, at the end of Q3 we had 414 million of cash and short-term investments including both short-term and long-term restricted cash.

Cash flow from operations on a GAAP basis for the nine months ended October 31, 2017 came in at 96 million, a 24 million increase compared to 72 million during the same period in the prior year.

We ended the quarter with net debt of 410 million including both short-term and long-term restricted cash and excluding discounts and issuance costs primarily associated with a comparable debt. Before moving to Q&A I would like to discuss our non-GAAP guidance for the year ending January 31, 2018.

Starting with revenue, our outlook at the midpoint remains unchanged with the narrower range. In customer engagement we expect around 5% revenue growth, in cyber intelligence we expect around 10% revenue growth, and overall we expect revenue of 1.14 billion with a range of plus or minus 1%.

From an operating margin perspective we expect operating margins in the current year to improve slightly from last year. In customer engagement we expect segment margins to slightly improve to around 24% and in cyber intelligence we expect segment margins to be more than 10%.

You're going to approximate our segment margins by distributing our shared service expenses which is shown in our 10Q segmentation footnote proportionally to our year-ended January 31, 2017 annual non-GAAP segment revenue. We also present how we estimate segment margins in the tables in our earnings release.

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

We expect our tax rate to be approximately 11% for the year reflecting the amount of cash taxes we expect to pay for the year. Based on these assumptions and assuming approximately 64.3 million average diluted shares outstanding for the year, we expect diluted EPS at the midpoint of our revenue guidance to be approximately $2.75.

Looking ahead to next year, the year-ended January 31, 2019 we expect total non-GAAP revenue of 1.215 billion with a range of plus or minus 2% reflecting around 5% year-over-year revenue growth and customer engagement and around 10% year-over-year revenue growth in cyber intelligence.

As a midpoint of our revenue range we expect $3 non-GAAP diluted EPS. Our initial guidance reflects close to 7% revenue growth year-over-year and 9% earnings growth year-over-year as we expect to expand non-GAAP operating margins again next year.

In conclusion we expect to finish the year strong and believe we're well positioned for sustained long-term growth in both customer engagement and cyber intelligence. That concludes our prepared remarks. So with that operator, please open the line for questions. .

[Operator Instructions]. Thank you and our first question comes from the line of Shaul Eyal with Oppenheimer. Your line is open. .

Thank you, good afternoon guys.

Dan, can you talk to us about the correlation we are seeing between your customer engagement growth in recent quarters and Verint's innovation, recent innovation in this segment?.

Yes, I will be happy to discuss innovation. I think there is a correlation, I think our results reflect better execution overall. And I contributed -- I think the operation initiatives is contributed to that but clearly we've accelerated innovation, we discussed a lot of automation announcement that we made in Q3.

We are planning more announcements coming in Q4 and we think that automation is one of the growth drivers in this industry into the future. Automation is now obviously a big bad word in many industries.

But specific in customer engagement there are great opportunities not only to cut costs by automating processes but also to improve the customer experience overall, drive customer loyalty, providing customer much faster and more accurate answers, responses to the question.

So overall increasing revenue and of course creating efficiencies which is a big business impact for our customers. So, we see the customer engagement industry overall looking to modernize.

Cloud is one of the growth trends as customers are looking to modernize moving to the cloud and we discussed that with innovative in cloud to a point that we are able to offer flexibility that customers really appreciate and regardless to whether they choose on premise or cloud or hybrid we are still able to improve margins because we are very efficient now in our cloud delivery both for products and services.

So between the innovation we have in cloud and in automation we think this will be a good growth for this year and the future. And of course our very broad portfolio that we continue to expand with new capabilities and that obviously goes to our lend and expand strategy.

We have 10,000 customers, the majority of these customers still have very few solutions from Verint. We have a large portfolio of many products around 25 products with multiple use cases for some of these products. So lots of potential to continue to sell new capabilities to our customer base.

We feel like we're winning, we are more differentiated and we're winning more deals. And lending with new customers and as well as expanding with the current customers. So innovation has been a good factor and I think will continue to be..

Got it, thank you..

Thank you and your next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is open..

Hey good afternoon, and thanks for taking my question. First one is on the cyber intelligence outlook.

I think it was right around this time last year that you gave the initial rate on fiscal 2018 and now looking into fiscal 2019 the rates for 10% year-over-year, could you just compare and contrast the visibility and the pipeline that you have in the business looking out over the next gen versus how it was a year ago, thanks?.

