Good morning, ladies and gentlemen, and welcome to the Verint Systems Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded..

I would now like to introduce your host for today's conference, Mr. Alan Roden, Senior Vice President of Corporate Development. You may begin. .

Thank you, operator, and good morning, everyone, and thank you for joining our conference call today. I'm here with Dan Bodner, Verint's CEO; and Doug Robinson, Verint's CFO..

Prior to this call, we issued a press release that includes financial information for our third fiscal quarter ended October 31, 2018. 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 at verint.com and also on the SEC website..

Before starting the call, I'd 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 more detailed discussion of how these and other risks and uncertainties could cause Verint's actual results to differ materially from those indicated in the forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2018, and other filings we make with the SEC..

The financial measures discussed today include non-GAAP measures as we believe investors focus on these 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 to or superior to GAAP financial information but is included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.

The non-GAAP financial measures the company uses have limitations and may be different from those used by other companies..

Now I'd like to turn the call over to Dan.

Dan?.

Thank you, Alan. Good morning, everyone, and thank you for joining us to review our third quarter results..

In Q3, we continued our positive momentum and delivered high single-digit revenue growth, strong margin expansion and double-digit earnings growth. We're very pleased with our Q3 results, which reflects our strategy to accelerate our business through innovation, with the current focus on automation.

We're also pleased to report strong results for the first 9 months, including double-digit earnings growth as well as more than 30% growth in cash from operations..

These strong results improved our linearity across the quarter this year and established a solid foundation for initial guidance for next year. We believe that behind our positive momentum is demand for Actionable Intelligence solutions that help customers capture and analyze massive amounts of data and derive insights that are actionable.

Our market leadership and competitive differentiation are supported by innovative automation technologies across many Actionable Intelligence use cases, and I will provide examples later in the call..

Now I would like to review our third quarter results by segment..

Starting with Customer Engagement, our non-GAAP revenue increased 9% year-over-year to $201 million. As we have discussed from past calls, our Customer Engagement strategy is resonating well in the market and has been driving many competitive wins..

This strategy is focused on 4 pillars. First, offer customers a broad enterprise portfolio across contact centers, self-service, back-office, customer experience, marketing, compliance and IT..

Second, offer our full portfolio in the cloud and make it easier for organizations to transition to SaaS through a hybrid cloud strategy..

Third, offer communications infrastructure neutrality to provide enterprise customers flexibility with future infrastructure communication choices..

And fourth, infuse automation across our entire Customer Engagement portfolio. .

Today, I would like to highlight our progress in automation, as we believe our automation strategy is the key differentiator and a potential catalyst for accelerated growth. Let me start with few examples of our third quarter progress with automation..

The first example is related to customer innovation. We recently issued a press release, together with UCB, a global biopharmaceutical company, working in Parkinson's disease and other chronic illnesses.

UCB announced a new mobile app equipped with a conversational virtual health assistant named April, powered by Verint’s Intelligent Virtual Assistant solution. .

April utilizes artificial intelligence technology to offer continuous support and encourage patient adherence, transforming the way patients interact with their health care provider.

This is a good example of how organizations are looking to deploy automation to drive deeper relationships with customers as well as of Verint's strategy of helping organizations elevate customer experience while keeping operating costs low..

The second example is related to Robotic Process Automation. In Q3, we launched automated verification, a new advanced RPA application that eliminates time-consuming and incomplete manual testing of communication systems. .

Today's Customer Engagement environment is complex, and many organizations don't have the highly skilled technical resources that are required to proactively manage it. When a problem is eventually discovered, accurate diagnosis require skilled employees to examine the installation, configuration and maintenance of multiple systems.

Verint's solutions include robotic engineers that proactively alert the organization to potential issues, saving significant time and effort associated with manual processes..

Another example of our automation innovation is in the area of intellectual property. Just within the last 12 months, with 50% growth in patents and applications in the area of automation, Verint has a large IP portfolio with close to 1,000 patents and applications, out of which close to 200 are related to automation..

