Verint Systems Inc (VRNT) 2017 Q4 法說會逐字稿

Good afternoon. My name is Mariama, and I will be your conference operator today. At this time, I would like to welcome everyone to Verint's fourth quarter conference call. (Operator Instructions)

I would now like to turn the call over to Alan Roden, Senior Vice President of Corporate Development. You may begin your conference.

Thank you, operator. And 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.

Prior to this call, we issued a press release that includes financial information for our fourth fiscal quarter and fiscal year ended January 31, 2017. Our Form 10-K 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'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 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 cautioned not to place undue reliance on these forward-looking statements.

For more detailed discussion on how these and other risks and other uncertainties could cause Verint's actual results to differ materially from those indicated in forward-looking statements, please see our Form 10-K for fiscal year January 31, 2017, when filed, and other filings we make with the SEC.

The financial measures discussed today include non-GAAP measures as we believe investors focus on those measures in comparing results between periods and among our peer of companies. Our financial outlook is provided only on a non-GAAP basis. Please see today's earnings release and the Investor Relations section of our website for reconciliation of non-GAAP financial measures to GAAP measures.

Non-GAAP financial information should not be considered in isolation, as a substitute for or superior to GAAP financial information, but 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 like the company uses have limitations and may differ from those used by other companies.

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

Thank you, Alan. Good afternoon, everyone, and thank you for joining us today. In the fourth quarter, on a GAAP basis, we delivered $296 million of revenue and $0.13 diluted net income per share. On a non-GAAP basis, we delivered $300 million of revenue or $302 million on a constant currency basis and $0.90 of diluted net income per share.

Our fourth quarter is typically our strongest quarter of the year, and we are pleased with our strong sequential and year-over-year revenue increase in both our segments. A strong fourth quarter revenue drove non-GAAP Q4 operating margins to 24% and Q4 cash flow from operations to $101 million. We believe our strong finish to the year reflect our market leadership in Actionable Intelligence and lays the foundation for continuous growth in both Customer Engagement and Cyber Intelligence.

For the current year, we expect another year of growth in customer engagement. And we are raising our growth outlook in Cyber Intelligence based on an improving spending environment and market trends, which I will discuss later.

Now I would like to review our fourth quarter results and provide several additional metrics for the first time to help investors better understand each segment.

Starting with our Customer Engagement. In Q4, non-GAAP revenue increased 10% sequentially and 7% year-over-year on a constant currency basis, driving $716 million of revenue for the year or $726 million on a constant currency basis.

During the year, we continue to see positive customer reaction to our hybrid cloud go-to-market strategy, and our cloud revenue included software and managed services increased to more than $100 million.

We believe that enterprises today are looking for flexible deployment options, including on-premises, private cloud, public cloud or in a hybrid fashion, with some solutions deployed on-premises and some in the cloud. We expect this year our cloud revenue will continue growing faster than overall revenue and increase by more than 25%, driving overall revenue growth in Customer Engagement to mid-single digits.

As the cloud revenue has increased, a greater portion of our revenue has become recurring. And today close to 60% of our Customer Engagement revenue is derived from recurring resources, including cloud and maintenance.

In addition to offering our customers increased flexibility with our hybrid cloud strategy, we have 3 more strategy pillars, offering customers a broad portfolio of analytical solutions, helping customers build holistic customer engagement operations and investment in extensive partner networks that our customers can leverage.

Here are some additional details on each strategy pillar. First, Verint offers the industry's broadest and most innovative portfolio of best-of-breed analytical solutions for contact centers, branch back-office operations, customer experience and digital marketing. Our solutions are designed to generate operational efficiency with greater automation, improve the customer experience and drive incremental revenue.

We continue to expand our portfolio with new automation capabilities to address market demand for next-generation self-service, robotics and mobile engagements. We believe customers are increasingly looking for automation to increase efficiencies and reduce costs while improving the customer experience, and we are well positioned to address these trends.

Second, organizations are evolving towards a more holistic customer engagement approach, one that supports omnichannel while providing their customers a more consistent and contextual experience. Organizations are migrating their technology solutions at different paces, depending on their prior investments, business priorities and budgets.

Verint is addressing these trends with our extensive portfolio, modular design, automation and start anywhere approach. We believe this resonates well with customers and is consistent with our land-and-expand go-to-market strategy.

