Verint Systems Inc (VRNT) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Verint Systems Inc. Q1 earnings conference call.

(Operator instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Alan Roden, Senior Vice President of Corporate Development. Sir, you may begin.

Thank you, operator. Good afternoon and thank you for joining our conference call today. I am here with Dan Bodner, Verint's CEO and President, and Doug Robinson, Verint's CFO.

By now you should have seen a copy of our press release that includes selected financial information for our first quarter ended April 30, 2016. Our Form 10-Q will be filed shortly. Each of our SEC filings and earnings press releases is available under the Investor Relations link on our website and also on the SEC website.

Before starting the call, I would like to draw your attention to the fact that certain matters discussed in 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 and/or implied by the forward-looking statements. The forward-looking statements are made as of the date of this call and except as required by law, Verint assumes no obligation to update or revise them. Investors are not cautioned not to place undue reliance on these forward-looking statements.

For a more detailed discussion on 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, 2016, and other filings we make with the SEC. The financial measures discussed today are primarily non-GAAP, as we believe investors focus on those measures in comparing results between periods among our peer companies. Please see today's earnings releases for a reconciliation of non-GAAP financial measures to GAAP measures for the current period, as well as in the Investor Relations section of our website for a reconciliation for both current and prior periods.

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 information on comparative purposes. The non-GAAP financial measures the Company uses have limitations and may differ from other 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 today.

We are pleased to report that in Q1 we delivered $251 million of non-GAAP revenue on a constant currency basis and $0.46 of diluted non-GAAP earnings per share. Verint has a long history of strong growth and historically we experience similar levels of growth in both the enterprise and security markets. As we discussed in our last conference call, this year we expect another year of growth in enterprise and a temporary decline in securities. The first-quarter results were consistent with these expectations. Given this dynamic, we will discuss enterprise and security separately today.

Starting with enterprise intelligence, we are pleased to have achieved $157 million of revenue on a constant currency basis, representing 6.5% year-over-year growth. Also we would like to report that we have largely completed the go-to-market adjustments we discussed on our prior calls, designed to reduce our dependency on large [consormative] deals that require longer sales cycles.

Here are the adjustments we completed. The first adjustment is relative to how we market output volume. Recognizing that enterprises are transforming their customer engagement operations at different rates, we are highlighting to the market that our portfolio of best-of-breed solutions is modular and can be deployed over time based on the customer's specific objectives.

The second adjustment is with respect to our customer discovery process. Our sales force continues to work closely with our customers to develop long-term customer engagement of innovation strategies. At the same time, we are focusing more on identifying near-term priorities and budgets with the goal of shortening sales and approval cycles. The third and last adjustment is with respect to our sales commissions plan. In Q1 we implemented new plans designed to make our sales force more neutral and incentivize them to do what is best for the customer. We are pleased to have largely completed this adjustment in Q1, and would now like to provide an update on other parts of our go-to-market strategy, starting with our cloud strategy.

Over the last five years, Verint has gradually introduced cloud-ready applications to the market and we have grown our cloud customer base to over 100,000 active cloud deployments. Following this investment, we recently announced that our entire customer engagement optimization portfolio is now available fully in the cloud, fully on premises, as well as in a hybrid model.

Verint is a leader in the large enterprise market with a customer base that includes over 80% of the Fortune 100. Historically, large enterprises have deployed our type solution on premises. Looking forward with our hybrid model, large enterprises can select which applications they want to deploy on premises or in the cloud while laying the foundation to gradually evolve to a full cloud deployment over time if they desire.

We believe that our strategy of flexible deployment models is differentiated in the market and during the quarter we received orders that illustrate why this flexibility is important to our customers. The first example is a deal that started as a cloud opportunity and ended up as an on-premises deployment. This new customer was initially planning on deploying multiple components of our portfolio in the cloud, but subsequently requested a proposal for an on-premises deployment.

Ultimately, for both economic and operational reasons, the customer decided to deploy our solutions on premises. Customers like this one like the fact that we are able to provide them with proposals for both types of deployment models, help them understand the pros and cons of each and ultimately give them the flexibility to select the best alternative for their specific needs.