Yes, okay, so we have got two visibility. It's really driven by a number of factors. First of all for our customer relationships, we've been in this business for more than two decades, we have intimate relationship with customers and we have discussion with customers relative to their needs and ability to purchase.

And in addition to the customer intimacy of course is the orders that we have secured already and it is the pipeline that we have. Our pipeline is growing and as I discussed before in our pipelines we have many large deals.

It's unclear to us what our customers eventually would prefer to obligate requirements and actually award those orders with one large lump sum or maybe we'll do it on a piece basis. But regardless we think we have large opportunities with customers.

We have also a broad portfolio in the cyber intelligence and similar to my previous response to Shaul we feel like we are accelerating innovation and with this new solution portfolio our customers are telling us that they want to expand and buy new solutions.

One of the big trends there in cyber intelligence is that customers feel like they need to move on with technology because the existing solutions they have are just not keeping up with all the technology innovation in telecommunications, in social media, and so forth.

So we see here an opportunity, we are very well positioned with data mining software and part of this ability is the demand and interest in demand that we see from customers to look into the new data mining capabilities and try to do more intelligence -- predictive intelligence and do that with less manual processes, with less I analyst and data scientist which are just difficult to hire and retain and very costly.

So all these trends with innovation we are continuing to have is giving us the visibility into guiding to 10% growth next year..

That's helpful and as a follow-up if I could on the EPS guidance, Dan you sort of mentioned in the prepared remarks how you have overachieved on the guidance through the first three quarters of the year.

Maybe just help us understand the decision to maintain full year guidance on EPS, are there onetime items that may have shifted in terms of timing throughout the year of linearity or that may reverse in 4Q? And a question for the fiscal 2019 guide, is there a point of time you think when we might be able to get back up to more material margin leverage in the model looking at what you've done historically in the low 20% EBITDA range? Thanks.

.

Yeah, so we're pleased with the progression this year, no question and that's why I mentioned over achieving because obviously this was not the situation last year. So we have good discipline in our execution and we expect to finish the year as planned. This year we are guiding to 10% EPS growth. So that's a pretty good margin expansion.

And we talked about innovation. We are investing in innovation in customer engagements and we're investing in innovation in cyber intelligence and this investments we believe will help us to sustain long-term growth and accelerate growth over time. So there is a balance between putting more money into margin expansion and putting more money in R&D.

When you look at our hiring that we've done year-over-year we continue to expand and most of hiring is in R&D. So I'm pleased that we are able to get to 10% EPS growth this year and at the same time invest to accelerating growth over time. .

That's helpful, thank you..

Thank you and our next question comes from the line of Paul Coster with J.P. Morgan. Your line is open. .

Yes, thanks for taking the question. So the economic backdrop looks pretty good at the moment Dan and your narrative is very encouraging.

Lot of quality innovations taking place and as you noted the 20% growth in the cloud, a subset of your CE business, you have a great growth rate next and this year starting about 5%, what is the disconnect, is there something that is holding you back, is there some legacy business that is not growing? And the second question, is there an opportunity here if you could double down on the plan and accelerate that segment so that it is bit more impactful on the top line by obviously making acquisitions, so maybe steering more of your investments in that direction? Thank you.

.

Yes, yes, very good question. So things that are kind of holding us down for example our professional services is declining and that is by design. We have made product innovation as we decreased the attachment rate of special services to deployment. And that's a good thing for our customers and that's a good thing for margins.

So it is down year-over-year in terms of revenue but it's obviously a positive trend. And we have also let professional services when we deploy the cloud so that's another good benefit.

In terms of cloud overall we are committed to the cloud there is no doubt and we can certainly accelerate the portion of revenue that we get from cloud doing some acquisitions. I agree with that.

At the same time we strongly believe and this is very strong feedback we get from customers that while the SMB customers are more inclined to move to the cloud faster, the enterprise customers do prefer the hybrid cloud and they want flexibility.

And in most of our deals customers are asking for multiple deploying models and eventually they choose the one that they think is best for them at any particular time. And SMB is too small for us. If you remember we talked about it at the beginning of the year and we are also making some investments but we think that SMB will grow over time.

Most of our business is still into enterprise and we're very focused on providing our customers the deployment flexibility that in many cases it's a competitive differentiation where our competitors I'm not able or not willing to provide this flexibility.

So cloud growth, yes, we see cloud but your to grow, our recurring revenue will continue to grow. And at some time we will be a hybrid model company so I don't expect in the near future that we will not offer on premise and that's a very important part of our strategy and very important to our customers..

Okay, thank you..