And finally, our strategy is to invest in an extensive partner network that our customers can leverage for maximum flexibility. Some of our partnerships are technology-focused, and we invest in [touch] technology integrations to provide our customers interoperability.

For example, the telephony switching and routing market is highly fragmented and there are many vendors offering ACD products for call distribution. Our approach has been to maintain ACD neutrality, and we currently have more than 20 product integrations with substantially all leading vendors of on-premises and cloud ACDs. We believe this gives our customers the choice to keep their existing ACD products or to upgrade with the vendor of their choice. In addition, our partnership program includes more than 100 companies that chose to resell best-of-breed products bundled with ACD from other vendors.

Our neutrality allows the customers to purchase our best-of-breed solutions from many different sources, coupled with their ACD of choice. We believe our large partnership program is a competitive differentiation.

We recently received many orders that reflect the progress of our strategy, including a $5 million order from a leading insurance company, bringing total orders from this customer to nearly $20 million over the last 3 years. This customer is standardized on Verint for its customer engagement operations and over time, has added many components of our portfolio, some deployed on-premises and some in the cloud. This customer's evolution is a good example of how our hybrid cloud model and broad portfolio supports our land-and-expand strategy.

A $4 million order from a leading technology service provider. This customer, who previously deployed our solution in its contact centers, is expanding the deployment into its back-office operations. We believe our ability to offer holistic solution across the contact center and back office was key to our selection.

An order from a consumer product company for multiple components of our portfolio in the cloud. This customer, who previously deployed our recording, quality monitoring and performance management solutions on-premises, is moving those applications to the cloud while adding additional applications from Verint, including workforce management and desktop analytics. As our entire portfolio is cloud-enabled, we are well positioned to help organizations that are interested in cloud migration.

Another cloud example is an order from a public government agency for our self-service solution. This new customer for Verint is moving from another vendor's legacy on-premises solution to our cloud self-service solution to better serve its citizens. In summary, we believe we are extending our market leadership by building a broad portfolio of innovative solutions, offering customers flexible deployment models and expanding our global partnerships. And we look forward to another year of growth and market leadership in Customer Engagement.

Turning to Cyber Intelligence. Q4 non-GAAP revenue increased 26% sequentially and 7% year-over-year, driving $357 million of revenue for the year. We are very pleased with our fourth quarter results, which we believe reflect the better global spending environment and increasing demand for data mining solutions, such as ours.

Our strong finish to the year as well as our recent order activity gives us greater confidence, and our outlook for Cyber Intelligence has improved. Verint is a leading provider of security and intelligence data mining software. Our government's critical infrastructure and enterprise customers use our data mining solutions for predictive intelligence, complex investigations, threat analysis, electronic and physical asset protection as well as for generating legal evidence and preventing criminal activity and terrorism.

We believe that over time, our Cyber Intelligence segment has the ability to grow double digits due to the following growth trends: first, government critical infrastructure providers and enterprises face ongoing security threats from criminal and terrorist organizations, foreign governments and other groups and individuals looking to do harm.

Increasingly, the security threats come from well-organized and well-funded operations, utilizing highly sophisticated methods and technologies. As a result, detecting, investigating and responding to security threats is becoming more complex and organizations are increasingly seeking advanced data mining solutions to help them generate Actionable Intelligence. We believe that the increasing complexity and technological challenge related to preventing crime and terror will drive over time, demand for greater intelligence and data mining solutions such as ours.

Next while security threats are becoming more complex, security spending competes with many other spending priorities. In addition, organizations need to employ a large number of intelligence analysts and data scientists to meet the increasing complexity of security threats. Even with adequate budgets, there's a shortage of such qualified personnel globally, leading to elongated investigations and increased risk of security threats not being addressed.

We believe that these factors have made organizations seek solutions, which require less human resources to operate as well as to accelerate intelligence gathering and improve the quality and velocity of investigations.

And third, to facilitate the effective deployment of data mining solutions, in many cases, security organizations seek to partner with trusted vendors that can offer relevant domain expertise and can deliver turnkey solutions.

Verint has gained substantial domain expertise over the last 2 decades and is offering customers a range of deployment models. Verint is well positioned to address this market trends and there are 3 main pillars to our growth strategy. First, historically, most of our Cyber Intelligence revenue have been generated from government customers. Looking forward, we see an opportunity to increase our addressable market by leveraging our strong government experience, to gradually expand new data mining solutions and domain expertise to critical infrastructure providers and enterprises that face many similar security threats.