The second example is a cloud deployment. This new customer in the financial services sector is deploying our Voice of the Customer Analytics in the cloud to more effectively measure and improve customer experience satisfaction and loyalty. This customer is benefiting from the quicker implementation of our cloud offering, reduced upfront capital expenditures, as well as reduced ongoing internal IT support requirements.

The third example is a hybrid deployment. This existing customer is in the retail vertical and is expanding its deployment of Verint's portfolio via hybrid model with certain applications being deployed in the cloud, while other components of our portfolio are being deployed on premises. This competitive win is a great example of the power of our broad portfolio and flexible deployment model.

The customer previously had engagement management applications from Verint and workforce optimization applications from another vendor. The customer liked the fact that they could deploy a customer engagement optimization suite from a single vendor, as well as have the ability to deploy certain applications in the cloud and certain applications on premises. Other vendors could not effectively compete with us as their portfolios were not as broad and their deployment models not as flexible.

Next I would like to discuss our partner strategy. Our cloud strategy resonates well with existing and prospective partners. Verint solutions are offered directly by Verint, as well as through a broad set of partners that OEM or resell our solution in the cloud or on premises. We have invested in our indirect channel over many years and our partners know that they can rely on Verint for best-of-breed solutions, as well as our reputation for strong partner support. We believe that our cloud experience, including with multi-tenet and private cloud deployments, has positioned Verint as the industry's leading partner for customer engagement optimizations in the cloud.

Today, as a result of years of cloud investment, we have many partnerships, including with 40 cloud infrastructure vendors and we continue to invest to expand and extend our partner program. Overall we are pleased with our first-quarter enterprise results and believe we are well positioned for growth, driven by a our broad portfolio, flexible cloud deployment models and extensive partner network.

I would now like to turn the security intelligence. As we discussed on our last conference call, after many years of strong growth, this year we expect a temporary decline and our first-quarter revenue of $94 million on a constant currency basis was consisted with this expectation. Long term, we believe that the economics in the security intelligence market will remain positive as crime and terror continue around the world and government customers continue to face new technological challenges requiring sophisticated solutions.

Verint's long history of market leadership in the security market was driven by our ability to identify customer challenges early and invest to bring to market innovative solutions to help our customers address these challenges. Our plan this year is to continue investing to expand our security portfolio so that we are well positioned to return to growth when the environment improves. Our investments this year are focused on expanding our capabilities across our portfolio, including cyber intelligence, cyber security, and situational awareness. We will also maintain our broad geographical coverage across emerging and developed markets.

During the quarter we received several large orders that reflect demand for our solutions and our ability to help organizations address both traditional and evolving security threats. These large orders include an expansion order in excess of $20 million, another order from an existing customer in excess of $50 million this year, as well as several multi-million dollar orders from new customers.

While we are pleased with these large orders, it is too early report a changing trend in emerging markets and we continue to expect a 10% to 15% decline in security for the year. Longer term, we believe that the emerging market headwinds we are facing are temporary. The need for security intelligence globally remains strong. We are well positioned for long-term growth with our expanding portfolio and large global customer base.

Turning to our annual guidance, we are pleased with the progress we made in Q1 and are maintaining our expectations for the year, with revenue growth in enterprise and a temporary decline in security. We're also maintaining our investment levels and will continue with selective hiring to support long-term growth. Longer term, we expect security to resume growth and the investments we have made to drive margin expansion over time.

Now let me turn the call over to Doug.

Thanks, Dan. Good afternoon, everyone.

Most of our discussion today will focus on non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available, as Alan mentioned, in our earnings release and in the IR section of our website. Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition-related intangibles, certain other acquisition-related expenses, stock-based compensation, as well as certain other non-cash or nonrecurring charges. For certain metrics it also includes adjustments related to foreign exchange rates.

I will start my discussion today with the areas of revenue, gross margin and operating margin. In the first quarter, we generated $249 million of revenue, or $251 million on a constant currency basis, with $156 million in enterprise intelligence and $93 million in security intelligence, of which $67 million was in cyber and $26 million was in video. This compares to $270 million of total revenue in the first quarter of the prior year, with $147 million in enterprise, $92 million in cyber and $31 million in video.

In terms of geography, in Q1 we generated $139 million in the Americas, $73 million in EMEA, and $37 million in APAC. This compares to $138 million in the Americas, $82 million in EMEA, and $50 million in APAC in the fourth quarter of prior year.