In addition, Verint's focus on innovation is being recognized by industry analysts. For example, earlier this year, we received Best Overall Artificial Intelligence Award from AI Breakthrough, which recognized achievements in our AI-driven self-service..

Our strategy is to help customers automate with advanced artificial intelligence technology to achieve elevated customer experience while reducing operating costs and driving strong ROI. Our technology leadership is allowing us to expand our footprint with existing customers and win new customers with many competitive displacements..

For example, in Q3, we received $11 million in orders from a leading telecommunications company. This 8-digit deal highlights the strength of our portfolio and the preference of large enterprise to work with a strategic vendor. This large deal was one of many competitive wins during Q3..

And nearly $5 million subscription order from a leading consumer product company. This global company continues to invest in Verint to elevate their customer experience across the globe. And this is an expansion order as part of their subscription renewal..

An order from a health care services organization for over $1 million, bringing total orders from this customer to $2 million over the last 2 years. This customer initially deployed some of our solutions on-premises and, more recently, deployed some of our solutions in the cloud.

This is a good example of our hybrid cloud strategy and how it can help customers transition to the cloud at their own pace..

Verint's entire Customer Engagement portfolio is available in the cloud. And currently, we support more than 3 billion cloud interactions per year across our customer base. .

A nearly $2 million order from a leading IT services company. This customer, who has previously deployed our solution in their contact center operations, is now looking to automate manual functions in their back-office operations. This is a good example of our ability to help customers drive automation across several enterprise departments..

A nearly a $2 million order from a leading financial services company. This order, which included our authentication and fraud solution, is another competitive win, reflecting the strength of our integrated voice biometrics and predictive analytics..

These large orders demonstrate our strong execution. Overall, our ability to help organizations advance the strategy to elevate customer experience while, at the same time, reduce operating costs has contributed to our success and positions us well for continued momentum..

Turning to Cyber Intelligence. After a strong first half, I'm pleased with our Q3 7% year-over-year growth, achieving $107 million of revenue. And we believe demand for our data mining software is strong. For the year, we expect around 10% revenue growth..

In Q3, we continue to win many large deals around the world, including recently receiving an order close to $20 million as well as a $15 million, 3 orders of $10 million and 2 $5 million orders.

We believe our success in winning these 7 large deals is due to our ability to anticipate market trends and bring innovative solutions to market, including automation and data analytics capabilities..

For example, one of the orders I mentioned includes our Cyber Intelligence Fusion product, providing customers the capability to fuse large amounts of structured and unstructured data from many sources and apply supervised and unsupervised machine learning to find insight in the data..

Another example is an order from a large telecommunications company to help them automate their cyber SOC, security operating center.

Verint cybersecurity solutions help customers collect large amounts of network traffic events and leverage artificial intelligence to bring automation to security-breach investigations, reducing operating costs while accelerating detection and response..

We believe these type of orders reflects our ability to address 3 market trends that we have discussed on past calls. First, security threats are becoming more complex. As a result, security and intelligence organizations find it more difficult to detect, investigate and neutralize threats and are seeking new data mining solutions..

Second, there is a shortage of data scientists and cyber analysts, and security organizations are seeking advanced automation capabilities to perform functions previously performed by humans..

And third, security organizations are looking for predictive intelligence as a force multiplier. Predictive intelligence is generated by correlating massive amounts of data from a wide range of disparate sources to uncover previously unknown connections, identify suspicious behavior and predict future events..

Overall, we believe demands for our innovative Cyber Intelligence solutions is strong. And as a market leader, we are well positioned for another year of growth with improving margins..

Before turning the call over to Doug, I would like to summarize as follows. We believe demand for Actionable Intelligence solutions is strong. And we are targeting long-term, double-digit revenue growth by continuing to focus on innovation, including in the area of automation, which I highlighted today..

We believe we have the opportunity to expand margins as we continue to build scale. We expect that a combination of revenue growth and margin expansion will enable us to continue growing earnings faster than revenue..