Next, recognizing that security organizations are experiencing competing priorities and a shortage of qualified personnel, our strategy is to provide data mining solutions tailored to address specific use cases based on our domain expertise. Today, we offer a broad range of solutions for customers in national security, law enforcement, cybersecurity, critical infrastructure, border control and enterprise security.

And third, our strategy is to offer customers multiple options to deploy our data mining solutions. Many of our customers choose Verint to deploy turnkey projects, which include hardware, software and services. Other customers choose to implement Verint's data mining software in conjunction with components they purchase separately. Regardless of how customers deploy our solutions, we are committed to developing frequent technology updates to enable our customers to stay ahead of evolving security threats.

During the quarter, we received several large orders, which reflect the success of our growth strategy. These orders include the $35 million order we recently announced as well as 1 order in excess of $15 million and 3 orders each in excess of $10 million. We believe our ability to win large deals is due to having very strong data mining technology combined with domain expertise and flexible deployment models.

We are now investing in Cyber Intelligence to address the recent increased demand and to prepare for long-term growth. In summary, organizations around the world needs sophisticated security and intelligence data mining solutions and we believe we are well positioned to sustaining long-term growth.

Before discussing our guidance, I'd like to provide an update on our previously discussed initiatives for increased operational agility. As a reminder, we discussed Verint's history of leadership in Actionable Intelligence and the fact that our business segments require different business models.

Today, our Customer Engagement segment is going to market with a hybrid cloud model. And on the other hand, our Cyber Intelligence segment is securing big government projects. To increase operational agility, we continue to strengthen the management teams in each segments, work with each management team to evolve our systems and processes to better support their specific needs, track additional metrics and design compensation plans to drive success in each segments. We believe the steps we are taking to improve our agility would result in improved business performance for each segment.

Turning to guidance. For the year ending January 31, 2018, we continue to expect mid-single-digit revenue growth in Customer Engagement and are improving our outlook to high single-digit revenue growth in Cyber Intelligence. We continued to invest in our 2 businesses to drive long-term growth and expect our earnings this year to grow slightly faster than revenue with some margin improvements.

And now let me turn the call over to Doug to further discuss our financial results and guidance. Doug?

Thanks, Dan. Good afternoon, everyone. Our discussion today will include non-GAAP 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 items that can vary significantly in amount and frequency. For certain metrics, it also includes adjustments related to foreign exchange rates.

I'll start my discussion today with the areas of revenue, gross margin and operating margin. In the fourth quarter, we generated $300 million of non-GAAP revenue or 2 -- $302 million on a constant currency basis. Segment revenues were $191 million in Customer Engagement or $193 million on a constant currency basis and $109 million in Cyber Intelligence. This compares to $282 million of non-GAAP revenue in the fourth quarter of the prior year, with $180 million in Customer Engagement and $102 million in Cyber Intelligence.

In terms of geography, in Q4, we generated non-GAAP revenue of $166 million in the Americas, $92 million in EMEA and $42 million in APAC. This compares to $140 million in the Americas, $87 million in EMEA and $55 million in APAC in the fourth quarter of the prior year.

For the full year, we generated $1.073 billion of non-GAAP revenue or $1.083 million on a constant currency basis. Segment revenues were $716 million in Customer Engagement or $726 million on a constant currency basis, and $357 million in Cyber Intelligence. This compares to $1.135 billion of non-GAAP revenue in the prior year, with $698 million in Customer Engagement and $437 million in Cyber Intelligence.

In terms of geography, we generated non-GAAP revenue of $582 million in the Americas, $323 million in EMEA and $168 million in APAC. This compares to $583 million in the Americas, $353 million in EMEA and $199 million in APAC in the prior year.

Q4 non-GAAP gross margins were approximately 66%. As we've discussed in the past, due to product, services and revenue mix within or across segments, overall gross margins can fluctuate significantly from period-to-period.

For the full year, our non-GAAP gross margins were 65.1%. From a segment perspective, our Customer Engagement business is primarily software and services and our non-GAAP gross margins in that segment were in the high 60s for the year, similar to other companies did with the same product/services mix.

Our non-GAAP gross margins in the Cyber Intelligence were lower than Verint's overall gross margins, reflecting the mix of hardware, software and services, including from third-party vendors in that business.