Q1 gross margins were 64.1%. As we discussed in the past, due to product, services and revenue mix within our cross segments, overall gross margins can fluctuate significantly from period to period. For the full year we expect gross margins similar to last year. During the first quarter we generated operating income of $34.8 million, with an operating margin of 14%. As in prior years we expect operating margins to increase sequentially throughout the year, commensurate with revenue growth. Our adjusted EBITDA for the quarter came in at $41.9 million, or 16.8% of revenue.

Now let's turn to other income and interest expense. In the first quarter other expense net totaled $1.4 million, reflecting $6 million of interest expense in a $4.6 million gain from foreign exchange, driven primarily by inter-company balance sheet translations. Our cash tax rate was 8.9%. As we have 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. For the quarter we had 62.9 million average diluted shares outstanding. These results drove diluted EPS of $0.46 for Q1.

Now turning to the balance sheet, as of April 30, 2016, we had $383 million of cash and short-term investments, including restricted cash. Cash flow from operations on a GAAP basis came in at $62 million. During the quarter we repurchased 500,000 shares for approximately $17 million as part of our previously announced share repurchase program. We ended the quarter with net debt of $429 million, excluding discounts and issuance costs primarily associated with our convertible debt.

Before moving to Q&A, I would like to discuss our guidance for the year ending January 31, 2017. As discussed previously, we continue to see different near-term growth dynamics in enterprise and security. In our enterprise segment, we expect mid- to high-single-digit revenue growth for the year. In our security segments, we expect an annual decline in revenue of between 10% to 15%. Overall we expect total revenue to be similar to the prior year, plus or minus 2%. We expect to deliver operating margins of between 21% and 22%, similar to last year, as we continue to invest in both enterprise and security to be well positioned to return to growth in security with the emerging market environment improves.

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 future gains or losses related to balance sheet translations in our future results, which is not included in our guidance. We expect our non-GAAP cash tax rate to be approximately 9% for the year, reflecting the amount of taxes we expect to pay this year. Based on these assumptions and assuming approximately 63.3 million average diluted shares outstanding for the year, we expect diluted earnings per share at the midpoint of our revenue guidance to be similar to last year, excluding any future impact from our share repurchase program.

Given the separate dynamics in enterprise and security, in addition to our annual guidance we would like to provide you with some additional color for our second quarter. For modeling purposes, in Q2 you can assume revenue in the range of $255 million to $275 million, with sequential increases in both enterprise intelligence and security intelligence. You can also assume gross margins and operating expenses in Q2 will be similar to Q1, diving a sequential improvement in operating margin.

In conclusion, we are pleased to have returned to growth in enterprise intelligence in Q1 and believe longer term we are well positioned for growth in both enterprise and security.

This concludes my prepared remarks. With that, operator, can we open up the lines for questions?

Thank you.

(Operator instructions)

Shaul Eyal, Oppenheimer.

Thank you. Hi, good afternoon. Dan, back in the third quarter, if I'm not mistaken, you signed an agreements with two MSSPs on the enterprise security front. If I'm not mistaken, one was US based. The other was outside, I think APAC. Can you talk to us how that has been developing so far, part of your safe strategy?

Yes.

These two partnerships were in the context of our enterprise cyber security. In Q3 last year, we announced that we intend to take the product that we developed for government customers to the enterprise market as well, and that in that context we intend to bring the product directly and through partners and [MSS business] with our part of the indirect approach that we take into markets. Since that time, since Q3 last year, we have built a small enterprise sales force. We discussed the fact that this is a separate sales force focused on enterprise customers. We also mentioned that we are limiting our investments at this point to about five countries, give or take, around the world so we're not taking it globally all at once, and that we are planning to enter into partnership with cyber security channels as well as MSS business channels.

Overall, in Q1 we saw an increase in activity in enterprise cyber security. We sold a of couple of deals. We continue to work with our channels to develop the market. We do expect this year to be a growth year in enterprise security, but -- enterprise cyber security, but it's still obviously very small numbers, and we still continue to consider investing more into the enterprise cyber market over time.

Got it. Fair enough.

Switching to the other side of the equation, so over the course of the past three weeks, one of your cloud-related resellers on a call center front was acquired by a competitor of yours. What is your view on those potential relations going forward?