Thank you and our next question comes from the line Nandan Amladi with Deutsche Bank. Your line is open..

Hi good afternoon, thanks for taking my question.

So Dan as we look to sort of secular trends and customer care moving from telephony base to more of the online channels, how much of your new bookings are coming from these omnichannel or online type products and how competitive are your offerings in that space relative to some of those sort of pure stock based online customer care software providers?.

Yes, so this is an area where we are very strong. Our products are omnichannel and if you compare a differentiation even in legacy products such as recording used to be voice recording. We now record any type of interaction, it could be voice through telephony, it could be voice through Skype or any other type of. IP voice.

It could be chat, SMS, emails, social media so we have an omnichannel recorder. So we have made investments to make our entire portfolio omnichannel.

We obviously have analytical issues that are helping customers to analyze customer experience across different channels and also make some decisions how to improve services because as you know customer is trying to get different experiences using different channels. We are provider of email channel, chat channel, community social media channels.

We provide these type of solutions. The only channel that we decided not to provide is ACV capability. We believe that ACV neutrality is the better strategy for us and there are many, many ACV providers including cloud providers and we are partnering with many of them.

We have integration with all of the leading ACV providers and we think that we can provide our customers a choice of keeping their ACV or upgrading ACV regardless of what they do with every other channel or more importantly what they do with their analytics and automation strategy.

We believe that as customers look at modernizing customer engagements, it is not about getting a better ACV. The ACVs are pretty much similar functionality, but it's really moving forward and we're very well positioned to help customers moving forward. Again with cloud, with analytics, and with automation. .

Thank you and a follow up on the cloud segment.

You've said for many quarters that it's growing at a roughly 20% to 25% so how big is that segment now and how big will it be in two or three years?.

Yeah, so we have 60% recurring revenue and that's approximately a third is our cloud revenue and two third is maintenance. That's how we get to 60%. So it's close to 20% of revenue -- of overall revenue that are in this bucket of cloud revenue.

And again we continue to believe that cloud will grow faster than overall revenue next year and probably beyond. And if we choose to do cloud acquisitions as Paul indicated then obviously that can accelerate growth even harder. .

Thank you..

Thank you and our next question comes from the line of Dan Bergstrom with RBC Capital Markets. Your line is open..

Hi, and thanks for taking my questions. So you mentioned lend and expand in the Q&A here. The lend and expand strategy really in customers engagements, but a little over a year old at this point.

Could you talk about the opportunity in the installed base or in customers that you've sold to over the last year as deals anniversary and come up for renewal, you provided several examples of those in the prepared remarks, I'm assuming there's a nice opportunity to up sell additional modules to them?.

Yeah, I would love to give metrics but at this point we just don't have them so it would be more directional than quantitative. But I would say that I mentioned 25 products give or take and multiple use cases for this product. So we have really a big portfolio. Most of our customers have a small portion of that.

And we have provided the ability which can start anywhere so this is no -- there is no blueprint where they have to go through a certain upgrade path to get to capability. They can really pick and choose what they need so customer may decide, I don't have a community channel I want to start social community customer service.

And that's where they are going to go next. Some other customer will decide self-service is now something I want to get into. It's very difficult to predict because customers have different priorities based on their particular situation.

But generally what we hear from customers that they don't like to buy very large projects and aggregate lots of products into one big deal. They feel like they have better business impact if they do it on a more gradual basis. And that's why we have a lend and expand strategy and a start anywhere strategy. We believe it's working very well.

This strategy makes us a trusted partner. We very often are being asked by our customers to advise them on what are the benefits they can have. We are helping them to establish the ROI, return on investments case that they need to present internally.

And most of our solutions are now being sold based on ROI case where our customers go to their management and present a compelling ROI. Automation is one area where obviously the ROI is very compelling and that's why we see a lot of interest and we've decided to accelerate our investment in automation.

And ROI is cost efficiencies -- the ability to measure, increase customer loyalty and customer satisfaction. So this is how we approach the lend and expand strategy.

We're trying to start to develop some metrics too, quantitative about how deep we go but the opportunity is very, very large, if we are able to sell a larger part of our portfolio to our customer base. We have lots of customers with very large footprint and we can do very well if this will pick up in pace..

Great, thanks and then you mentioned automation there and automation was highlighted in the prepared remarks.

I noticed you held a number of customer's events in November highlighting the role of automation and also the new products there, just curious as to customer response or feedback out of those events?.

Great, I think customers are very, very interested in this topic. It's considered to be an important part of the future of customer engagement. If you point to the center, we're not offering automation solution, this is not a new product. This is really infusing machine learning, deep learning, cognitive capabilities, natural language processes.