We are very pleased with our Q3 and year-to-date performance. This year's guidance reflected the midpoint 8% revenue growth, a 12% earnings growth on a non-GAAP basis. Our strong execution year-to-date makes our year more linear..

Today, while early, we're introducing initial guidance for the fiscal year ending January 31, 2020 as we usually do as part of our third quarter earnings call. Our initial guidance reflects another year of strong revenue growth, margin expansion and double-digit earnings growth..

And now let me turn the call over to Doug. .

Yes. Thanks, Dan. Good morning, everyone. Our discussion today will include non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available, as Alan mentioned, in our earnings release and in the IR section of our website..

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

I'll start my discussion today with the areas of revenue, gross margin and operating margin..

In the third quarter, we generated $308 million of non-GAAP revenue. Non-GAAP segment revenues were $201 million in Customer Engagement and $107 million in Cyber Intelligence. This compares to $284 million of non-GAAP revenue in the third quarter of the prior year with $185 million in Customer Engagement and $99 million in Cyber Intelligence..

In terms of geography, in Q3, we generated non-GAAP revenue of $170 million in the Americas, $79 million in EMEA and $59 million in APAC. This compares to $150 million in Americas, $88 million in EMEA and $46 million in APAC in the third quarter of the prior year..

Turning to gross margin. Our Q3 non-GAAP gross margin was approximately 66%, up from approximately 65% in Q3 last year. As we have discussed, our strategy is to drive up gross margins over time, and we're pleased with our expansion in Q3 and expect gross margins for the full year to be about 1 point higher compared to last year..

Turning to operating income. During the third quarter, we generated non-GAAP operating income of $69.2 million, with an operating margin of 22.5%, approximately 3 points higher than Q3 last year.

Our objective has been to grow earnings faster than revenue, and we are very pleased with our strong operating margin improvement in Q3, both sequentially and year-over-year. Our adjusted EBITDA for the quarter came in at $76.3 million or 24.8% of non-GAAP revenue..

Now let's turn to other income and interest expense..

In the third quarter, non-GAAP other expense net totaled $4.5 million. Our non-GAAP tax rate was 10.8% for the third quarter. As we've 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 66.2 million average diluted shares outstanding. These results drove diluted non-GAAP earnings per share of $0.85 for the quarter compared to $0.66 in the prior year, a 29% year-over-year increase..

We are very pleased with our Q3 non-GAAP earnings growth of 29% and plan to continue to invest for long-term growth while delivering margin expansion. Given this strong momentum, we intend to continue hiring in Q4, ahead of next year's planned growth, and expect 12% non-GAAP EPS for the full growth next year..

Now turning to the balance sheet. At the end of Q3, we had $462 million of cash and short-term investments, including short-term and long-term restricted cash and investments. Cash flow from operations on a GAAP basis in Q3 came in strong at $27 million, bringing the year-to-date figure to more than $130 million, a 37% increase from the prior year.

We believe the strong year-over-year increase in GAAP cash flow from operations speaks to the health of our business..

We ended the quarter with net debt of $358 million, including long-term restricted cash and investments, and excluding discounts and issuance costs primarily associated with our convertible debt..

Before moving to Q&A, I'd like to review our non-GAAP guidance for the current year ending January 31, 2019..

Starting with revenue. In Customer Engagement, we expect annual revenue growth of about 7%. In Cyber Intelligence, we expect annual revenue growth of around 10%. Overall, we expect revenue of $1.24 billion, with a range of plus or minus 1%..

We expect our non-GAAP quarterly interest and other expense, excluding the potential impact of foreign exchange, to be approximately $5.7 million. Given the volatility in 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 11% for the year, reflecting the amount of cash taxes we expect to pay this year..

Based on these assumptions and assuming approximately 66.1 million average diluted shares outstanding for the year, we expect non-GAAP diluted earnings per share at the midpoint of our revenue guidance to be approximately $3.15, representing 12% year-over-year earnings growth..