I think we should understand that in the context of our overall partner program, we have a very large and diversified set of partners. Actually, 50%, give or take, of our revenue overall coming from partners, so we have many years of working through partners. Specifically in enterprise, we have strong reputations for being very partner friendly and supporting our partners very well without channel conflicts. Some of our partners are resell our solutions on premises and some sell them in the cloud. Some of our partners are focused on enterprise customers. Others focus on the SMB markets or small to medium businesses and we also have partners actually service both the enterprise and SMB markets, so a very diversified partner program that we carry for many years.

Our strategy overall in enterprise intelligence is in the high-end enterprise market we sell both directly and through many partners. In the SMB market, we chose to service the SMB market and sell only through partners, so it's a pure indirect approach to the SMB market. inContact specifically, the relationship with the cloud infrastructure vendor that we announced several years ago and it was designed for us to service the SMB market.

As I mentioned before, we have now 40 partners in total that are focused predominately on the same thing, which is cloud infrastructures for the SMB market. And as you know the SMB market is highly diversified and fragmented and there are many companies going after this opportunity. Because we sell the SMB market only through partners, we do not have any channel conflict with any of these partners and we have very strong experience in supporting multi-tenet. That goes also back to my comment on the cloud strategy. Our multi-tenant support is also very important for this SMB cloud vendors that always benefit from lower cost of multi-tenet strategy.

Overall, we feel that we have a very strong strategy for partners, and specifically cloud partners, and then specifically to the impact of the acquisition of inContact, so we do expect that the relationship will wind down over time, but we also expect that other partners will see our best position with no channel conflict and will join a partner program and will wind up. In terms of impact on the revenue this year, there could be a small negative impact, but also there could be an upside from other partners and it's really too soon for us to tell. Overall, I think we are enabling many partners in this highly fragmented SMB market and we believe that we give them best-of-breed customer engagement solutions and we also give them the ability to work with a partner that have no channel conflicts.

Got it. So pretty much net-net neutral. Maybe inContact fades away gradually, but as you said, some other partnerships and relations take off or continue to increase.

Yes.

Fair enough. Thank you very much for this color. I appreciate it.

Jonathan Ho, William Blair.

Hello. I wanted to start out with you guidance and some of the commentary that you had around the second quarter. It seems like the year is going to end up potentially a bit more backend loaded, at least based on my calculations, between what on half and two half, based on the revenue. I just want to understand the dynamics that you are seeing there and what may be driving that and perhaps why you have confidence around that second-half strength.

I will ask Doug to give you some more numbers, but we do see different dynamics in enterprise and security, as you all know, which is obviously, we think it's temporary. We also see a difference and the H1/H2 mix between enterprise and security, so I think Doug can give you some more color on that.

Okay, sure. We do see different dynamic.

We see sequential revenue growth in both segments throughout the remaining three quarters. In enterprise, we see first-half revenue coming in proportional to what we have done in the past, like 48%, 52% in terms of first-half/second-half, similar to the usual seasonality we have there with a little stronger Q4 in particular and a smaller Q1.

On the security side, we have seen that being down. We guided 10% to 15% being down. You saw where we came in, in Q1 but we expect with Q2 that will probably give us about 44% of what we expect for the year, so 56% in the second half. We are looking at a bigger second half on the year. Really no change in the view we've had, but it's really the way we see the timing of the deals in our pipeline.

Right. I'd like to add this is no different than what we expected when we started the year and we looked at where we are with the pipeline and the timing of deals in security so this 44%/56% mix is not a new development.

Got it. Thanks for the color.

In terms of your confidence level around security picking up next year, could you maybe walk through what you see driving that change and what gives you that confidence right now in terms of the pipeline picking up in 2018?

Yes.

As we mentioned before, we have received two large orders, $20 million, $50 million and several multi-million dollar orders security, which is obviously encouraging, because in the security business we used to see large deals every quarter for many, many years and of course last year we started to report that because what we see as emerging market weakness and budget pressure, we saw fewer large orders. At the same time, I caution people not to read too much into these large orders in the first quarter because it is not a trend yet and we need to see more of these large orders coming in on order for us to feel better about the EM market recovery.

