Verint Systems Inc (VRNT) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2015 Verint Systems Incorporated earnings conference call. My name is Irene and I will be your operator for today.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Alan Roden, Senior Vice President of Corporate Development. You may proceed.

Thank you operator, good afternoon, and thank you for joining our conference call today. I'm here with Dan Bodner, Verint's CEO and President, and Doug Robinson, Verint's Chief Financial Officer. By now, you should have seen a copy of our press release that includes selected financial information for fourth fiscal quarter and year ended January 31, 2015. Our form 10-K will be filed shortly.

Each of our SEC filings and earnings press releases is available on the investor relations link on the website 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 as except as required by law, Verint assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements.

For a more detailed discussion of how these and other risks and uncertainties could cause Verint's actual results to differ materially from those indicated in forward-looking statements, please see our form 10-K for the fiscal year ended January 31, 2015 when filed, and other filings we make with the SEC. The financial information discussed today is primarily non-GAAP. A reconciliation of non-GAAP financial measures to GAAP measures is included in today's earnings release, as well as under the under the investor relations link on 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 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 differ from those used by other companies.

Now I would like to talk turn the call over to Dan. Dan?

Thank you Alan, good afternoon everyone, and thank you for joining us to review our fourth-quarter and full-year results. The momentum we experienced throughout the year continued in Q4. We are pleased to report we finished the year with very strong results.

In Q4, we achieved $316 million of revenue, $89 million of operating income, with 28% operating margin, and more than $100 million of cash from operations. These operating results drove non-GAAP diluted EPS of $1.19, when excluding a non-operating foreign exchange charge related to balance sheet translations, and $1.06 if this charge is included. That we'll discuss -- this nonoperating charge a bit later.

Turning to the full fiscal year ended January 2015, we reported record results of $1.158 billion of revenue, $263 million of operating income, and $194 million of cash from operations. We are very pleased with our results, which reflect the 27% increase in revenue compared to the prior year. At the beginning of the year, we discussed our goal of double-digit revenue growth, and we are pleased to report that we achieved this goal both on a reported basis, as well as will include KANA's revenue in both periods.

In addition to strong financial performance, we had many strategic and operational achievements last year, and I would like to highlight some of them. First, last year was the first year of execution of our strategic plan including the expansion of our total addressable market to $8 billion and positioning Verint for long-term growth.

Next, the launching of our customer engagement optimization strategy, which was very well received by our customers and partners. Verint has a strong track record of successfully integrating acquired companies, and I'm pleased to report that integration of KANA's operations is substantially complete.

Also, the expansion of our Security Intelligence portfolio to address cyber security, and the announcement of what we believe is one of the largest cyber security projects valued at more than $100 million. In addition, the highest number of million dollar deals we ever had in a single year reflecting our broader portfolio and us becoming a more strategic partner to our customers.

And finally, the continued advancement of our Actionable Intelligence platform, and aiding us to develop innovative solutions. We look forward to building on these achievements and continuing our momentum.

Turning to the current year, I would like to highlight three key elements of our growth plan. We are targeting another year of double-digit revenue growth on a constant currency basis. We plan to extend our category leadership in the emerging area of customer engagement optimization with multiple launches of new innovative product capabilities throughout the year.

In that regard, earlier this week, we announced new analytical capability, further extending our market leadership. Also, we intend to extend our cyber security solution to the Enterprise market in the second half of the year, as previously announced. This expands our total addressable market and provides us additional opportunities for growth. We believe that the Actionable Intelligence market is in an early stage, as the volume of structured and unstructured information grows, organizations are looking for solutions to help them gain insights from vast amounts of data, and turn those insights into Actionable Intelligence.

Over the last decade, we have spent more than $1 billion on R&D, creating the foundation for Verint's advanced Actionable Intelligence platform, that supports the capture of voice, video, text and other structured and unstructured data, the processing and analysis of this data producing Actionable insights. We believe our Actionable Intelligence platform combined with a strong brand, position us well to address this opportunity.

Now I would like to provide some Q4 customer anecdotes that demonstrate the progression of our growth strategy. We believe that our customer engagement optimization approach has made us more strategic to our customers, positioning us to capture greater wallet share.

During the quarter, we received multiple large orders across a number of verticals including $6 million in orders from an insurance company, $5 million in orders from a telecommunications company, $4 million in orders from a business process outsourcer, and $4 million in orders from a media company. We believe these large orders reflect our broader suite, growing category leadership, and the desire for our customers to work with the most strategic vendor for only channel customer engagement.