During the fourth quarter, we generated non-GAAP operating income of $72.4 million with an operating margin of 24.2%. For the year, our non-GAAP operating income was $205 million with an operating margin of 19.1%.

On a fully allocated basis, our Customer Engagement operating margins were in the low 20s and our Cyber Intelligence operating margins were just above 10%. You can approximate our segment operating margins by distributing our unallocated expenses, which are shown in our 10-Q segmentation footnote, excluding our non-GAAP adjustments provided in the earnings release, proportionally to segment revenue.

Our adjusted EBITDA for the quarter came in at $79.9 million or 26.7% of non-GAAP revenue. For the full year, our adjusted EBITDA came in at $233.5 million or 21.8% of non-GAAP revenue.

Now let's turn to other income and interest expense. In the fourth quarter, non-GAAP other expense net totaled $10.2 million, reflecting $6.1 million of interest and other expense and $4.1 million of foreign exchange charges primarily related to balance sheet translations. For the full year, non-GAAP other expense net totaled $27.1 million, reflecting $24.6 million of interest and other expense and $2.5 million of foreign exchange charges, again, primarily related to balance sheet translations.

Our non-GAAP tax rate was 8.1% for the fourth quarter and 8.8% for the full year. As we discussed previously, we expect to enjoy a low non-GAAP tax rate for several years due to our NOL and the amount of income we generate in low tax rate jurisdictions.

For the quarter, we had 63.2 million average diluted shares outstanding. And for the full year, we had 63.1 million average diluted shares outstanding. These results drove diluted non-GAAP EPS of $0.90 for Q4 and $2.51 for the full year.

Now turning to the balance sheet. As of January 31, 2017, we had $374 million of cash and short-term investments, including short-term and long-term restricted cash. Cash flow from operations on a GAAP basis in Q4 was $101 million, bringing cash from operations for the year to $172 million, up approximately 10% from $157 million last year.

Regarding our stock -- our share buyback program, during the fourth quarter, we repurchased an additional 306,000 shares. Year-to-date, we repurchased 1.3 million shares for $47 million, leaving us with approximately $100 million still authorized under our program.

We ended the quarter with net debt of $435 million, including long-term restricted cash and excluding discounts and issuance costs primarily associated with our convertible debt.

Before moving to Q&A, I'd like to discuss our guidance for the year ending January 31, 2018. Starting with revenue. In Customer Engagement, we expect another year of mid-single-digit revenue growth. In Cyber Intelligence, we are increasing our outlook from mid- to high single digits to high single-digit revenue growth. Overall, we expect revenue of $1.14 billion with a range of plus or minus 2%.

From an operating margin perspective, we are pleased with the sequential improvement in our operating margins in Q4 and expect operating margins in the current year to improve slightly from last year. We expect our non-GAAP quarterly interest and other expense, excluding the potential impact of foreign exchange, to be approximately $6 million.

Given volatility in foreign exchange rates, there could be future gains or losses related to balance sheet translations in our future results, which are not included in our guidance. We expect our non-GAAP tax rate to be approximately 9% for the year, reflecting the amount of cash taxes we expect to pay this year.

Based on these assumptions and assuming approximately 64.3 million average diluted shares outstanding for the year, we are expecting non-GAAP diluted earnings per share at the midpoint of our revenue guidance to be approximately $2.70.

In addition to our annual guidance, we'd like to provide some additional color on the progression of the year for modeling purposes. For revenue in Q1, we expect mid-single-digit growth on a year-over-year basis. So that comes to approximately $260 million. In Q2, we expect a sequential revenue increase of $10 million followed by a sequential increases in Q3 and Q4. Our typical seasonality is a strong second half, and that's true this year as well as we ramp up our resources to deliver on our Cyber Intelligence projects.

Relative to margins, as discussed earlier, we have experienced significant increase in demand in Cyber Intelligence that are making investments prepared to address this demand as well as investing in another growth initiatives. We expect operating expenses to increase by $10 million in Q1 from Q4 last year, and then expect operating expenses to stay at the Q1 level for the rest of the year.

In conclusion, we're pleased to finish the year strong and believe we're well positioned for sustained growth in both Customer Engagement and Cyber Intelligence. Longer term, we look believe the steps we're taking to increase agility will enable us to better focus on each of our operating segments and to extend our market leadership.

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

(Operator Instructions) Your first question comes from the line of Shaul Eyal with Oppenheimer and Co.

