Verint Systems Inc (VRNT) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Verint Systems Earnings Conference Call. My name is Derek and I'll be your operator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Alan Roden, Senior Vice President, Corporate Development. Please proceed.

Thank you, operator. Good afternoon, everyone. I'm here with Dan Bodner, Verint's CEO and President; and Doug Robinson, Verint's Chief Financial Officer. By now, you should have all seen a copy of our press release that includes selected financial information for our first quarter ended April 30, 2012. A quarterly report on 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 web site, and also on the SEC web site.

Before we start the call, I'd like to draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements, including statements regarding expectations, predictions, views, opportunities, plans, strategies, beliefs, and statements of similar effect relating to Verint. These forward-looking statements are not guarantees of future performance, and they're based on Management's expectations that involve a number of risks, uncertainties and other factors that cause actual results to differ materially from those expressed or implied by the forward-looking statements. The forward-looking statements are made as of this date of this call, and except as required by law, Verint assumes no obligation to update or revise them or to provide reasons why actual results may differ. Investors are cautioned not to place undue reliance on these forward-looking statements, which are time-sensitive and speak only as of today. 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, 2012, or Form 10-Q for the fiscal quarter ended April 30, 2012 when filed, and other filings we make with the SEC.

Most of the financial information discussed today is not prepared in accordance with Generally Accepted Accounting Principles and is therefore non-GAAP. A reconciliation of the non-GAAP financial measures provided in today's call to the most directly comparable GAAP financial measures, as well as an explanation of why Management uses these measures, is included in our press release dated June 6, 2012, as well as in the GAAP-to-non-GAAP Reconciliation found under the Investor Relations link in our website. Non-GAAP financial information should not be considered in isolation or as a substitute for GAAP financial information, but is included because Management believes it provides meaningful supplemental information regarding our operating results, and when assessing of our business, and is useful to investors for informational and comparative purposes. The non-GAAP financial measures the Company uses have limitations and may differ from those used by other companies. Now, I would like to turn the call over to Dan. Dan?

Thank you, Alan. Good afternoon, everyone, and thank you for joining us to review our first-quarter results. In Q1, we delivered $200 million of revenue, representing a 13.4% year-over-year increase, $0.53 of diluted EPS, and record first-quarter cash from operations. Overall, we are pleased with our strong start to the year, which reflects our leadership position in both the enterprise intelligence and security intelligence markets. We experienced broad revenue strength in Q1, with double-digit year-over-year growth in both enterprise and security intelligence. In enterprise, we delivered $112 million in revenue, representing a 14.9% year-over-year increase. In security, we delivered $88 million of revenue, representing an 11.6% year-over-year increase. Geographically, we experienced year-over-year revenue growth in all three of our regions -- Americas, EMEA, and APAC.

In enterprise, we continued to see three market trends that we have highlighted in the past -- one, organizations increasingly looking to purchase work force optimization solutions in the form of a unified suite from a single vendor; two, immigration of work force optimization solutions into new areas across the enterprise, such as back office and branch operation; and three, the adoption of innovative voice of the customer analytic solutions to drive the customer-centric enterprise.

I would like to share with you some first-quarter customer anecdotes that are illustrative of these trends. During Q1, we received orders in excess of $4 million from an existing international banking customer for its call center and back-office operations. This banking customer had initially deployed our recording and quality monitoring solutions in the contact center and then decided to expand to a more comprehensive unified suite in the contact center, as well as in the back office. These enterprise deployments reflect the market preference towards purchasing multiple solutions from a single vendor, sometimes all at once, but more often, over time. Verint is well-positioned to capitalize on this trend, given our broad suite and large global install base.

We continue to see interest outside the contact center across a number of industries for enterprise solutions. During Q1, we received an order of more than $2 million for our work force optimization solution from one of the largest banks in the United States. This new customer for Verint is deploying our solutions to effectively measure and optimize the performance of certain branch operations. Turning to voice of the customer analytics, we believe that customer-centric organizations are increasingly interested in deploying sophisticated analytics such as speech, text, and enterprise feedback management, to gain a better understanding of the customer experience, work force performance, and other factors underlying business trends.