The KANA acquisition significantly broadened our suite and we are starting to benefit from cross-selling opportunities from Verint and KANA install base. In addition to addressing the large opportunities, we are also targeting the midmarket through our SaaS offerings, and in Q4 we expanded our SaaS partnerships, primarily focused on the SMB market.

Turning to the Security Intelligence markets, we continue to see demand for our innovative solutions, driven by a variety of security threats around the world. During the quarter, we received a number of large orders, including one for approximately $20 million, one for approximately $15 million, and several orders each in excess of $5 million for both new and existing customers. We believe these large orders reflect a broad portfolio of innovative Actionable Intelligence solutions that address both traditional and emerging security threats, such as advanced cyber attacks.

Turning to Cyber, organizations today are facing the challenge of increasing frequency and sophistication of cyber attacks. We expect this trend to continue, and believe that many organizations are unprepared to protect themselves against such attacks in an efficient and effective manner. Despite investments in perimeter security, and point solutions to help address specific network and endpoint will abilities, there have still a been many reported incidents of successful cyber attacks, demonstrating that legacy approaches are often not sufficient in protecting against this evolving and advanced threat.

We believe that cyber attacks will become even more targeted and sophisticated, and that government and commercial organizations need, in advance, threat protection solution that leverages Actionable Intelligence to protect against these increasingly complex attacks. Last quarter, we announced our plan to launch our new advanced threat protection solution to the Enterprise market.

Today I'm pleased to announce that our development program is progressing well, and we are planning to launch the solution at our Enterprise User Conference taking place in Las Vegas in early June. We expect more than 1,000 participants in this Enterprise customer event, and it will be a great venue to unveil our new threat protection solutions.

I would also like to announce that on June 9 we will be holding an investor day at the same venue. The agenda for investor day will include the discussion on trends in Customer Engagement Optimization and Cyber Security, as well as product demos, including our new Cyber Advanced Threat Protection Solution. We hope you will join us, and at the end of the call, Alan will provide more details.

Before I turn to guidance, given the recent movements in foreign exchange rates, I would like to discuss the geographic distribution of our revenue and operations, and the impact of foreign currency has on our topline and bottomline. We have a truly global business with more than 10,000 customers across more than 180 countries, as well as 4,800 professionals with offices in more than 25 countries. In our latest complete fiscal year, we derived 52% of our revenue in the Americas, 31% in EMEA, and 17% in APAC regions.

In addition to generating revenues in many countries and currencies, because our employee base is also global, we pay expenses in many currencies, creating a natural hedge for Verint over the long-term. As result, our reported revenue will be impacted by currency fluctuations but we believe that we are well-positioned to navigate this fluctuation for a profit at cash flow perspective. Doug will provide more detail in a moment.

Turning to guidance, based on the strong finish to the year and opportunities we see ahead of us, we are raising our annual revenue growth expectations on a constant currency basis. During our conference call on December 3 last year, we provided preliminary revenue guidance that reflected a range of 8% to 12% year-over-year growth on a constant currency basis.

Today, we are increasing our revenue growth outlook to a range of 9% to 13% year-over-year growth on a constant currency basis. This new guidance translates to a revenue range of $1.2 billion to $1.25 billion, reflecting the strengthening of the dollar since our last conference call. Consistent with our new revenue range, we are adjusting our diluted earnings per share guidance to a range of $3.55 to $3.75.

Overall, we believe we are very well-positioned for another year of double-digit growth and extending our market leadership. And now let me turn the call over to Doug.

Yes, thanks Dan, and good afternoon everyone. Most of our discussion today will focus on non-GAAP financial measures. Unless otherwise indicated, results discussed are in a non-GAAP basis. 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 non-cash or nonrecurring charges, including the amortization of the discount on our convertible notes.

I'll start my discussion today with the areas of revenue, gross margin, and operating margin. In the fourth quarter, we generated $316 million of revenue across our three segments, with $181 million in Enterprise Intelligence, $104 million in Communications Intelligence, and $31 million in Video Intelligence. This compares to $257 million of total revenue in the fourth quarter of the prior year with $136 million at Enterprise, $89 million in Communications, and $32 million in Video. In terms of geography, in Q4 we generated $167 million in the Americas, $94 million in EMEA, and $55 million in APAC. This compares to $159 million in the Americas, $50 million in EMEA, and $48 million in APAC in the fourth quarter of last year.

Given the recent foreign exchange movements, we'd also like to discuss our revenue on a constant currency basis to help investors better understand the underlying operational performance of our business. In that regard, on a constant currency basis, our revenue in Q4 would have been $325 million, or approximately $10 million higher than our reported results.