My first question is to Dan. So notable improvement on the Security side, the Cyber Intelligence division. Can you talk to us about the reasons aside from the typically strong fourth quarter you've experienced? I know you did touch on some of the drivers, but it appears either there's a renewed spending cycle or at least some renewed momentum following a period of underinvestment in this category. So whatever you can share with us is highly appreciated, and I have a follow-up.

Okay, sure. So improved outlook for Cyber Intelligence is driven by the market trends, as you mentioned. And yes, we do believe that, as discussed, security threats are becoming more complex and the type of solutions we have for data mining provides the opportunity for our customers to deal with this complexity without the need to have a lot of human resource and manual approach. So through automation, they can accelerate the quality and velocity of investigation and this is obviously of great interest to them. But in addition to the market trends that perhaps drive growth long term, as we discussed earlier, we did see a stabilization in the global spending environment and, of course, a year ago, we discussed slowdown in emerging market, which we said we believe will be temporary. So we now see a stabilized environment. And plus, we had an increased order activity that we experienced in Q3 and Q4 and that's created projects that now we need to execute on. In addition, I'd like to put a historical perspective to my response because excluding the revenue declines that we just had last year, when you look at the 5 years before that, we had, on average, double-digit annual revenue growth. So we believe we can get back to double-digits growth over time based on those improved trends. So last quarter, we discussed the fact that in order to accelerate our growth this year, we will need to hire resources to deliver the projects that we got awarded. And at the time, last quarter, we said that we do not have the sufficient confidence to resume hiring and we were still monitoring the situation. So now we do have the increased confidence and, as Doug mentioned, we're making investments and we're hiring in support of this improved outlook. And as we mentioned, the Q1 operating expenses should increase in Q1 by $10 million and then will remain the same level for the rest of the year. And this will be to support investments and to allow us to achieve the improved outlook in Cyber Intelligence of high single digits.

Got it. Got it. And my follow-up, so on operational agility, last quarter, Dan, you mentioned increased investments to drive more agility and then you also addressed that during your prepared remarks. But can you talk to us where you currently stand on the process and how do you potentially envision the time line associated with such a move?

Yes. So I'll give you more fulsome response here. So we are making each segment more operationally distinct to gain more agility to the changes that we see in their respective markets and to accelerate growth. We, as we discussed last quarter, we don't think that the expense here is material and it's obviously a part of the guidance that we are providing today. But as discussed, more importantly, the 2 businesses have been and continue to be focused on delivering Actionable Intelligence solutions. And we also discussed the increasing needs to adjust the business models in their respective markets. So in Customer Engagement, we have a hybrid cloud model that is similar to other peers enterprise software companies. And in Cyber Intelligence, we deploy primarily data mining software on-premise. And in many cases, upon customer request, we also deploy third-party products to provide customers with turnkey solutions. So to be more specific on what we're doing in this initiative: so both segments already have 2 dedicated management teams, which are focused on their respective markets; and both business leverage shared corporate services to create the synergies that we can afford with those shared services. The 2 management teams are enhancing our system and business processes each business specifically for the needs that they see in their business. We are tracking new metrics to help improve operational performance and I know now that we have those metrics, we also shared today a few more metrics first time. And we also redesigned compensation plans to better link the bonuses to the performance of each business. So we are doing this thing as fast as we can and we're happy the 2 business grew well in Q4 and we expect that they will both grow this year. And we believe that with even greater agility, they can accelerate growth over time. I think that, and you may be alluding to this, but I think in our discussion of operational agility and time line may have triggered some rumors and speculations about a split. So I would like to basically repeat what -- our message today, which is the steps we are taking are designed to improve operational agility in each business, which we believe will contribute to improved business performance and value creation. Today, we are making investments in both businesses. As the business has become more operationally separable and gain the appropriate scale over time, it could be possible to separate the businesses on a tax-free basis into 2 public companies. But it's important to emphasize that our focus today is on improving the performance of each business. And if we decide to pursue a potential tax-free spin down the road, we should be in a much better position to execute on it.

Your next question comes from Gabriela Borges with Goldman Sachs.

Maybe just following up on the previous question. Dan, perhaps you can provide some color on some of the criteria that you're looking at that will determine whether you think about the business holistically and keeping those 2 segments together versus maybe considering a strategic optionality around the 2 segments.