During Q1, we received an initial order from a health care insurance company in excess of $1 million for several components of our unified suite, including speech analytics and customer feedback. This new customer for Verint is deploying our voice of the customer solutions to help optimize its internal processes and work force through a realistic view of its customer service operations. We believe that these customer anecdotes are indicative of market interest in customer-centric work force optimization solutions across the enterprise.

To better address market demand for our enterprise intelligence solutions, we are investing in OEM and other partnerships. We believe partnerships are an important part of our go-to-market strategy, and we continue to expand our partner network, including OEM and other SAS partnerships to support hosted and software as a service offerings. Overall, we believe our broad portfolio offers a compelling ROI for contact centers, branches, and back-office operations. Turning to security, our strategy continues to be to deliver a broad portfolio of innovative IP security intelligence solutions to meet our customers' specific security challenges across several vertical markets, including government, retail, finance, and critical infrastructure. In the government sector, customers are deploying our innovative communications intelligence solutions to effectively detect, investigate, and neutralize criminal and terrorist threats, and are deploying our video and situation intelligence solution to improve the security of sensitive facilities and infrastructure.

We continue to see governments around the world seeking solutions to keep pace with the growing amount and types of network traffic and unstructured data. Our strategy is to deliver innovative solutions that help them efficiently collect and analyze very large amounts of content to generate actionable intelligence. In Q1, we received two orders, each in excess of $20 million, one of which we received early in the quarter and had mentioned during our last conference call. These large orders are expected to be delivered over multiple quarters into next year.

In retail, organizations are deploying our video intelligence solutions to reduce shrinkage, manage liability, provide a safe environment for employees and customers, and leverage video to enhance business performance. Our focus is on big box retailers, and we believe we have developed a differentiated solution for this part of the retail market. For example, during our first quarter, we received orders in excess of $1 million from 3 of the 10 largest retailers in the US, including one order in excess of $4 million. In addition to improving security, video can be leveraged for operational purposes, such as benchmarking store performance, analyzing the customer experience, and optimizing staffing levels, facility levels, and product placement. We are well-positioned to address this opportunity with our retail-specific analytic solutions.

In financial services, organizations are deploying our video intelligence solutions to enhance the security of their branches and other sensitive areas. During the quarter, we received orders from multiple banks, including $4 million in expansion orders from an existing US banking customer. We continue to add analytics to our video solutions to help banks identify fraud and conduct investigations. In critical infrastructure, organizations are deploying our video and situation intelligence solutions to protect infrastructure and properties, such as airports, seaports, transportation networks, and utilities, as well as in safe-city initiatives. During the quarter, we received an initial order close to $1 million for a new transit customer in a major East Coast city and we continue to see interest in transit and other infrastructure projects around the world. While our security business can be lumpy, overall we had strong business activity in Q1, and we believe we are well-positioned in the security market with a broad portfolio of IP security solutions.

In both enterprise and security intelligence markets, we are seeing interest in our analytical solutions due to increasing amounts of unstructured data and the need to generate actionable intelligence to improve enterprise performance and security. Our strategy is to capitalize on this opportunity by adding new analytical solutions to our enterprise and security intelligence portfolios through investments and selective acquisitions, making us more strategic to our customers and partners. We believe these investments, combined with our leadership position and our install base of more than 10,000 customers positions Verint well for sustained future growth.

Turning to guidance, we are pleased to have started the year strongly. Looking forward, we continue to be focused on growth, while at the same time, monitoring the global economy. At this point, despite our strong start to the year, we are proceeding with caution and are maintaining our annual outlook for revenue and earnings per share. Now, I would like to turn the call over to Doug to discuss our Q1 results and outlook in more detail. Doug?

Thanks, Dan. Good afternoon, everyone. Most of the discussion today will focus on non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available as previously mentioned. Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions, including amortization of acquisition-related intangibles, certain other acquisition-related expenses, stock-based compensation, as well as certain other non-cash or non-recurring charges. Our earnings release provides further information on these non-GAAP adjustments.