For the full year, we generated approximately $1.158 billion of revenue across our three segments, with $688 million in Enterprise Intelligence, $360 million in Communications Intelligence, and $110 million in Video Intelligence. This compares to approximately $910 million of total revenue in the prior year, with $501 million in Enterprise, $289 million in Communications, and $120 million in Video. In terms of geography for the year, we generated approximately $602 million in the Americas, $363 million in EMEA, and $193 million in APAC. This compares to approximately $509 million in the Americas, $187 million in EMEA, and $214 million in APAC in the prior year.

Q4 gross margins were 69.1%, up from the 67.8% in Q3, and up from the 68.6% in Q4 of last year. For the full year, gross margins were 67.7%, compared to 68.3% in the prior year, as we expected with the inclusion of KANA and their slightly higher services mix. As we've discussed in the past, due to our product and revenue mix, within or across segments, and particularly within the Security business, overall gross margins can fluctuate significantly from quarter to quarter.

During the fourth quarter, we generated operating income of $89 million with margins of 28.1%, compared to $65 million with margins of 25.5% in Q4 last year. I'm particularly pleased with our strong finish to the year in terms of operating income and operating margin, and for the year, operating income came in at $263 million, a 25.2% increase compared to $210 million in the prior year.

EBITDA for the year came in at $283 million, a 24.9% increase compared to $227 million in the prior year.

Now let's turn to other income and interest expense. As Dan mentioned earlier, during the fourth quarter we had an unusually large nonoperating charge relating to the significant foreign exchange movement in the quarter. This charge is included in our interest and other expenses line, which totaled $14.4 million in the quarter.

The $14.4 million includes $6.4 million of net interest and other expense, and had $8 million lost from foreign exchange, related primarily to intercompany balance sheet translations. As we discussed in the past, similar to other global companies, we have intercompany balances that are revalued each quarter based on the foreign exchange rates at the end of the quarter. While this accrues each quarter, the significant strengthening of the dollar in Q4 against the other major currencies resulted in the unusually high charge of $8 million in Q4.

As reminder, our guidance practice is not to anticipate any foreign exchange gains or losses from balance sheet translations in future quarters. Our annual cash tax rate was 9%, and at year-end, we had 59.4 million average diluted shares outstanding. If we add back the $8 million nonoperating foreign exchange charge, we delivered diluted EPS of $1.19 in Q4. Inclusive of the charge, EPS was $1.06. For the year, diluted EPS was $3.35, compared to $2.84 in the prior year, representing 18% year-over-year earnings growth.

Now let's turn to the balance sheet. As of January 31, 2015, we had approximately $358 million of cash and short-term investments, including restricted stock. Our Q4 GAAP cash flow from operations came in very strong at $103 million. For the year, GAAP cash flow from operations increased to $194 million, compared to $178 million in the prior year. We ended the year with gross debt of approximately $811 million and net debt of approximately $453 million, excluding discounts primarily associated with our convertible debt.

Before I turn to guidance, given the recent movements in foreign exchange, I'd like to expand on Dan's discussion of the impact of currency on our top and bottom line. As Dan mentioned earlier, we have both revenue and expenses outside the United States, which creates a natural hedge for us on the bottomline over the long run.

From a topline perspective, more than 50% of our revenue is in US dollars, approximately 25% of our revenue is in pounds and euros, and the balance is spread across multiple other currencies. From an expense perspective, less than half of our expenses are in US dollars, approximately 25% are in Euros and pounds, and another approximate 20% are in shekels.

Because a significant portion of both our revenue and expenses are denominated in foreign currencies, we have a natural hedge to profits and cash flows. However I wanted to point out that since we have approximately 20% of our expenses in shekels with little offsetting revenue, we have historically maintained a 12-month rolling hedge on a majority of our shekel expense. This hedge results in a delayed benefit in a period of time where the dollar is strengthening against the shekel. As result, what we expect to benefit from the shekel weakening versus the dollar, most of that benefit will come in the second half of the year.

Now I'd like to turn to guidance. As Dan discussed earlier, based on our strong finish to the year and current outlook, we are raising our revenue growth outlook on a constant currency basis to a range of 9% to 13% year-over-year, which translates to $1.2 billion to $1.25 billion of revenue based on current exchange rates. We expect operating margins similar to last year. We expect our quarterly interest and other expense, excluding the potential impact of foreign exchange, to be approximately $6 million.

Given the continued volatility in foreign exchange rates, there could be a gain or loss related to balance sheet translations in our future results which, as I noted earlier, is not included in our guidance. We expect our non-GAAP cash tax rate to be approximately 9%, reflecting the amount of taxes we expect to pay this 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.