Looking ahead to next year, the year ending January 31, 2020, we expect non-GAAP revenue of $1.325 billion, with a range of plus or minus 2%. At the midpoint of our revenue range, we expect $3.50 of non-GAAP diluted earnings per share.

Our initial guidance reflects approximately 7% revenue growth and 11% earnings growth year-over-year, as we expect to expand non-GAAP operating margins again next year..

In conclusion, we believe demand for our Actionable Intelligence remains strong. We're executing well on our growth strategy with many competitive wins and a focus on innovation and automation. And we are well positioned for another year of positive momentum..

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

[Operator Instructions] And our first question comes from Shaul Eyal with Oppenheimer. .

Dan, it would appear as if Verint is back to its, what I'd define, as old self. By that, I mean, high single-digit top line growth, double-digit earnings growth. And I believe that has been the third consecutive year of this solid and consistent execution.

What's driving that? And also, talk to us to the philosophy behind it?.

Okay, sure, thank you. Yes, so the guidance that we gave for next year is reflecting what we saw this year, the continued momentum in the business. So let me elaborate on this. First, I would say, innovation across our portfolio is resonating well with customers.

We made investments over the last couple of years, especially in the area of automation, and this is in response to market demand. Geographically, we see positive trends in all 3 regions. We had many competitive wins this year, including very large orders. This year is more linear across the quarter and less back-end loaded.

And in addition to consistent revenue growth, which we are improving, we are driving margin expansions across the gross margin as well as getting OpEx leverage from scale. Overall, we have strong execution of our strategy, for accelerating the growth and the margin expansion.

And this year, throughout the year, we had the opportunity to raise guidance twice. So all this clearly gives us confidence for next year, that our strategy is working and our execution is strong.

And that's why initial guidance for next year is actually stronger than the guidance we gave 1 year ago, reflecting what we feel is an ongoing momentum in the business. .

Got it. Yes. That was actually my next one. I think this is, correct me if I'm wrong, this is the first year in some time that your initial next year's guidance is actually coming better than the various estimates out there. So I understand this is probably a reflection of the solid trends and execution that you guys have been seeing out there.

And also maybe while addressing that, maybe can you talk to us also about some of the geographic dynamics that you are seeing? I know that you're still -- you're expecting growth within the next 3 territories, as we think about it for the next year.

But can you talk to us a little bit about what's happening in each one because I see there are a little bit of different dynamics, for example, between the U.S. and Europe, for the APAC, which you're seeing absolutely solid growth. But also from a decision perspective, that would be quite helpful. .

Sure. Happy to do that. So when we look at Customer Engagement strategy, our strategy is to grow in all 3 areas -- all 3 regions, geographical regions. And we see, over the last few years, customers really looking to simplify, modernize and automate customer engagement. And that's across customers across the globe.

And when we discuss this to customers, our strategy to help them elevate customer experience while reducing costs, this is really applicable to all regions. So what's going on in Customer Engagement is because there are more channels, not just the voice channel, but many digital channels as well, the number of interactions is actually going up.

And we hear from customers around the world that they are now hiring more and more people, and that's not sustainable. So while they are looking to accommodate their customers, they are asking for more interaction across many digital channels. They cannot sustain this hiring, and that's why automation is becoming a very strong driver for the business.

They need to elevate customer costs, just trying to go for lower labor costs is not necessarily going to address the need to elevate customer experience. So with automation and some of the examples I gave before, people can get faster responses. They can get it in any channel they choose.

And at the same time, through automation, a lot of this is addressed by bots.

And what we see again, it's a global trend, is that the merging of the hybrid workforce, which is really people working side-by-side with robots, where people are doing the more complex tasks and robots, the more straightforward tasks, but they're working side-by-side to address -- elevating the customer experience but, of course, without this unsustainable increase in manual labor.

And this is a big driver for Verint. We saw this. We heard it from our customers early. We've invested in a lot of innovation. And I think it's paying off in all 3 regions. .

And our next question comes from Daniel Ives with Wedbush. .