I'd like to begin today's discussion with the areas of revenue, gross margin, and operating margin. In the first quarter, we generated approximately $200 million of total revenue across our three segments, with $112 million in enterprise intelligence, $29 million in video intelligence, and $59 million in communications intelligence. This compares to approximately $177 million of total revenue in the first quarter of last year, with $98 million in enterprise, $30 million in video, and $49 million in communications. In terms of geography, in Q1 we generated $105 million in the Americas, $50 million in EMEA, and $45 million in APAC. This compares to approximately $88 million in the Americas, $47 million in EMEA, and $42 million in APAC in the first quarter of last year. Q1 gross margins were 68.1%, compared to 68.5% in Q4, and 70.7% in Q1 of last year. As we have discussed in the past, due to the revenue mix, gross margins can fluctuate significantly quarterly. During Q1, we generated $39 million of operating income, compared to $53 million in Q4. Operating margins in Q1 were 19.7%, compared to 24% in Q4. Operating income and margins decreased in Q1 from Q4, primarily due to the revenue seasonality. Our Q1 EBITDA came in at $44 million, or 21.8% of revenue.

Now, let's turn to other income and interest expense. In the first quarter, other expense net totaled $7 million, reflecting $8 million of interest expense offset by $1 million positive foreign exchange impact related to balance sheet translations due to the weakening dollar during Q1. Our annual cash tax rate is expected to be 12%, reflecting what we expect to see for the balance of the year. As we've discussed previously, we expect to enjoy a low cash tax rate for several years due to our NOLs and the amount of income we generate in low-tax-rate jurisdictions. This drove $0.53 of fully diluted earnings per share.

Now turning to the balance sheet, as of April 30, 2012, we had approximately $203 million of cash, including restricted cash. This compares to approximately $164 million of cash as of the end of the fiscal year. Cash from operations came in very strong at $47.5 million on a GAAP basis. Excluding $7 million of interest payments and approximately $2 million of other non-recurring cash expenses primarily related to M&A, cash from operations would have been approximately $56 million. We ended the quarter with total debt similar to last quarter at $596 million. However, our net debt declined to $393 million due to our strong cash growth. At the end of the quarter, we had 50.8 million average fully diluted shares outstanding, including approximately 10.9 million shares underlying our convertible preferred stock.

Before moving to Q&A, I would like to discuss our guidance for the year ending January 31, 2013. We are maintaining annual revenue guidance in the range of $860 million to $880 million, beginning with a modest sequential increase in revenue in Q2. For the year, we expect non-GAAP operating margins to be in the low 20%s. We expect that operating margins will be below 20% in Q2, with an improvement in the second half of the year, commensurate with revenue growth. We expect quarterly interest and other expense to increase to approximately $10 million in Q2. The increase is due primarily to the impact of the weakening Euro on non-cash balance sheet translations related to our inter-company payables and receivables. Assuming no significant changes in foreign exchange going forward, we would expect quarterly interest and other expense to return to approximately $8 million in Q3 and Q4. We expect our non-GAAP cash tax rate to be approximately 12% for the year, reflecting the amount of taxes we expect to pay for this year. Based on these assumptions and assuming approximately 51 million average fully diluted shares outstanding for the year, we continue to expect our non-GAAP EPS to be in a range of $2.55 to $2.70.

In conclusion, we started the year strong, and I believe we are well-positioned for continued market leadership and growth. This concludes my prepared remarks. With that, operator, can we please open the lines for questions?

(Operator Instructions)

Shaul Eyal, Oppenheimer & Company.

Congrats on a very, very solid quarter. Couple of questions on my end. Doug, this is probably the second quarter, even the third quarter in a row of strong cash-from-operations numbers. What's behind it, other than the consistent performance? Is it stronger collection?

Yes, our cash from operations will grow similarly to the operating income; however, there are some timing differences. In Q1, we had particularly strong collection efforts. Got in some large payments that we were expecting perhaps to get into Q2, but made for a very strong cash from ops in Q1.