Based on these assumptions and assuming approximately 63.1 million average diluted shares outstanding for the year, we expect non-GAAP EPS in the range of $3.55 to $3.75. To help you with your earnings models in this environment and significant foreign exchange movement, we are providing some color on the quarterly trends we expect this year. From a topline perspective, I would like to highlight two factors that affect our quarterly trends.

First, we expect customary seasonal trends in our Q1 results following a strong Q4, which is typical in the enterprise and software industry. Second, given the dollar did not start to strengthen until the middle of last year, year-over-year comparisons will be more affected in the first half of the year than the second half of the year.

Looking at Q1, with these factors in mind, we expect revenue in the range of $270 million to $280 million, and operating margins under 20%. $280 million of revenue represents 10% year-over-year revenue growth on a constant currency basis.

In summary, we are pleased with the execution of our strategy, our expanding portfolio of Actionable Intelligence solutions, strong competitive position, and believe we are very well-positioned for continued growth. And with that, operator, let's open up the lines for questions.

(Operator Instructions)

Shaul Eyal, Oppenheimer.

Thank you operator, hi, good afternoon guys. Couple quick questions on my end. Dan, Doug, Alan, the strong finish we had seen on both the growth and operating margins, I know, Doug, you mentioned that the mix you hear, but is that also due to the fact that analytics are nicely kicking in and, being an intensive software modules, are also benefiting the overall growth in operating margins?

Yes I think, Shaul, you're referring to the growth drivers that, generally, we see in our business, and when we look at Actionable Intelligence, we believe that customers are now more aware of the value that they can create by using insights that are gleaned from large data sets. So, obviously the amount and types of structure and unstructured data available to customers is growing rapidly, but presents increasing challenges and complexities, so they're looking for analytics and they're looking for big data analytics to help them to address those challenges and take advantage of the opportunities, and this is where we are well-positioned with our expanding portfolio.

So, analytics generally drive improving growth as well as improving margins, and what we saw in Q4 was basically a strong finish for the year where we were able to achieve strong operating results, $316 million of revenue, and $325 million if you include the impact of currencies, basically position us at the very high end or even above the range of the guidance that we provided.

Got it. And Dan, if I may, one additional question on the Security front, so you mentioned, I think, a handful of security orders $20 million, $15 million, a couple of $5 million Security orders, are those mostly government related or not?

Yes. The Security orders are predominantly government. We do have a mix of government as well as other public sector and some private sector Security orders, but our Security portfolio is more -- today, is more available to government, and as we announced, we're going to take our Cyber portfolio to the Enterprise market, but that's only going to kick in the second part of the year, so in terms of Cyber, it's government.

Got it. Okay, thank you and I will step aside, but I might come back later on for additional questions. Thank you for that and good luck guys.

Your next question comes Greg Dunham, Goldman Sachs.

Greg? Are you on mute? We can't hear you. Operator, maybe you want to go to the next caller.

(Operator Instructions)

Daniel Ives, FBR Capital Markets.

Can you just talk specifically about the security pipeline for the next 9 to 12 month, and how you factor that into guidance in terms of some of these large deals that may be seen in the pipeline?

In the security market, we have not just a pipeline of new customers but we also have many existing customers that we've been working with many years, and we have a strong brand, so when we look at giving guidance relative to the Security growth, we certainly look at our historical performance. We've been growing double digits in Security for many years now. We look at the trends in the market, which are strong. We look at, obviously, the Cyber Security offering, and we discussed on the prior call that we expect Cyber to double for us this year, so it was several tens of millions of dollars last year and we certainly expect, this being a very hot market, that we have the opportunity to double that.

Of course we have some large projects that we've announced that we execute over multiple fiscal years so we have more visibility into the performance and timeline of those projects, and the general sentiment from our customers, we believe that terrorism, criminal activity, cyber attacks, and other security threats, you know, combined with new and more complex security challenges are driving demand for the solutions that we have.

And then can you -- just given the success you guys have seen this year, maybe talk about how conversations are different now with customers relative to more of the suite versus even a year ago, and maybe anecdotally, you could just give us some insight. Thanks.

I think across our portfolio we see that customers prefer to buy multiple solutions from a single vendor and they also preferred those solutions to be more tightly integrated to provide unified workflows, and that trend is -- certainly within IT, there is a desire to buy platforms, and platforms that can be easily integrated into the existing IT infrastructure, but also the user, whether it's business user or security users, are looking for better productivity in terms of the analysis and how they use systems. And they can only get that productivity from buying suites and more tight integrations across multiple solutions. So, I think it's a general trend.