Good quarter, but also good granularity walking through the pillars. Could you talk about sales cycles? Do you feel like they're shortening or a change in terms of what you're seeing, specifically on the customer service side? It seems like deals are [ spiraling up, ] specifically on some of the larger deals. Just maybe talk about that anecdotally. .

Yes. I think that we work with enterprise customers, so their sales cycle involve looking at the different technologies that exist in order to address business problems. We are very focused on helping customers achieve ROI, and I think that drives somewhat a shorter sales cycle.

So when customers are looking to reduce costs and get a return on investment quickly and they can see a high-ROI software, that's obviously very attractive.

I think another contributor to shorter sales cycle is our hybrid cloud approach, where customers sometimes, looking at very large infrastructure and how they can move to the cloud in phases, and hybrid cloud is really an opportunity for them to run some of our solutions on-premises, some of our solutions run in the Verint cloud and some of our solutions can run in the on-cloud or in department cloud.

And this is allowing them a very -- an evolution. A transition to the cloud at their own pace. And I think that's also encouraging and helping them to move faster and purchase the software they need to create ROI and not so much worry about the infrastructure and how long it's going to take them to implement it.

So I can't give you a specific cycle on how they've gotten shortened. But it does look like we have momentum. We're getting the business done faster. And I think it's driven by primarily these 2 factors, the cloud transition that we allow in a very flexible way and the ROI that we generate with a lot of innovation. .

Our next question comes from Gabriela Borges with Goldman Sachs. .

Dan, I'm hoping you can comment on your visibility into Cyber Intelligence backlog going into next year in the context of what we've seen recently and some of the macro data, like the volatility in oil prices and U.S. dollar appreciation.

Has that changed at all customer willingness to invest in Cyber Intelligence? Any color on what you're seeing in broader demand trends in Cyber Intelligence would be helpful. .

Yes. So first, we're very pleased with the activity in Q3. We just announced 7 large deals, with a $20 million, $15 million, 3 $10 million.

So clearly, the signals, right now, is that customers around the world, and we operate, as you know, in 100 countries in our Cyber Intelligence business, clearly see the demand for modernizing their security operations and they have the budget to support it.

We don't see any signs right now, we don't hear anything from customers, any concern about budgets. So our initial guidance for next year reflects a normal budget cycle in this business. And we clearly see that the complexity around security investigation is growing, as we highlighted before. The shortage of data analysts is even getting worse.

There's clearly a demand in commercial markets that government agencies need to compete with enterprises on cyber analysts. So this type of trend that we highlighted are serving long-term catalysts for growth. And our ability to deliver large projects with sophisticated data mining software is really a good differentiator for us.

So at this point, I don't see any signs for a slowdown related to U.S. dollar or oil prices that affects our business. .

That's helpful. And the follow-up, either for yourself, Dan, or for Doug.

Could you detail the priorities on the operating efficiency side going into next year, maybe the top 2 or 3 initiatives that you're targeting to expand margins? And as part of that, could you comment on how the transition away from hardware is going on the Cyber Intelligence side?.

Okay. Let me start, and Doug can give some color. So margin expansion comes from gross margin expansion and OpEx leverage, and it's in both business segments. So let me start with the gross margin. Very clearly, in our Cyber Intelligence, it's driven by a change of the mix toward more software.

And clearly, in Customer Engagement, it's driven by the transition to SaaS. And we highlighted in prior calls that, in Customer Engagement, overall gross margin now is around 70%, but the SaaS margins are above 80%. So as customers migrate more to SaaS, we have margin expansion.

And Doug mentioned before that we expect this year to have 1 point of gross margin expansion. In addition to margin expansion, on the operating expenses side, we're creating efficiencies from a number of different initiatives, including hiring across the globe. So let me give you a number. This year, we've hired about 500 people.

And this is consistent with our expectation for accelerating growth. But we've hired people all over the world. We have operations, not just in the U.S., but in many countries where it's lower cost. And we are expanding our headcount but in a way that creates a lot of scale efficiencies.

