Verint Systems Inc (VRNT) 2006 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Verint third quarter conference call. [OPERATOR INSTRUCTIONS] Thank you. Mr. Roden, you may begin your conference.

Thank you, operator. Good afternoon, and welcome to Verint's third quarter conference call. I am Alan Roden, VP of Corporate Development and Investor Relations for Verint which is traded on Nasdaq under ticker symbol VRNT. With me on the call today are Dan Bodner, our President and CEO and Doug Robinson, our Chief Financial Officer.

Before starting the call, I would like to mention tha certain statements that may be made on this call that are not historical are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. The words estimate, project, intend, expect, believe, and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Any number of factors could cause the actual results, performance, or achievements of the Company to be materially different from those that may be expressed or implied by such forward-looking information. Certain numbers and percentages have been rounded and may be approximations. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of Verint is strictly prohibited.

By now you all should have seen a copy of our press release which was issued after market close this afternoon. If you have not received this release please refer to BusinessWire.com or our website at verint.com. For a discussion of principle risk factors that may cause actual results to be different, please refer to the aforementioned press release and the Company's filings with the SEC. Risk factors include the fact that we cannot, at this time, predict the ultimate impact in the business that may result from the current circumstances which have caused us to be unable to timely file our SEC reports. We also cannot predict how our customers and competitors respond to these events.

As we previously announced, because of the ongoing investigation by a Special Committee of the Board of Directors of Commerce Technology the 57% stockholder of Verint, of stock option practices, the preliminary conclusion that the actual dates of measurement for certain task awards granted by commerce differ from the reported grant date for such awards, the potential impact of stock option practices on Verint's statements and the facts and circumstances underlying the recently announced investigation by Congress Special Committee of other actual potential accounting errors and their impact on Verint's financial statements Verint has not been able to file the SEC its 10-K for the year ended January 31, 2006, its 10-Q for the quarters ended April 30, 2006, July 31, 2006, and October 31, 2006, or its 401(k) in connection with its January 9, 2006 acquisition of MultiVsions network video security business. Verint intends to make such filings as soon as practically after it receives final information.

Revenue price today is preliminary, and the Company cautions investors should not make assumptions about the cost of sales, gross margins, operating expenses, income from operations, net income, earnings per share or other financial statement items that we are not disclosing. As previously discussed by Verint because Verint is not current with its SEC filings, Verint has received staff determination letters from the Nasdaq stock market indicating that Verint Securities is subject to delisting. The Nasdaq Listing and Hearing council has stayed the delisting of the Company's securities pending further review by the listing council. There can be no assurances that the outcome of the listing council's review will be favorable to the Company, whether the Company's securities will be listed on the Nasdaq stock market or to have the securities reenlisted Verint will be able to meet the terms of its plan to regain compliance.

The content of this conference call is time sensitive and reflects the Company's perspective as of December 11, 2006. We undertake no obligation to update the content of this call including any forward-looking statements even if the events, circumstances, or expectation change after this call. Because of our continued inability to to do our SEC filings we will not be disclosing our financial statements for our third quarter of fiscal 2006. Similarly while we will be providing revenue guidance for Q4 today, the impact of our current circumstances on Verint's financial results and guidance remain subject to a number of uncertainties. Additionally, due to these uncertainties we are not in position to provide annual guidance for fiscal 2007 as we would normally otherwise do at this time.

While we will not conduct a customary question and answer session today in advance of this call we have solicited and received questions from analysts and will respond to certain questions that we were able to answer at the end of this call. With that, I will turn the microphone over to Dan Bodner. Dan.

Hello, everyone. Thank you for joining us today. I am pleased to announce another record quarter for Verint in terms of revenue and our 20th consecutive quarter of sequential revenue growth. Third quarter revenue increased 21% year-over-year to a record $95.2 million. We believe the market for Actionable Intelligence is in its early stages and since the beginning of the third quarter we received significant order across both the security and business intelligence market for a wide range of Actionable Intelligence applications.

For example, in the retail market we recently received initial orders of approximately $3 million for a Nextiva retail solutions from a new big box retail video customer. We believe that there is a significant opportunity for Actionable Intelligence solutions in the retail market and are happy to have been selected by this new big box retail video customer. We will discuss trends in the retail market and this deployment later in the call. In the transit market, transportation authorities around the world continue to explore new initiatives to enhance the security of their assets and infrastructure and to ensure a safe travel environment.