We are able to benefit from this trend as we increase our portfolio and we also increase our investment in the platform, so, for example, last year, we added 450 people in R&D. That's a tremendous commitment to R&D, and that's primarily to be able to broaden our portfolio, but also continue our efforts to advance the platform and create more integrated suites.

Thanks, guys.

Thanks, Daniel.

Nandan Amladi, Verint Systems.

Hi, thanks for taking my question. So, this is a broader question on the rationale for the earnings guidance on the OpEx side. Dan, you just mentioned you added 400 people in R&D, you're also planning to build out, I would imagine, an Enterprise-focused sales team as well, but given the natural hedge you discussed in the script, why is the earnings guidance not a little bit higher, considering that historically, you've delivered good operating margin leverage every year?

That's a good question. So, we discussed going -- the midpoint of our guidance we're growing 11% topline on a constant currency basis and we're growing less than that, although as we discussed, we are guiding to similar operating margins, so we'll be able to keep the margin similar to last year with operating expenses growing at the same rate as our topline, but we're not increasing it by the full 11% off the topline growth on a constant currency basis. And if you remember when Doug explained, we have a very good natural hedge that really protects our profits and cash flows from changes in the dollar, whether the dollar strengthens or weakens over the long run, we should not have impact to our cash flows.

However, because of the shekel hedge, as Doug mentioned, it's a 12-month rolling hedge, we have a delayed benefit from the shekel, and we're going to get that benefit from the shekel -- the fact that the shekel weakened is helping our expenses because we have, as Doug mentioned, 20% of our expenses in Israel, but that benefit is only going to kick in in the second half of the year. Now in the long run, if you look at next year, we're going to get the full benefit of the current exchange rate and that obviously will be the better hedge -- the natural hedge that we discussed before.

So, we think we have a mix of revenue and expenses that is making Verint pretty neutral to fluctuation of dollar and the impact on cash flows, but that's only partially affecting our operating margin this year.

Okay, fair enough. And then just a question on the Cyber for Enterprise, what sort of approach are you taking there to -- you know, you obviously have a significant reseller network on the Enterprise Intelligence portfolio, is there a plan to reuse that same sales force as well as channels for Cyber, or are you going to have to build out, essentially, an entirely parallel new channel?

I'd say it's a little bit of both. We discussed that we're unveiling the product in Las Vegas in June, that's going to be in our Enterprise User Conference, so we will demonstrate the Cyber product to our Enterprise customers and we will, obviously, expose you to our Enterprise sales force, and at the same time, we recognize that to be able to sell effectively the Cyber Threat Protection platform, we also need an overlay sales force that is experts in the cyber security domain, and we are in the process of building out that overlay sales force.

And by the way, just -- we have a similar situation in the Security market where we have sales force that is very well versed in selling Security products, but we also have a growing number of Cyber experts supporting the sales force in order to be more effective in competing on Cyber security budgets.

Great, thank you.

Sure, thanks.

Greg Dunham, Goldman Sachs.

Hi, yes, can you hear me?

We can hear you now, Greg.

Alright, sorry about earlier. Following up on Nandan's question on the Enterprise side or the Cyber side, can you help us kind of think about the profile of Enterprise customer that will likely adopt the Cyber solutions, do you expect these to be large, chunky deals or is this more of a volume play?

No, it's more of the larger side, the larger enterprises that are more concerned about advanced tech, so this is clearly a trend of not just a larger volume of attacks, but also more sophisticated attacks, and those are targeted and involve groups of people that are focused on trying to penetrate an organization. The larger customers -- the larger Enterprise customers will be the ones that will invest in protecting themselves against these types of threats first, so we don't think our offering is ready for the volume market or the midmarket, but it's really more toward the high-end of the market across Enterprise, Telecom, Critical Infrastructure, and also MSSPs, Minute Service Security Providers.

That makes sense, and I guess a follow up to that, would you expect people from the Security business that are selling to governments today, do you expect some of those to transition to the Enterprise role, or are these all going to be new salespeople to this Enterprise role? How do you manage that?

Yes, no, we certainly see a transition and we certainly -- we also see when it comes to the advance attacks, we see also more corporation within Enterprise and governments across the world, as Enterprise are looking for governments to help them to address the more sophisticated attacks. Some of these attacks sometimes come from other countries, so it's an interesting evolution here, where the whole area of Enterprise and government is blurred, both from a customer's perspective, as well as of course from our perspective, we are -- we're going to leverage people with big Security experience in the government market to go and help customers -- Enterprise customers to deal with more sophisticated attacks.