Again, we do believe in the recovery. We have conversations, ongoing conversations with customers. There's clearly a need. Customers are sharing very clear requirements they have as a result of emerging security needs and emerging technologies. We are very confident that the need is there and we are also pretty confident that the type of solutions we have. In our discussions with customers, we do see the customers react very well. So we believe we have the right solutions for these customers. I believe the two large deals do provide confidence that the varying solutions are of high quality and that customers still see that we are on top of the challenges that they are trying to address.

With all of that, the confidence in H2, again, is not related to the development specifically in Q1. But just as we look at the pipeline, we saw certain deals that are scheduled to be awarded later in the year and that is where we see the basis for projecting stronger second half in security than first half.

Great. Thank you.

Sure.

Michael Nemeroff, Credit Suisse.

Hi, this is Kyle Chen sitting in for Michael Nemeroff. Thanks for taking the question.

Doug, to start with you, relative to the cloud availability for the customer engagement optimization products, can you discuss any planned changes to your sales organization and how you're planning on incentivizing the salespeople to sell the cloud applications? Are you planning on steering business to the cloud over on premise or just offering optionality to customers? For Doug, will you need to adjust your revenue forecast considering the change in revrec for the cloud deployments, or is that already factored into your outlook?

In terms of the sales force, the sales force is the same sales force for the various delivery models. We have changed our commission plans to have them be neutral, so our sales guys more look at what the customer wants. We often times quote on premises and hybrid and cloud quotes all with the same deal and really let the customer choose what model works best for them.

In terms of the revenue impact to that, we have seen some increase in the amount of cloud revenues we have. We expect at the end of this year probably to have around 60% or so be recurring revenues. We do not see anything dramatic there. It is more of an evolutionary build as customers take on a little bit more of the cloud solutions than they have in the past.

Let me expand on Doug's answer. I think it's important to understand that we have been offering cloud solutions to the market for the last five years. We already have more than a thousand active customers in the cloud. And as Doug mentioned, and I will expand on that, we already have 60% of our revenue is recurring revenue coming from ratable sources such as private cloud, public cloud, support and managed services. What we announced now is really the completion of our solutions being all available in the cloud, but also all available on premises and in hybrid model.

The intention behind this strategy is to really be totally neutral in terms of customer selection. It's not just net the sales force being neutral, their commission plan, but it is also Verint overall wants to be a trusted advisor and help customers make the right decision in their specific environment. If a customers may have different needs in terms of their privacy, security, IT infrastructure or CapEx/OpEx type of investments, so we really found the enterprise market to have strong preference toward high flexibility in the hybrid model. That is how we're going to drive the cloud strategy going forward.

So as we look at where we are now, all the solutions are available in the cloud. We have also developed a host of capabilities so we can deliver our solution to the cloud. It's not just we deliver through partners, but we also deliver ourselves and using third-party data centers as needed. This provides us the ability to be neutral for customers.

60% of our revenue is recurring revenue this year. That's what we expect for the year, and we believe that this level is not too far from other vendors that also have hybrid offerings, and they report recurring revenue in the 60%s. Overall I think the importance of this milestone is that we reached a point where we can be neutral and we reached a level of recurring revenue that is consistent with other companies that have hybrid models.

Okay. Thanks for the color, I appreciate it.

One more item for Doug. Can you tell us what was the revenue contribution in the quarter from Contact Solutions and Intelligent and what are your expectations for each for the year?

Intelligent we did last year. Small, more just product oriented and Contact Solutions similar, small maybe a few million in the quarter, but really small contribution.

To just clarify that we see part of our land-and-expand strategy, we are expanding our portfolio and when we see opportunities for tuck-in acquisitions that can provide us capabilities, obviously that supports our overall strategy. Intelligent brought us communities and Contact Solutions bring to us the contextual self-service capabilities. In terms of providing some metrics regarding companies that the tuck-in acquisitions we do, we generally just focus on the technology and how to bring this technology into our portfolio. Of course, when we do a larger acquisition then we provide a complete breakdown of revenue and gross margin and profit, but it is really not applicable in this case.

Got it. I appreciate the color. Thanks.

Sure.

Jeff Kessler, Imperial Capital.

Thank you. As you build your neutral model and you are getting orders from both hybrid, on premises and cloud, are you seeing certain types of applications that are more applicable to the cloud, certain types of applications that are being kept on premises more or and/or other applications that are staying -- that are becoming hybrid?