During the third quarter we received multiple orders, each in excess of $1 million for our Nextiva transit solutions for new mass transit customers in the United States and Europe. In the gaming market we recently received orders in excess of $3 million for network video solutions for casino operators in Macau. These orders follow more than $2 million in orders from the same casino operators in Q2. While casinos have been slower to adopt Actionable Intelligence solutions than some other pockets, we believe that there is growing interest among new casinos such as those opening in Macau that have not made a significant investment in legacy analog video technology.

In the government market intelligence and law enforcement organizations around the world continue to seek ways to improve their intelligence and evidence collection capabilities. During the third quarter we received orders for a new government customer in excess of $5 million and additionally received expansion order of approximately $5 million for an existing government customer. These large orders are being driven by the need to collect and analyze a greater amount of voice and data information and the resulting need to transform this unstructured information into Actionable Intelligence in order to enhance national security.

In the service provider market early this year the U.S. government introduced new career specifications covering packet data networks. Related to these new requirements we recently received multiple orders for our packet data communication deception solution from service provider customers in the United States including an order in excess of $2 million for a new service provider customer for their broadband packet network.

In the business intelligence market large telecom service providers are seeking new analytics that can help them improve customer satisfaction and reduce churn. During the quarter we received an order for our ULTRA solution that was in excess of $4 million from a used telecom customer. This large scale deployment of our ULTRA solution will involve more than 100 contact center sites including 27 new sites and upgrades at 75 sites enabling the customer to obtain an enterprise view of their contact center operations. We also received multiple expansion orders for ULTRA solution including approximately $2 million for a U.K. government customer and for a U.S. financial service customer. We believe that a majority of our ULTRA sales today are being driven by our highly differentiated analytics approach in the market. We believe that these recent orders are indicative of the continued demand for Actionable Intelligence solutions in both the security and business intelligence market, and we ended the quarter with backlog in excess of one quarter of revenue.

Later in the call I will review the market trends that we believe are behind this demand. Now I would like to take this opportunity to formally welcome Doug Robinson to Verint. Doug joined us in August and effective today becomes Verint's new CFO. Doug comes to Verint with a tremendous amount of experience in finance and management and will help Verint continue to execute its growth strategy and capitalize on the Actionable Intelligence opportunity. Doug.

Thanks, Dan. As Dan mentioned earlier, the third quarter represented a record quarter for Verint in terms of revenue and marks our 20th consecutive quarter of sequential revenue growth. Due to the ongoing review, we will not be providing you with full financials for our third quarter. At this time we do not know how long it will take to finish this review. To date in connection with that review we have incurred one-time legal, accounting, and other expenses of approximately $1.5 million through the end of Q3.

Our third quarter revenue was $95.2 million. In the quarter we had expected to begin deployment of one large security project that flipped into Q4. Subsequent to the end of the quarter we received initial orders for this large security project and hope to receive additional follow-on orders from this customer during Q4 which is influencing the range of our Q4 guidance. We expect fourth quarter revenue in the range of 96 to $101 million. Correspondingly this fourth quarter guidance updates our previous annual revenue guidance yielding total revenue for the year between 371 to $376 million.

As we have previously indicated, due to our current situation we're only providing Q4 revenue guidance today. Our guidance is based on our current backlog in excess of one quarter of revenue and our current sales outlook. Understandably there is some uncertainty due to our evolving circumstances. Throughout the year we continued to hire in key areas including sales and marketing and R&D as we invest in developing new Actionable Intelligence solutions. We believe that these investments provide the foundation for continued revenue growth. Looking out longer term, we believe that Verint's Actionable Intelligence markets represent an attractive opportunity. In addition, Verint remains committed to augmenting its internal growth with strategic acquisitions and is focused on identifying companies that is can help us accident tend the capability of our solutions, broaden our offerings, and expand our distribution in geographic presence. I would like to now turn the call over to Dan.

Thank you, Doug. For the remainder of the call I would like to discuss some of the key trends that we have seen across the security and business intelligence market since the beginning of the year. In the security market government and enterprise organizations have shown growing interest in migrating from stand alone analog video systems to converged IP video networks due to the hindrance benefits of IP video. With ongoing adoption of video over IP technologies the market is demanding scalable open systems that can easily connect to IP infrastructure and other security systems and Verint is working towards meeting this demand.