That make sense, one last one for Doug. Following up on the shekel and the fact that you're growing hedge, is there any way you can quantify the dollar benefit that you're getting in all of FY16? I know it's only in the second half but are we talking $10 million benefit, $20 million benefit, how should we think about that in FY16 from the shekel move?

I guess one way that we looked at it is if we hadn't hedged shekel, given where the shekel is right now, what kind of benefit would have that given us in the year, and it is about $10 million. We'll start to get that benefit next year, towards the latter half of the year when the shekel did weaken and we locked in those rates, and it will continue into next year

Okay, thanks.

Paul Coster, Morgan Stanley.

JPMorgan. Thank you for taking the question. Quick one, first of all, on the Cyber Security product family, what kind of revenues did you do in 2014, what do you expect in 2015, and what kind of growth rate should we anticipate?

Yes, so we had several tens of millions of dollars of Cyber revenues last year, and we expect to double that this year, and also to build a foundation for further growth in subsequent years. So you can assume that this year in FY16, our cyber business will be sub $100 million, but with high growth rates and as we expand to the Enterprise market, which is planned for the second half of the year, we expect some contribution for revenue, not much this year, mostly kicking in next year.

Thanks, is there any way of sort of positioning this Enterprise product versus competitive products, can you give us some sense of whom you think you might be competing with?

We would be competing with point solutions that are in the category of lean-forward technologies so it's companies that have advanced detection engines. Our approach, as we discussed in the past and we will obviously be able to demonstrate that in June for those of you who can join us, will be the benefit of integrating multiple point solutions into a platform that has unified workflows and have analytics based on machine learning that can help investigators be more productive.

One of the issues that we hear from customers is that they have lots of reported incidents, you know, the point solutions are providing a lot of alerts, but they're only able to investigate a very, very small percentage of the incidents that they are aware of. So the whole issue of how to improve the detection, but also how to improve the productivity of analysts, and make them able to investigate the right incidents, prioritize the incidents, and also there's a shortage of cyber analysts in the market, so providing automated tools and machine learning for analysts to be more effective in prioritizing and investigating incidents, these are all Actionable Intelligence techniques that we've been using for many years, and we're going to be offering them to the Enterprise market.

We discussed the fact that our government product was a very large-scale offering that we solve for tens of millions of dollars, and we basically are scaling down these capabilities to Enterprise customers, so the ASP will be lower, but we'd also provide some of the same very same benefits to Cyber analysts working for Enterprise customers.

Two last questions, I apologize for this, will there be a proprietary link between the Enterprise products and -- well, handshake, let's say, to new Enterprise products in the sort of network hosted government Security side of the solution, and secondly, why did you have such strong growth in EMEA in this fourth quarter?

For the first question, the answer is yes, we see the Enterprise product as a derivative of the network monitoring product, and hopefully we'll have customers that will benefit from the links that we created. In terms of EMEA, so the strength in EMEA last year, I think it's attributed, one, to the fact that KANA had presence in EMEA, so some of it is inorganic, but even when we look at KANA in both years, EMEA at strong double-digits last year, and we actually expect the strength in EMEA to continue, and we believe we'll have double-digit growth built into the guidance for this year.

It's across-the-board, but I think it's also very clear in the Security business that we have strength in EMEA, and you may remember that we had a number of years where EMEA was not spending, at least with Verint, on the Security project, and we said this must be temporary and at some point EMEA government customers will turn back to investing in Security, and I think that the threats, the security threats in EMEA, with some of the events there certainly bring Security back to the agenda and we see strength last year and we expect strength this year.

Thank you.

Michael Nemeroff, Credit Suisse.

Hey guys, nice quarter, thanks for taking my questions. Dan, I'm just a little confused on the go to market strategy on the new Enterprise Cyber Security product. You're launching it at the Enterprise Conference, which is mostly focused on call center in June, and I'm just trying to understand, do you expect that the call center people are going to bring it back into the organization or look at it and tell the other people that are focused on Security that they should look at this and buy it?

And then, it's unclear -- so you're repurposing -- it sounds like you said that you're repurposing some public sector Security salespeople and going to focus them on the Enterprise market, but in addition to that, are you hiring Enterprise focused salespeople, and where are you going to do the bulk of the market? I'm just trying to understand how you're going to go to market with this when it comes out in a couple quarters, and I know it's early.