Got it. The second question goes to Dan, I would imagine that some investors might, as well as research analysts, what is happening in Europe? We're getting very, very mixed views -- western Europe, eastern Europe, southern Europe -- can you share with us what you guys are seeing coming from that geography?

Yes, it's very mixed in Europe, as you mentioned. We are very fortunate to be diversified across many industries, as well as across many countries in Europe. EMEA was, again, a growth for us in EMEA in revenue, and we saw that growth coming from certain emerging markets in Europe, but we also are holding pretty well in some of the countries where we have a strong base, like the UK.

There are several countries in Europe that suffer more; but overall, I think it was strong across the industries we're in, which include financial services and telecom, as well as government. We are monitoring the situation there, but so far, as you recall also last year, every quarter was a growth quarter. So far, so good for Verint.

If I may squeeze a final question. Dan, the first example that you gave on the $4 million that you got for back office. I think as it relates to the call center business with the major bank. From the bank's perspective, do you think that it was driven by some growth or by some compliance and regulation requirements? Or it was just at a normal course of business that they are coming with this big contract note of $4 million?

I think it's a combination of a number of factors. One is Verint has a broader portfolio, and very good customer relations, so going into existing customers and leveraging the relationship, we're able to sell some of the newer solutions. Back office is a new solution. It's also quite a new market overall, as organizations recognize that workforce optimization can really work well.

We're actually seeing some customer organizations that people that ran connect centers successfully and implemented some of these analytical solutions at connect center has been offered promotional position into the back office to emulate what they did in the connect center and bring those processes and tools into the back office, which is an area that has a much larger workforce. There are more agents in the back office than in the connect center, and there's a lot of room for optimization, to reduce costs and also improve overall efficiency and customer services.

I think we also mentioned last quarter that we see a trend that our average deal price is creeping up over time. That's also a result of the fact that we have a broader portfolio of analytical solutions, and customers find -- customers that originally bought recording and quality monitoring that were five, 10 years ago were, very trendy, now this is a very established market, but everybody's looking not just for the data capture, but also for the data analytics.

Got it. Thank you very much. That was very helpful. Good luck.

Paul Coster, JPMorgan.

Yes, thanks. Dan, so you started off the year strong. You didn't raise guidance. The commentary you just gave us regarding Europe sounded pretty generic in nature. In short, this decision not to raise guidance is just an expression of generic macro concerns, and nothing specific that Verint is seeing. Is that a true statement?

Yes, Paul, I think it's very true. We did experience a very strong quarter in Q1 on all metrics. Business activity was strong, and cash collection, obviously our P&L metrics came a little ahead of what we expected.

With that overall strength, we were just looking into the rest of the year and whether it's prudent to raise guidance and of course with EMEA uncertainty, with some slow-down in China, with some concerns about the US economy. While we didn't see anything in Q1 that gave us a pause, and business activity was strong and government was strong and financial services. There was no red flag, but just I think overall, it wasn't prudent to raise guidance at this point.

You previously described this year as an investment year. Given these macro environments, are you changing any of your investments in sales and marketing and R&D?

We're not changing any of the plans at this point in the year. We made comments that last year was a big investment year. We added last year close to 400 people. This year, we'll continue to hire, but not at that pace, at a lower pace, and that's what we're maintaining. We are benefiting from last year investments. We obviously are digesting the growth in infrastructure that we created last year and expanded in a number of geographies all over the world. This year, we are not going to repeat the same level of growth, but we are going to be hiring.

Where do we stand in terms of the timing of introduction of your application for fighting cyber crime?

It's on track, which means that we are discussing this solution with customers already, but we don't expect this to benefit revenues this year. Hopefully, we'll be able to close some deals in the second part of the year. We think that in terms of conversion to revenue, that's only going to start to kick in next year.

Finally, what is the margin structure on these two $20 million orders that you've got through? Is it the same as the corporate average, higher, or lower?