Fiscal secularization of a video company earlier this year and IBM's recent video offering announcements are indicative of this trend and provide another data point that video security is increasingly transitioning to corporate IT networks. Verint has been focused on developing IP video systems for more than 10 years, and this experience has enabled us to participate in market changes including the initial migration to DVR's and the current migration to server based network video solutions and analytics. Verint's NEXTIVA solution is based on an open platform that runs on standard servers and leverages network storage devices providing many benefits to both IT and security professional.

Benefits to end-users include seamless integration with wide area networks, bandwidth optimization with intelligent edge devices and the ability to effectively deploy sophisticated integrated video analytics. Verint has introduced a number of vertical applications including solutions for retail, banking, critical infrastructure providers, and mass transit authorities. These applications are built upon our extensive experience working with customers in these verticals and include capabilities that address the specific challenges of this market.

In the retail market retailers have historically been unable to fully leverage video collected from their stores due to the limitation of analog and proprietary DVR systems. However, as retailers upgrade their corporate networks, we're seeing growing interest in server-based network video solutions that enable retailers to transfer video over their corporate networks and to use video more effectively to address both security and business intelligence initiatives. As mentioned earlier, Verint recently received initial orders of approximately $3 million for renew big box retail customer for a NEXTIVA retail solution. These orders come after more than one year long trial that included extensive lab testing and saved pilots.

Verint NEXTIVA retail solution is designed to enable big box customers to deploy video across the wide area networks and to integrate video with store meta data such as point-of-sale information. As retailers deploy our network video solution we see demand for additional video analytics and value-added applications. For example, one of our existing big box retail customers that already deployed our network video solution across substantially all of their operations recently added to certain stores our new loss prevention video analytics solution designed to help them better identify and prevent shrinkage.

In the mass transit market we've seen ongoing interest from transportation authorities that need to improve security and enhance public safety. Increasingly mass transit authorities are look to obtain holistic view of their operations by leveraging WAN and WAN network to effectively capture video, audio, and data for multiple occasions across their infrastructure. In addition to the transit orders discussed earlier in the call, during the quarter we began deployment for multiple new transit customers around the world, including deployment for Los Angeles Counties Foothill Transportation Authority and the Humble Transportation Authority in Germany.

Los Angeles Counties Foothill Transit authority, the second largest public transit provider in Southern California is deploying a nearly $2 million NEXTIVA transit solution to enhance security and improve operations on its municipal buses. NEXTIVA transit will network on board video from the back seat and in the event of an emergency translate this video via broadband wireless network to essential monitoring station enabling Foothill transit to accelerate emergency response and provide video evidence of significant events. Humble [Inaudible], the rail and bus operator in Germany's second largest city is deploying a $2 million NEXTIVA transit solution across more than 400 buses throughout the city. NEXTIVA transit will allow transit personnel to view video from the buses centrally over a broadband GSN network enabling them to more easily access emergency situations and monitor he effectiveness of their operations.

The deployment of broadband networks in major cities over the last several years has provided mass transit operators with the bandwidth to deploy wireless video systems. We believe that increasingly mass transit operators will seek network video solutions like NEXTIVA transit that will allow them to centrally monitor their operations to improve security. In the critical infrastructure market, authorities responsible for government installations, municipal buildings, airports, seaports, energy, water treatment, and chemical and manufacturing facilities continue to seek more effective ways to enhance the security of their secular facilities. Throughout the year we have experienced demands for a wide range of critical infrastructure security programs around the world including city surveillance initiative. In addition to participating in ongoing city surveillance deployments in London, Beijing, and San Paulo, we recently received an initial order for a new city surveillance initiative in San Francisco.

Verint's NEXTIVA critical infrastructure solution was selected by the city of San Francisco for deployment at seven police and fire stations and the office of emergency response. Verint's NEXTIVA critical infrastructure solution and its analytics-ready IP cameras will help the city of San Francisco improve perimeter and facility security at these sensitive locations throughout the city. Verint's video analytics are designed to help the city of San Francisco receive timely alerts about events of interest and respond more effectively.