Yes, so we're always looking for value creation. We think that we -- what we do now is agility and giving each business the tools they need to be successful is providing the opportunity for value creation. And in terms of specific criteria, we will be opportunistic about anything that we can do to increase value even further.

That's helpful color. And then maybe a follow-up for Doug come, if I could. A little bit of discussion on the increased investments in the Cyber Intelligence segment to meet the growing pipeline of demand. How should we be thinking about when you start to see more leverage in the model from an operation standpoint, getting that contribution margin in Cyber Intelligence back up to the mid-teens level?

Yes, I think we're building out our resources there as we go, but we expect the revenue to ramp. And I think you'll start to see the leverage from that in the second half of the year.

Your next question comes from Jonathan Ho with William Blair.

I just wanted to start out in terms of your comments around sort of the neutrality benefits that you have with channel partners. Can you give us a little bit more color in terms of whether you're actually seeing more active engagement from partners, defections from competitors? Is there anything more that you can may be offer to give us more color in terms of what's happening there?

Yes. Yes, I'm pleased that we have positive reaction from our channel partners, and we do see interest in partners to move over to Verint. We see that both in terms of the SMB market as well as Enterprise markets. Last quarter, we discussed our initiative relative to the SMB market, our initiative to offer our partners new product bundles and focused on -- helping them with additional training and enablement support. And that SMB focused on partners, we made good progress. We introduced to many new partners and received very good reaction to this initiative. Our approach to the SMB market is based on 100% indirect, so we are very committed to our partners. And for those partners that sell both the SMB and the enterprise market, obviously, the ability to work with a single vendor is a big plus. And regarding the ACD neutrality, we have -- I mentioned 2 metrics. We have more than 20 integrations with ACD vendors, cloud and on-premises. So basically, we have invested in integration with all leading ACD products. And then we have more than 100 channel partners and they can carry ACDs from anyone and still be assured that they have the interoperability with Verint. And, of course, that gives customers a lot of choice. They can buy and mix different products. They can keep what they have. They can buy it from different partners. So we think it's a good approach that we have that customer appreciates and we believe that customers want to invest in taking their customer engagements forward, and different customers have different priorities. We have a broad portfolio, but we also emphasize a modular design and to start anywhere. And start anywhere really allows customers to focus on the business application that they actually believe is the highest priority because it gives them the most immediate return on investment. And if they can choose the highest priority implementation and know that they have the peace of mind for interoperability, that's obviously a good way for them to envision and evolve their Customer Engagement into a more modern architecture.

Got it. Got it. And Amazon today announced the Connect product for contact centers. How should we be thinking about that as a potential competition, particularly at the lower end of the market or for distributed enterprise? And I just want to get your thoughts.

Yes, it's not competition for Verint. So what AWS announced today -- and of course, we are aware of this for quite some time. They announced the call center offering. This is primarily for routing telephone calls in the cloud, including routing to their self-service engine, which is powered by their Alexa national language processing. So as you can see, we view this offering as complementary to our offering and also we already an AWS cloud platform partner.

Your next question comes from Paul Coster from JPMorgan.

This is Mark Strouse on for Paul. This is a bit of a follow-up to an earlier question, but can you just talk about the competitive environment within Customer Engagements, specifically within the cloud? If there's any metrics or stats that you can provide that give you more confidence that the agnostic partnership approach is paying off as opposed to having something in-house. Any stats like market share or any other metrics that you can provide?

Yes, so let me see. We provided, and let me repeat some of the metrics and I think we will put it together in a more holistic picture here. So first, we announced we have more than 1,000 cloud deployments. So I think we have proven that we have a lot of experience in delivering in the cloud. We gave a lot of examples today about customers buying into our cloud approach with a hybrid cloud and transitioning slowly into the [crowd]. Some of the solutions, still kept on-premises and some in the cloud. We also discussed the scale in terms of $100 million -- more than $100 million we achieved last year. We expect to grow the cloud business more than 25% this year and I can also say that we grew the cloud business more than 25% last year. So I think we also feel confident about our ability to grow cloud revenue, not just to offer the cloud revenue, the platform to deliver the product. We have many cloud partners. So we talked about 100 resellers, many of them offering the cloud, some actually offer cloud and on-premises and we helped this customer to enable their platform with our business solutions. And we're getting better at doing that. So our goal here is to, especially in the SMB market, is to make it easy for our partners to be able to offer a bundle. We recognize that for the SMB customers, there is a preference to buy in the cloud and there is a preference to buy from a single vendor all the products because just the complexity is not as high. And of course, all partners can give them that and they can have best-of-breed solutions from Verint, coupled with any ACD of their choice. So we're driving -- with this cloud revenue, we're driving now almost 60% recurring revenue. And we believe that there's room to grow and we can continue to increase the recurring revenue because if a cloud revenue continues to grow 25% or more, obviously, faster than our on-premises revenue, that over time is going to create more recurring revenue. At the same time, we believe that even if we keep some on-premise customers, we have very sticky products and we have a lot of repeat sales for existing customer base. So overall, leaving the choice to a customer is the best approach in our opinion. And they will move to the cloud at the pace that they would like and we are ready to provide them with any deployment model that they prefer.