We have a product mix, and it really depends when customers tend to bundle a number of products into a larger order, it's hard to predict what will be the mix in a specific order. You could expect, as Doug mentioned before, some lumpiness around gross margin as a result of product mix in large projects, quarter to quarter.

Thank you.

Daniel Ives, FBR Capital Markets.

Thanks. Good quarter again. Could you just speak to on the security side, given budgets that we've seen from transportation agencies, municipal, some governments maybe under pressure, but obviously you're still seeing strength there on the security piece. Just talk about what's happening there in terms of dynamics, a decoupling to some extent where the priorities are and how you're continuing to see good spending there as well as maybe in the future, any thoughts there would be helpful. Thanks.

Yes. The security business is lumpy and we will see in different quarters, we will see different behavior, but Q1 was certainly strong in communication intelligence and was not as strong in video, but we expect video and communication intelligence to grow at the same level over time. Specifically with governments, as I mentioned, we had strong Q1 in terms of business activity, and we think that there's a lot of interest in information analytics, and we see this interest coming from all over the world.

In terms of transportation, this also has different customers, airports. There are transportation networks such as light rail and heavy rail and subway and generally I think that this market is looking for new solutions that help to address security. I think security is still very much high on their priority list, but obviously I think it's still a very early-stage market.

I think a lot of this critical infrastructure can benefit from some of the more advanced analytics and situation intelligence solutions that we have. I'm pretty pleased with the progress, but I think that this market will have a lot of room for growth over time.

Okay. That was helpful, thanks.

Daniel Meron, RBC Capital Markets.

My question is on the analytics side. You guys referred to that several times. Where do you think we stand as far as penetration via the enterprise side, be it in the communications interception side, which is probably more advanced, at least in my view? Where do you think we stand in the video segment? What kind of dynamics or catalyst could accelerate this acceptance across these different markets?

Yes. Let me start with video, the video intelligence solutions. We are focusing in three markets, and we sell, in addition to video, we sell video analytics and applications that help to generate improvement in terms of security, as well as operational efficiencies. If you take, for example, the three markets, retail is an area that in addition to general improvement of security in the store and shopper safety and so on, they are looking at analytics to help them address shrinkage, which is a loss of revenue as a result of theft.

They are also looking to leverage video in order to track shopper behavior and see how many people come to the store, how many people leave the store without buying anything, which is a conversion ratio metric, and how much time people dwell in front of promotional items and store layouts and product placements.

There's a lot of intelligence that is buried in the video, and we are positioning our solution as not just helping collect the video, but analyze the video for a lot of different purposes for retail customers. That's our focus there, and I think that message is received well, and you can also see that from the success we are having with big-box retailers.

In financial services, our focus is on helping protect banks, branches, and sensitive areas. There, in addition to security, we are looking to help detect fraud and we have added analytics and applications that help them to conduct investigations to minimize fraud, whether it's in the ATM machine or within the branch and just financial transaction fraud. Leveraging video, obviously, is the main information asset to help detect fraud.

In critical infrastructure, last year we added situation management. That enables customers to look at the bigger pictures of understanding how all the sensors -- the video sensors and other sensors interact within the critical infrastructure, and how to alarm on suspicious behaviors and be more proactive in terms of the security posture. In each of these markets there are growth trends, as video is being shifting from just collecting video to more analyzing video and using the intelligence buried in the video to improve security and operational efficiency.

Turning now to our communication intelligence portfolio, there I think our customers are interested in analyzing, growing the amount of information, just because with social networks and proliferation of different types of networks and increasing traffic, our law enforcement and intelligence customer are facing growing [care of] in information.

And obviously their mission is to be able not just to capture a growing amount of information, but now to analyze and pinpoint those nuggets that they need in order to conduct an effective investigation. I think we are benefiting from an ongoing increase in network types and network traffic, and that trend, which has been driving our growth for years is certainly continuing.

Okay, and the enterprise, and if you can also elaborate on where we are as far as are we 10% or 20% penetrated? Can you provide some metrics around that and what growth rates should we expect from analytics?