It is infusing technologies that creates new business benefits. But we incorporate that into existing products which make it easier for customers, they don't have to develop bought boss and have them totally isolated from the business flow, business partner flow but in our case we incorporate it into our solutions.

So we get a lot of excitement about our quality monitoring automation. As I mentioned before it's really a major enhancement in the quality monitoring space. And I am looking forward to announce a few more new capabilities to mention in Q4. So we are absolutely accelerating the pace..

Great, thank you.

Thank you and our next question comes from the line of Jeff Kessler with Imperial Capital. Your line is open. .

Thank you, thank you. We are looking at the virtual negative unemployment's going on in the cyber and cyber analyst area. You mentioned that you were beginning -- you have been building up your predictive analytics and other analytics that will help you both analyze better and cut back on the need for humans so to speak to make those decisions.

Could you talk a little bit about the investments that you're making in that area and what type of return can you get from a both a qualitative and quantitative measure for the investment you are making there?.

Okay, you mentioned the cyber security use case where there is shortage in cyber analyst. We see the same type of situation also in overall cyber intelligence. Any data mining solutions that carry behind them a lot of services and require data scientists have the same type of challenge.

And the amount of data that can be collected is obviously growing exponentially and the ability to find insights into data is becoming more and more complex. And a big part of an investigation whether it's a cyber security investigation or any other security investigation, a big part of that is just collecting data and it's going through alerts.

There's lot of systems that provide alerts and many of these alerts could be just benign, just alerts that a human needs to look at and say okay, this is an event but it's not suspicious and it's not causing me any reason to investigate further.

So a lot of the data scientists that work is in aggregating data from a lot disparate systems, looking at alerts and investigating alerts just to the point of deciding whether it's interesting or not. And a lot of these tedious tasks are now being automated. So it ended today in order to complete a complex investigation.

There will still be people involved and they will have to make judgments and they have to be people we feel when they don't mining, what we call data scientists or cyber analysts. But much fewer of them will be needed than relative to the solutions that the market has now.

The level of the solutions that are existing in the market today required this type of skilled people to spend too much time on tasks that are really not necessary to be spent by this level of skills or human at all. And that is our purpose, automating the collection and the alerts vetting. .

Okay, and just to follow up to that, a year ago or a year and a half ago the weakness you saw in the cyber side of the business was chiefly centered in your emerging markets.

Can you characterize what the business outlook or what the business currently looks like there, is it just stable at this point, is it recovering, or are you going through a process in which the way the growth rate may change for the better relative to where you were again a year and a half ago?.

Yeah, so we discussed last year an unprecedented decline in the emerging markets. And we mentioned that our business is approximately 50:50 between emerging markets and developed markets and that we believe that the decline is temporary. So the decline was for three quarters, Q4 last year was strong. Strong sequential growth in Q4.

I think more than 20% growth from Q4 last year. From Q3 to Q4 and then this year obviously we see good growth every quarter. So this was a temporary decline and when we look at their orders that we received this year it's pretty much back to the same mix of 50:50 between emerging markets and developed markets.

So, the decline in emerging markets which we at the time discussed is potentially related to currency devaluation and commodity pricing and so forth. We refer to that as a temporary decline because the security needs in those countries are pretty strong.

And then just as we see this here, that the need to modernize and invest in technology, to take security to the next level, is something that countries cannot afford not to invest. .

Was there any change in the way you went to emerging markets to change in the way you sold to your emerging markets to help this or was it for those factors that is just due to those factors that you just cited?.

No we did not have to do anything to help them. Our customers told us last year that they have a very healthy interest in our products but just are not able to pay. So it was a matter of waiting and getting their budgets and then they are resuming Purchasing. .

Hey great. Thank you very much..

Thank you and I'm showing no further questions at this time. I would now like to turn the call back to Mr. Alan Roden for any closing remarks. .

Thank you operator. Before ending the call I would like to announce that we will be holding an Investor Day next May in connection with our Customer Engagement User Conference in Dallas. We will provide more specifics early next year including the date, agenda, and details on how to register.

In addition I would like to discuss two upcoming Investor events. Tomorrow we will be participating in the Imperial Capital Investor Conference in New York City and next Tuesday J.P. Morgan will be hosting investor meetings at our offices in Melville, New York. If you are interested please get in contact with your J.P.

Morgan representative so you can attend. I want to thank you for participating in today's call and look forward to seeing you on our next conference call. Have a great night. Take care..

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day..