While our experience has been that cities will implement surveillance initiatives at different rates and magnitudes, we believe that eventually most major cities will take advantage of wireline and wireless broadband connectivity that is becoming ubiquitous in urban areas. We believe that more and more these cities will use networks video solutions such as Nextiva critical infrastructure to enhance public safety in secure sensitive facilities. In the government market the continued threat of terrorism requires intelligence and law enforcement agencies to say seek communications interception solutions that enable them to better detect threats. While the increased use of communication detection solutions has led to certain concerns by civil rights groups, the overriding global trend is for legislators to give greater communication deception rides to government agencies within the context of local laws.

During the third quarter we received orders from multiple new and existing customers including new customers in five new countries for Verint. In addition to the three large orders we discussed earlier on the call, other significant communication deception orders in Q3 include $1 million order for our communication deception solution for a new government customer in the new country for Verint. This new government customer is deploying our solution countrywide to generate intelligence from voice and data communications over wireless and wireline networks. Orders in excess of $3 million for our communication deception solutions for two different law enforcement departments at the new government customer. These law enforcement departments are deploying our solutions to enhance national security by improving their ability to intercept voice and data for a variety of networks.

An order in excess of $2 million for a new international 3G wireless service provider customer. This customer is deploying our communication deceptions solutions to support the government's ability to collect intelligence and evidence from voice-over IP and tech to data communications. Verint's strategy is to anticipate evolving requirements and to develop innovative solutions for our global customer base. Many of the orders we received during the third quarter were for capabilities we enhanced over the last year including improved packet data, intercept, and analytic solutions. Verint is committed to developing new communications and deception solutions to help governments around the world keep up with the growing volumes and types of communications in order to maintain national security.

Turning to the business intelligence market, increasingly enterprises are seeking information to improve the competitiveness and effectiveness of their customer facing operations. The ability to analyze customer interactions is critical to this important objective. However, due to the limitations of traditional contact center solutions, decision makers in enterprises are generally not be able to truly hear the voice of the customer. In light of this trend Verint has been developing innovative, speech analytics that enable enterprises to obtain a holistic view of their customer operations to get visibility into the customer experience and to get the root causes of performance. Our focus in highly differentiated approach has provided Verint a strong position in the contact center market and during the quarter we continue to displace traditional contact center vendors.

Our analytics led strategy is not only helping us win new business, but it is also providing us with an opportunity to offer additional capabilities to our installed base. As discussed earlier in the call, we recently received several multi-million dollar upgrades and expansions that were partially driven by the desire for additional analytics. Verint's speech analytics offer our existing and new customers many innovations such as a built-in Category Wizard, integrated data mining engine, and visualization tools that enable the easy drill-down of results.

During the quarter we further strengthened our analytics offering with the introduction of an innovative stand alone speech analytic solution called CI Analytics. With CI Analytics Verint is making available our speech analytics to customers regardless of the recording of quality monitoring solutions they currently use. By unbundling our speech analytics on our ULTRA platform we can deliver our analytics into any vendor's environment.

While in its early stages, since the launch of CI Analytics in September, we have received multiple orders from customers in the United States and Europe both directly and through partners. These customers have elected to implement our speech analytics in order to address important business issues such as First Call resolutions, customer complaints, billing issues, and improving business processes that their traditional monitoring solution did not adequately address. In addition to early acceptance by customers and partners, our innovative CI Analytics solution is also being recognized by the industry with several best new product awards. At this time, we would like to answer some of the questions that were submitted ahead of our call. Alan.

Thanks, Dan. As I mentioned earlier, since we're not having our typical open Q&A session we requested that analysts submit their questions ahead of today's call. While we cannot answer certain of these questions because of Verint's disclosure posture, particularly the questions leading to our financials we will now answer as many of the questions as we can. The first set of questions revolve around our current situation and come from Paul Coster at J.P. Morgan. Question number one. What is the magnitude of the legal and accounting expenses associated with your current situation? Doug?

As we mentioned earlier the one-time legal, accounting and other expenses associated with the review have reached approximately $1.5 million through the end of Q3. As these are one-time charges in keeping with with our past practices we would expect to exclude them in our pro forma results.

The next question, what shared resources do you have with Converse today? Doug.

Since going public in 2002 we reduced the level of shared resources with Converse. Today the only significance shared resources are in the areas of corporate insurance, U.S. employee benefits, and certain IT systems. As we have grown while it has been an administrative convenience it has also been natural for us to disengage from Converse as we achieve the scale to obtain these resources economically on our own. We're currently on a path to become completely independent with respect to shared resources.