I think across all our markets we maintain our position that the markets grow, give or take organically in the mid to high single digits. In different markets, different reasons for the growth drivers. Enterprise obviously we benefit from the fact that people want to buy a single switch in an integrated, unified fashion, and add back office and branch into their connect center workforce optimization suite.

We also benefit from the fact that it's now a customer-centric workforce optimization approach, where people more look at the voice of the customer, the impact on the customer as a driver to improve workforce, the workforce optimization, while maintaining high customer satisfaction and retention, and obviously maximizing customer value.

Different dynamics, but overall, Daniel, I think if you look at the macro, there is just a growing amount of information across all our markets. A lot of unstructured information is becoming more and more important to our customers, and they're looking for tools to help them to capture and analyze information and apply it in their environment, to either create return on investment or improve security, or improve the overall business performance.

Okay. Thanks, Dan. Switching gears a little bit, can you give us a sense on more granular view of the geographic mix and dynamics within each market per your discussions with your customers? Also, if you can also try to provide a little bit more insight on how analytics is being accepted right now within the different regions. Is US faster in adoption versus say Europe, or vice versa, et cetera? Thank you.

Yes. As you know, we generate about 50%, slightly more than 50% in Americas of revenue and 25% in EMEA, and slightly under 25% in Asia-Pacific. These ratios have not changed dramatically over time, as we believe that there are good opportunities across all regions. We need to grow in all regions in Q1, although we grew more -- overall, we grew 13.4%. It was somewhat higher in Americas and somewhat lower in EMEA and A-PAC. That's just Q1, It's not necessarily representing of a trend.

In terms of the penetration of analytics, I think all regions are very receptive to the idea of capturing and analyzing data. Certainly, emerging markets, obviously as they need to build infrastructure, because they don't have recording yet, may start with recording. A lot of them actually bundle into larger projects and buy the recording and analytics in one project, while our legacy customers who had recording are just adding modules over time.

Jonathan Ho, William Blair.

Good afternoon, and great quarter. Just wanted to start out a little bit with the pipeline of opportunities and whether you could talk a little bit about what you're seeing out there, as well as whether there's been any shift in terms of deal closure rates or any unusual things that are happening there?

Yes, I think the pipeline of opportunities is very healthy. What we saw in Q1, it is somewhat harder to close business. I think it's not probably worse than we expected. We didn't expect this year to be an extremely strong economy, but we certainly see a trend of people thinking twice of what they need.

Our sales cycle anyway is quite long. It's six to nine months on average. This could give us a lot of opportunity to discuss ROI with our customers and generally we monitor our overall economy, but the indication in Q1 in terms of the business that we closed and the business activity overall was pretty positive for us.

Got it, and can you talk a little bit about, and perhaps the organic growth rate this quarter by segment, and also maybe a little bit of color in terms of what sorts of opportunities you see on the M&A side. What types of strategic areas you can see growing later on this year?

Okay. The organic growth rate, so first let's look at where we are. We did 13.4% year-over-year growth in Q1. Our guidance for the year reflects about 10% growth. We are a little bit ahead in Q1. As we said, Doug mentioned before, we expect modest improvement in Q2, so, if you think about it as 10% growth in H1, in the first half, then you should expect something like 3%, 4% sequential growth in Q2, and we are maintaining guidance, so we still expect to be approximately 10% for the year.

Overall, relative to the acquisition we did last year, for the year, we expect this to contribute about 2 percentage points. Give or take about 8% organic growth and 2% from acquisition that we did last year. Obviously, our outlook does not include any potential acquisitions that we will be doing in the future.

We have not done any transaction in Q1, and we continue to look at certain companies, primarily technology and areas where we think we can bring new product or technology to the company and leverage our large customer base and sales force to accelerate growth. This type of opportunities will be what will make sense for us.

Great. Thank you.

Brian Ruttenbur, CRT Capital.

Thank you very much. The question I have is great cash generation quarter. Doug, maybe you can talk about -- you said it was above average cash collection. I'm just trying to understand what it's going to be for the next couple quarters. You indicated that it would be less of a cash generation next quarter. Can you help me out with how the cash will come in during the year?