We actually do. We would like to leave the decision at the end to the customer and we're not pushing any application in any different way. Because again, different customers have different environments.

Generally, I would say that recording, because recording has a lot of data privacy issues, a lot of customers tend to prefer to still do it on premise, especially financial services customers. Perhaps in other industries they are less sensitive to the data privacy. When we sell our analytics solutions, customers are generally more comfortable delivering analytics or deploying analytics in the cloud.

Again, the beauty of the hybrid model is that a customer can have the recording and the storage sitting on premise while some of their analytics is going on in the cloud. So they can mix and match different solutions based on, again, their security portfolio, their IT profile and their investment profile of CapEx and OpEx.

Over time, I am sure that enterprise customers will change their preferences. We see, for example, enterprise customers are getting more double with private cloud than public cloud. It's still in the cloud, but they have more control over security in the private cloud.

So, yes, different solutions have different preferences, but we see that as an ongoing change, and we would like to be in a position to advise our customers what is right for them, and not just generally what is the trend in the industry because, again, each customer has a different set of requirements and environments.

A follow-up to that is while analytics had some rough years in terms of maybe over promising a few years ago, it seems that they are reaching a maturation point -- not a maturation point, but let's call it an inflection point now. What are you seeing in analytics that are improving your ability to do things like situational awareness and/or surveillance, or for that matter, using those types of government-related applications to provide them to the enterprise? How are analytics improving to hit both the government and surveillance side, as well as the enterprise side, if they are?

That's a very good question, because you are right. Analytics, when it's on its own, seems like it was over promising and under delivering. What we did -- and that's not new, we started to do this many years back, is we decided to imbed analytics in our operational software. We have a lot of different unstructured analytics, voice-only, video-only, specs analytics, predictive analytics. There's a lot of different engines that are targeted for specific behavior analytics.

What really is working well is when the analytics engine is embedded into a workflow and it is supporting a specific need or a specific use case of customers' rather than being sold as a generic capability to analyze unstructured data. We have embedded analytics everywhere. That's the term we use that the Verint portfolio of analytics everywhere, and you can buy a lot of different modules from Verint and analytics is not going to be a separate price line. It is really going to be embedded within that specific module.

So the sales force will be selling that as part of the package, not as an additional or standalone part?

As a part of a use case. It could be packaged with a bundle that could include several modules, or even a specific best-of-breed solution that analytics will be embedded in making that use case more effective.

Great. Thank you very much.

Thank you.

Nandan Amladi, Deutsche Bank.

Thanks for taking my question.

Dan, on the last earnings call had you talked about redirecting some of your security resources to the more developed markets because the emerging markets hadn't come up to your expectations. As you are doing that, how are you balancing moving those resources to grow, building the developed markets while still hopefully maintaining some level of pipeline monitoring in the emerging markets, so when the demand does come back you will be ready to close some of those deals?

What we discussed in the last call is the fact that our security business is approximately 50% from DM, developed market, and 50% from EM, emerging market. We have presence of both types of markets and it is equal, equally contributing to our revenue over the last few years. We also discussed the fact that when we looked at the last three, four years, the growth that we had in emerging markets was faster than DM. That faster growth in EM basically caused us to invest more in EM country, develop a relationship and be well positioned with many, many customers in EM countries.

It is important for us at this point to emphasize that what we see as an EM weakness is temporary. We do believe that EM countries have serious security challenges. They are not going away. They will eventually need to spend the money in order to buy technology to deal with these security challenges. We're not taking away resources from EM and shifting them to DM. We are keeping the DM resources focused on DM customers and we're keeping the EM resources focused on EM customers. That is why we basically told the market that we want to maintain the investment levels.

Obviously, in DM we are expecting this year to be small growth, similar to what we saw in prior years. In EM, we are expecting a big decline. Again, this decline is temporary. We do not want people to take away that we are shifting away from EM. We are well positioned to resume growth in EM once the situation is improving and we think that based on ongoing discussions with customers we have in EM countries, we see that their needs are growing. At some point, they will be able to fund it and we will be happy to continue and grow our business in EM countries.

Thank you.

Sure.

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

Thank you, operator, and thank everyone for joining us tonight. Look forward to talking to you on our next conference call. Have a great evening.

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