The next set of questions come from Daniel Meron from RBC and also relates to our current situation. Are your sales being impacted by the fact you are not current SEC filer? Doug.

Typically there are several stages to a sales cycle. The first stage is primarily focused on our products. If customers have questions regarding our current situation, they generally come out in the final contract stages when legal and finance is involved in the process. To the extent these questions come up our sales people respond with a clear message that, one, Verint is a strong company with 20 consecutive quarters of revenue growth, and, two, that Verint is the leader in its markets.

Next question. Does your current situation impact your acquisition strategy? Doug.

The actual intelligence market is highly fragmented, and we are actively reviewing many opportunities. Generally these companies are small to medium-sized and would bring us interesting technology or allow us to expand our geographic position. Although we're unable to make acquisitions with our stock at this time due to the fact we're not current with our SEC filings, we remain active and can utilize our cash for acquisitions.

Thank you, Doug. The next set of questions revolve around the security market and come from Shaul Eyal from CIBC. Question number one, please fine update on the competitive landscape in the video market. Dan?

The video market is a large attractive market, and as you would expect highly competitive with many vendors. Competitors range from divisions of large companies to smaller start-ups to more recently IT companies who are interested in participating in the conversions of physical security networks and IP networks. Large competitors for the most part are implementing the same strategies as in the past broad security offerings that are not video specific and consist of DVR's as opposed to network video solutions. Small video start ups generally do not offer a full platform like we have. Verint's strategy continues to be to lead the market with open solutions, intelligent edge devices, and vertical specific applications.

Next question is with IBM and Cisco entering the market, how do you see the competitive landscape changing longer term? Dan?

We believe Cisco's video acquisition and IBM's recent video offering announcement are validation that video security is increasingly transitioning from analog networks historically implemented by security integrators to corporate IT networks which would be more naturally implemented by IT companies. We believe that near term this trend supports the video convergence theme and overall is a positive for the IP video market.

Next question. What impact, if any does the change in Congress have on your business? Dan.

Regardless of who controls Congress enhancing national security continues to be a goal of the U.S. as well as many countries around the world. We continue to believe that improving security is a longer-term trend and one in which Verint is well positioned to participate in globally.

Next question. How is the pipeline [Inaudible] market and how is the penetration in the various verticals you address? Dan.

As we discussed earlier, Verint takes vertical approach to this market. We believe that in general the vertical markets we are focused on are going through a transition from either analog or DVR-based system to server-based, open systems and that Verint is well positioned to participate in this migration. We believe that this migration is in its early stages, and that most customers today do not have open IP-based solutions and the type of analytics that Verint is offering. As bandwidth becomes more ubiquitous and there is greater demand for open IP video solutions we continue to see very good opportunities in verticals such as banking, retail, transportation, and critical infrastructure. At the same time we are starting to see greater interest for open IP-based solutions from other verticals such as casinos. Our view is influenced by the fact that as previously discussed over the last two quarters we received more than $5 million orders from casino customers in Asia Pacific.

Next set of questions is about the business intelligence market and come from Israel Hernandez from Lehman Brothers. Question number one, what are the growth opportunities in the call center market. Dan.

We continue to believe that most enterprises are seeking to obtain better visibility into their customer facing operations and most contact centers do not have the type of innovative analytic solutions that Verint is offering. We believe that the market for analytics is in its early stages, and we see a lot of excitement in the market for our type of solutions.

Next question. How is the Mercom acquisition going, Dan?

We believe that the acquisition was well received by Mercom's channel partners, and we continue to integrate the business with an initial focus on the back office. While it's early, we believe that longer term the acquisition will enable Verint to bring Actionable Intelligence to the growing, small to mid-sized enterprise contact center market by leveraging Mercom's significant experience in developing, packaging, and delivering solutions tailored to this markets' specific requirements.

The final question how has the competitive landscape changed since the beginning of the year in the contact center market?

For the most part, the competitive landscape has not changed since the beginning of the year. We generally see the same vendors in the market. However, as we discussed earlier, we believe that our analytics-led strategy is allowing us to displace traditional contact center infrastructure vendors in the markets. Furthermore, by unbundling our analytics from the [Inaudible] recording and [Inaudible] platform we are seeing opportunities to set analytics into competitors recording environment.

Thank you, Dan. I would like to thank everyone for joining us tonight, and wish everyone a very good evening. Good night.

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