Yes, no, very good question. So first, we already have questions from our Enterprise customers that are focused on customer engagement asking about our Cyber Security offering, and that's very often a discussion when we meet with C-level executives, whether it's within IT or outside of IT in operations, but this customer base, and you know that we have more than 80% of the Fortune 500 companies, that the C-level executives within our customer base are very aware of the cyber threats and are very interested in what we have to offer.

So the choice to unveil it in our Enterprise User Conference is not because we expect that, you know, our customers are going to come with the checkbook, but it's a good place to introduce and get some more feedback from our customers to the product, and we will showcase the product and allow them to look at the product and ask questions, and I think we're going to learn a lot.

To your more general questions, relative to go to market strategy, we are targeting the high end of the market, as I discussed large banks, critical infrastructure, telcos, and MSSPs, and our approach will be much more targeted. We don't need to go across the market, we need to go after targeted customer base, it's going to be a global approach so we can do some in the US but certainly in many other countries, and it's going to be mostly direct, so we expect direct sales force which partially we are relying on our existing sales force, and partially will be through an overlay, and through partnership with integrators.

So integrators in many cases, I'm talking about large integrators, in some cases they are competitors and they try to integrate point solutions, but in many cases they are partners because we provide them a platform that is already more integrated than they can do on their own.

Can you give us a sense for how many people you're going to put into this bucket, I mean the Security market in general is a very large market and there's a lot of formidable competitors in the market, how many people are you going to dedicate towards the Cyber Security Enterprise market, because it sounds like this is a pretty large opportunity?

Yes. We're going to -- we're hiring and continue to hire in stages. Obviously we are guiding to similar margin profile, so we are investing in Cyber but we're minded to the level of investment we can afford within our margin profile. We expect -- we have 700 people over the Company that are involved in Cyber, not all of them are dedicated but in terms of salesforce, I expect we'll fill the sales force to have several dozen people that are focused on the Cyber opportunity.

Okay that's helpful, and then switching gears to the Enterprise side of the business, you know, strong quarter organically, could you tell us or Doug, could you tell us what the contribution from KANA was in the quarter? And then Dan, organically, how fast should we expect the Enterprise segment to grow in FY16, approximately, not hard and fast but is it a mid single-digit grower or is it high single double digits? Just give us a sense for that, if you would please.

Yes, so as we mentioned last year, the Business grew double-digit more than 10% with KANA included in both periods. We now provided the guidance at the midpoint of 11% and within this 11% guidance, we expect Enterprise to grow a little bit less than 11% and Security a little bit more than 11%.

That's great. Lastly, my last question for Doug, as it relates to the guidance, there's been some questions on the EPS and why it wasn't as strong a number, you know, in years past you've guided relatively conservatively in Q1 and then ratcheted that up, is your expectation -- has anything changed in the approach to guidance this year versus the last couple of years?

Yes, no, I don't think so, Michael. You know, Q1 is always a smaller quarter for us and, you know, coming off a very strong Q4 this year, we've got lighter revenues just due to seasonality and some crunch on the topline from foreign exchange as well, you know we've had significant movement, about 3% just from the December call that we last did.

With the shekel hedge, as we discussed earlier, that's kind of locking in a good 20% of our expenses, so we don't get that benefit. So it's a little bit of a shorter-term currency impact on top of a seasonality that we had in Q1.

That's great. Thanks for taking my questions, nice quarter guys.

Okay, thanks Michael.

Jonathan Ho, William Blair.

Just wanted to start out with the currency side. Could you give us maybe a rule of thumb, in terms of how to think about the exchange rates and perhaps what your current guidance assumes around both the shekel and the Euro and the pound in terms of those exchange rates?

Okay so first we included in our press release a new table, table 6 that helps investors to understand some of the way we discuss constant currency and the finish and so forth. But first very clear, in terms of guidance we'll provide today, the guidance is based on current rates. So, we are not trying to predict what rates will be during the year.

What we do on a constant currency basis in order to facilitate for investors to understand the growth rates, we take the change in current rates from last year average rates and that exchange 5%, that's an impact of 5%. You should also be aware, if you look at the specific rates, that the movement wasn't really equal throughout the year, so we expect 6.5% impact in the first half of this year and then coming down in the second half. But it is 5% based on current rates as of now.

Great, that's very helpful. And then just in terms of your assumptions for the government portion of your Cyber business, I'm just curious to see if you guys could maybe help us quantify, you know, what that interest level looks like in terms of these customers that can spend tens of millions of dollars. Are you seeing the potential market as being hundreds of these types of customers, thousands of these types of customers, I'm just sort of curious how you guys think about that market opportunity and how you're sort of going after those government customers today?