So we continue to see that sustained into the next few years, with gross margin expansion driven by the trends that I've discussed as well as the initiatives we are doing internally to drive more OpEx efficiencies. .

Yes, I think you've got it covered, Dan. So basically, on the gross margin side, in Cyber Intelligence, driving more of a product model, trying to drive some of the [ past 2 ] hardware out of there and put a real focus on the components of each of the deliverables and how we might be able to bring the product costs of those down.

We're seeing some impact of that. From a -- In the Customer Engagement side, the whole approach to the hybrid cloud is making, I think, our business more efficient. We're driving some better top line margins out of that.

And the overall expansion, we're careful in terms of where we are investing our money, where we're expanding and trying to do that very efficiently, effectively, with an eye on costs.

And then just the benefit you get from scale, right? So I think all of those things are contributing to about 1 point of operating margin expansion this year and probably another point for next year as well. .

Our next question comes from Paul Coster from JPMorgan. .

This is Mark Strouse on for Paul. So I just wanted to start with the cloud-hosted contact center as a service business.

Where do you peg your market share within that business? And can you just talk about how that has trended over the past few quarters or years?.

Yes. So all our solutions in Customer Engagements are available in the cloud. And it's, at this point, the customer's choice, whether they want to implement on-prem or in the cloud.

And even when they go cloud, they can implement it with the Verint cloud, where we host it for them, or they can choose to buy or lease the software and use it in a different cloud. So we're very flexible. This is what we call hybrid cloud. We hear from enterprise customers that this is exactly the way they would like to move to the cloud.

One of the $2 million orders that I mentioned before, I think, is a good example. The customer that first chose Verint software because they realized that this provides them the ROI. Initially, they gave us an order to implement a software on-prem because they were just not ready for the cloud.

And then in Q3, they gave us another $1 million order to implement software in the cloud. So they have a hybrid cloud with some of our software running on-prem, some in the cloud. They can choose in the future to, obviously, move the on-prem to the cloud at the pace that suits them in the particular situation.

And we accommodate our customers to do that. And different customers are in a different pace in the cloud evolution. We see the cloud migration as a clear trend, but we also see that enterprise customers need to do that on a piecemeal basis.

And we designed our software and made the investment, this investment is already behind us, to have a future priority that whether you implement the software on-prem or SaaS, the functionality is the same. And that provides a great flexibility to our customers. So this is our strategy.

In terms of growth, our cloud software business is growing faster than the overall growth rate. And that's what we continue to expect as customer migrate to cloud over time. .

Okay. That's helpful. Then the debt-to-EBITDA ratio continues to improve.

Just curious if you can give an update on how we should think about M&A over the near term?.

Yes. So I think our EBITDA is growing, and our cash is growing. So yes, our net debt to EBITDA is just 1.2 approximately. We opportunistically look at M&A. We are operating in fragmented markets. So we're looking to opportunities that make sense and can add more innovation and be accretive to our results.

Over the last few years, we were doing some tuck-ins, more technology-specific areas that we feel can augment our portfolio. But our approach to M&A is opportunistically. And we have done very little this year, 1 small tuck-in that we did in the end of Q2, but we're searching for opportunities. .

Our next question comes from Jeff Kessler with Imperial Capital. .

Your situational awareness business, which is tucked into cyber, started out as a PISM.

Can you talk about how that has evolved beyond that? And what the customers who originally were involved in that -- interested in that business, what types of demands are they making on your ability to provide them with more than just what is going on at the scene at this point in time?.

Yes. So situational awareness is part of our data mining software business, exactly because what you just described, which is customers looking to fuse data from a lot of different sources. Some data is from sensors, and some comes from databases.

But in order to create insights that are force multipliers, the ability to use predictive intelligence based on sensory data to predict security breaches and investigate them faster with less people, that's the same trends that we see across our entire Cyber Intelligence business and are relevant also to the evolution of, what you call, PISM into situational awareness.