Yes, sure, Brian. Yes, so Q1 was outstanding for us, as you saw from a cash from ops. Normally, Q4 is our big cash quarter, and to have that carry over, to have another strong Q1 was great. We had said that looking at our guidance on our last call, and extrapolating cash from ops, we thought we would be close to $160 million or so for the full year. I still think that's about where we are.

Dan just talked about the guidance and the revenue growth. Our earnings projections really haven't changed. We're being cautiously optimistic about that. I think it's more timing around the cash from ops, and we still expect to be $160-ish million or so, or close to that for the full year.

Okay, and then a couple other questions. This is around a potential Comverse transaction. Is there going to be one-time charges related to that? That's number one. Number two, is the debt structure that you currently have, do you plan to have it change, depending on how the potential spin-off happens?

In terms of one-time charges, I mean, we'll see what happens. At a minimum, as we go through, there will be some professional fees that are extracurricular to a transaction. Those, we would look at being a non-GAAP adjustment in the future and we'll spell that out. At this point, we'll just see what fees come up and then how we handle them.

In terms of your debt structure, I'm sorry, did you say the debt structure will stay the same post the transaction or not? I didn't catch that part.

Yes, I don't think we can speculate on a transaction right now. Currently, we have the total debt of just under $600 million, and then Comverse has that preferred that fits along as well.

Okay. Thank you very much.

Ellen Mo, Imperial Capital.

I'm actually filling in for Michael Kim today. Just a couple questions regarding the security segment. Are you seeing larger or more complex deployments in security, like seven- or eight-digit opportunities? Where is the strongest activity going, critical infrastructure, retail, or other verticals?

We did see recently the last couple quarters an increase in larger deals, especially from the government, for the government vertical, That will go into that the magnitude of $20 million and more. Whether this is a trend or not, I think it's too early.

We also have many customers across several security verticals that over time, not necessarily in one deal, but over time, spend tens of millions of dollars with Verint, so we can't just look at these large deals when they all come bundled together. Obviously, when the customers decide to bundle that into a $20-million-plus deal, we are very pleased.

Okay, great. So what about the opportunities that you see in cyber-security solutions this year? Should we probably expect more significant contributions for next year?

It's too early. We introduced this product late last year, and we also announced that we did a small acquisition, so this product is a combination of an organically developed product that is based on existing technology and product we already sell in the government market and we augment that product that we have with new technology that we acquired from a very small company.

But the combination could be very compelling, and the initial reaction from customers was very, very positive. We are positioning these products to deal with the country-wide network level, so you can expect this to be relatively large projects and relatively long sales cycle. That's why we maintain a view that we hope to close a deal or two, a few deals maybe this year, toward the end of the year, but also the deployment cycle will be quite long and revenue will go next year.

I don't believe it's going to be highly material for next year results. We are not giving obviously any outlook for next year, but just with the progression of any new offering, it does take time to pick up, but if we are successful with this offering, this is obviously a very exciting market and we do meet with customers that are out there looking for solutions.

There are no really very good solutions. There are a lot of good companies that participate and people are providing some aspect of the defense that customers are looking for, but we think we have something to add that is unique and we are excited about it.

Great. One last question. As far as the government sector, where are you seeing the most, strongest activity, particularly in opportunities in communications intelligence or video or a balance in that?

Obviously we have a larger representation of government customers within our communication intelligence. These are including law enforcement agencies as well as federal-level agencies. There's a variety of different agencies that have the charter to collect data and analyze data, so it's quite diversified across many agencies and many countries. Video, we also have government customers, but video, we have retail and banking, commercial enterprise, so we have a variety of other security customers that are outside of government.

Okay, great. Thank you.

At this time, I'm showing no further questions in queue. I would like to turn the call back over to Mr. Alan Roden for any closing remarks.

On behalf of Verint, I thank everyone for participating in the call this afternoon. We look forward to talking to you on our next call. Have a great night.

Ladies and gentlemen, we thank you for your participation. You may now disconnect. Have a great day.