Yes. We think that the government market is in a very early stage globally, there's a lot of countries that are talking openly about their desire to provide national security framework to help protect the country, but we believe that in many countries they're still in the planning stages, so we have a very differentiated solution.

We are much more differentiated on the government side based on the deep expertise in Actionable Intelligence and our ability to work with large-scale networks, and for those customers who are ready, we present a great opportunity. But in terms of the size, we believe that countries over time will invest in this area, but we also believe that right now, very early, and only a few countries are buying the most sophisticated solutions.

Got it. Thank you.

Dan Bergstrom, RBC Capital Markets.

Thanks for taking my question. Dan, on the last conference call you mentioned that the Video business should grow next year. I know you're transitioning away from the hardware product, does that still look to be the case here?

Yes, I think so. I think the position is going well, we are not just transitioning away from the hardware, but at the same time we made a strategic decision to transition from Video Surveillance to Fraud Risk and Compliance solutions, and we believe that that's where the benefit of analytics really provides value to customers.

In a Video Surveillance market, the Video products became commoditized and customers generally did not see value from analytics, and a lot of companies that were focused on analytics didn't do well, but as we transition to the Fraud Risk and Compliance, we are able to fuse Video with other data sources and provide analytics that can address fraud effectively and ensure compliance, reduce risk. So, we believe that our transition is going well, that we declined in Video last year but we expect it to be flat and start to grow into the future.

Thank you.

Jeff Kessler, Imperial Capital.

Yes, thank you for taking my question. With regard to your analytics solutions beyond customer care and beyond workforce management, what horizontal functions -- what horizontal areas, what functionalities are you seeing your commercial customers begin to take that are expanded beyond just the workforce and customer care area?

I think that the traditional CRM, Customer Relations Management, which is an industry that exists for many years, is certainly changing with analytics. The Enterprise customers are basically -- need to address evolving customer expectations, evolving employee expectations, and also they want to become more customer-centric, and all of that is basically down to analytics and their ability to understand the data.

So with the solutions that we are introducing to the market, they help our customers to enrich customer interactions, to improve business processes, as well as to optimize the workforce, and that's all to achieve strategic objective, and clearly, organizations now, they look at customer care as not just responding to customers when they want help, but engaging customers in order to maximize strategic opportunities.

And what about overall business process improvement, making the Enterprise itself more efficient?

So we actually -- one of the reasons we acquired KANA is, we got from KANA, elements such as case management and knowledge management which are exactly in the business process area but, you know, we are combining those elements with analytics so that business process is not going to be just based on inventing a new process and hoping that it works, but actually being able to measure how the -- how effective the process is based on real-time data and real-time analytics that is being generated from the business.

So business process is absolutely part of enterprises being more effective, but they need to upgrade the business process with the legacy business process tools with analytical tools that help them to really change this process or ensure that employees follow the business process in order to make sure that they actually have an effective approach.

Okay, one quick question on SNB and SaaS, can you just elaborate a little bit on your quick comments you made earlier on how that's growing, and where you see the earliest opportunities, and how long will, essentially, the rollout of this business take?

SaaS grew double-digits last year for us, and our approach is to provide customers with flexibility. So, we like our customers to choose between SaaS on-prem or hybrid, and I think that customer flexibility is important because many customers do prefer on-prem for data security reasons or other reasons, and what other customers prefer hybrid and so forth. Where we see most of the traction with SaaS is actually in the midmarket.

So, at the very high-end of the market, we've been doing very well for many years, we're announcing large deals every quarter, we actually had more than 100 million dollar deals last year, so we're clearly well positioned in the large Enterprise and Security customer base. But in terms of the midmarket, the SaaS platform provides us a great access to market, because we did not want to develop a direct sales force, we did not think that's an effective way to go after the midmarket, and SaaS is allowing us to bundle our product with other products and offer them in the cloud, through SaaS Partners, so this is an incremental opportunity, and I think one of the drivers of our double-digit growth in SaaS.

Okay, thank you very much

Okay, thank you.

There are no further questions, thank you. I'll hand it back over to you, Alan Roden.

Thank you, operator. Before finishing the call, I'd like to provide some more details for Investor Day. Our Investor Day will be held on June 9 in Las Vegas. The event will be held at our annual Enterprise User Conference, which will give investors not only to hear directly from Verint Management, but also from Verint's customers.

As Dan mentioned earlier, the event will include product demos, including a demo of our new Cyber Advanced Threat Protection solution, which will be launched at the event. If you're interested in attending the event, you can register at our website under the investor relations tab. So thank you for joining tonight, and we'll talk to you on our next call. Have a good night.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a good day.