So in security, generally, there is a desire to use less people and become more effective. And you can only do that by using technology that can create insights and predictive analytics to accelerate the security breach investigations. And that's where we're focused. .

Okay.

With regards -- so my follow-up question is, with regard to the amount of employees that you have, as you look at your customers and are trying to get them to use -- because of competition, obviously, for the same mines, trying to get them to be more efficient with less people, how are you using that to essentially affect your own business? You said you're hiring 500 people, but are you -- is that 500 that less than what you would have been doing had you not moved towards automation?.

Yes. That's interesting, yes. Well, I think we are using automation also in-house. One good example is in our -- because the velocity of our innovation has increased, we're launching more software versions more frequently, and we invested quite a bit in order to increase automation in our testing.

So when you have frequent software releases, each release needs to have regression testing. And it's just not sustainable to do it with people, even in low-cost labor markets. And we've invested quite a bit in automating a large portion of our software testing and verification is automated. So that's an example.

We also invested in our professional services. A lot of the implementation works that we do can be automated, and part of it has been automated.

So that's part of the margin expansion, right, that we want to scale, not just in terms of top line growth, but in terms of more efficient delivery of our solutions to customers with remote implementation, automated implementation as well as faster software releases with faster testing and verification. .

And our next question comes from Dan Bergstrom with RBC Capital Markets. .

So I just wanted to build on Gabriela's question in cyber a bit here.

Could you talk a little bit more about the large telecommunication win this quarter? Are you seeing more opportunities such as this, maybe in more nontraditional security customers or enterprises? It seems like there's a natural opportunity around automating security and providing insight to network traffic and automating processes around breach discovery and investigation.

.

Yes. We do see opportunities. We talk about our software intelligence as predominately government business, but we do have enterprise and communication infrastructure customers as well including telecom, which we discussed before, this $5 million order.

So it is predominantly government today because that's where we started the business, and it grew quite nicely. And there's still very strong demand for Cyber Intelligence from government agencies. But as you pointed out, there is certainly interest in enterprise markets.

And maybe I should highlight one area, which is called enterprise threat intelligence. This is an area where we have also great wins, but it's still relatively small relative to the overall Cyber Intelligence revenue. So threat intelligence is about finding threats within web and social media data. This is another source of data, which is huge.

There's a lot of information within the web that is relevant to enterprises. This could be threats to executives, threats to -- in different parts of the world where travel alerts need to be created because global companies have people in different countries.

This could be information that has been stolen from enterprise and is offered in the dark web for sale and alerting enterprise that actually such private information has been stolen.

In many cases, there are cyber attacks that are undetected, and only after the fact, you are alerted that you've been breached by having your data offered, traded in the dark web. So a lot of the tools that we have in terms of web intelligence, social media intelligence and Fusion are of great interest to enterprises as well.

As I said, we certainly have very good solutions. But our -- primarily, our sales force is focused on the government market, and we expect enterprise market over time. .

And maybe for Doug. Doug, that outlook for next year is good as is.

But what are some of the opportunities or drivers that could track numbers towards the upper end of the range?.

I think it's all about the top line. As you've seen from the great performance we've had through the first 3 quarters of this year, when the top line comes in greater than expected, it falls to the bottom line. We're driving 29% operating income year-over-year increases.

So if we can continue this momentum, really, in both the areas with the trends that we've been talking about -- through this year and on this call and we can get a little bit more generated at the top line, that really should allow us to have some nice earnings performance for next year, too. .

Thank you. There are no further questions in the queue. I'd like to turn the call back over to Mr. Alan Roden, for any further remarks. .

Before ending the call today, I'd like to discuss 2 upcoming investor events. Next week, we'll be participating in the Imperial Capital investor conference in New York, hosted by Jeff Kessler. In addition, we'll be scheduling multiple road shows, including one with Daniel Ives from Wedbush Securities, who recently relaunched coverage of Verint.

We look forward to seeing you at these and other investor events in the coming weeks. Thanks for joining our call today, and have a great day. .

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day..