Your next question comes from Michael Nemeroff with Crédit Suisse.

This is Alex Hu on for Michael. Dan, it's good to see the rebound in Cyber Intelligence and really appreciate the color you just gave. Just curious how large is your Cyber Security business today? What is your expectation for that business relative to your double-digit revenue growth longer term? And then also could you provide us an update on the $200 million cyber deal and how's that tracking?

Okay. I'll be happy to. So we look at our Cyber Intelligence business as a capability for data mining that we have different solutions for different parts of the market. So we talked about national security, law enforcement, cybersecurity, critical infrastructure, enterprise and so forth. We would like over time to obviously grow our data mining presence in all of these areas. Historically, we've been stronger in national security and law enforcement, so this is still the majority of our revenue. Cybersecurity use case is about 10% and the other areas are less than 10%. But we see an opportunity to increase our TAM over time from what was a predominantly government business to also critical infrastructure and enterprise because they have pretty much the same security threats and they need -- they have the same complexity, they have the same issue with shortage of qualified personnel in -- data scientists and so forth. And the ability to have data mining solution with domain expertise that address specific use cases is very important. So focusing now on cybersecurity, the cybersecurity use case, we obviously have the ability to look at very large number of data points, and there's lots of alerts in the security operations center. And it automates, automates the work of prioritizing the alerts, investigating the alerts and finding the malware that is potentially looking to do harm. And that capability is not from a technology perspective. It's very similar to what we do for national security and law enforcement. You also -- I think there is a growing awareness that governments and enterprises really need to come together to address security -- cybersecurity threats that there's to be more sharing. And I think our success in lending large contracts with government in Cyber Security will be, over time, very, very helpful to also securing bigger projects in enterprise. So that was the first question. Did that -- does that answer your first question?

Yes, it does. And would you mind providing us with an update on the $200 million cyber deal? And how's that tracking?

Okay, sure. Just to remind people on that deal, we were awarded the contract by a prime contractor and the end user is a government agency. The contract covers delivery of multiple products from our Cyber Intelligence portfolio. In terms of the revenue spread, we -- last year, we had a few tens of millions that we recognized from the contract. Most of the revenue will be recognized this year and next year with some going beyond that. And the contract scope includes perpetual license, some hardware that we have to provide as part of the turnkey solution and implementation services and support following the acceptance of the project. And overall, it's progressing well.

Okay, great. And then just one for Doug. Can you tell us what the revenue contribution in the quarter was from Contact Solutions and OpinionLab as well as your expectation for that business in 2018, please, or fiscal 2018?

Yes, so Contact Solution was a tuck-in acquisition we did earlier in the year. OpinionLab is another company we did in Q4, I believe, mid-November. And our M&A strategy has been since we -- the last deal, the relatively big deal with we did was over 3 years ago with KANA. Since then, our strategy is to do tuck-in acquisitions. Basically, buy small companies with good products. Those companies typically do not make money and they need to scale. And when we bring the product to our large sales force and large customer base, we have an opportunity over time to scale the business and make it profitable. In both cases, our approach of bringing new technologies is one of doing it gradually. So we don't want to lose the domain expertise that we have and the focus on Contact Solution was self-service. We believe that self-service is an important initiative. We talked about automation as one of the areas that customers are focused on and we have automation in self-service and natural language processing. We also introduced a robotics product and mobile engagement product to improve automation. So Contact Solution was very much in that trend that we see in the market and how we respond. OpinionLab, we focus in the Voice of the Customer. So that's another trend where we're already participating with a very full portfolio of Voice of the Customer solutions that basically allow our customers to pay attention to what their customers say. And one way to improve customer engagement, if you take that feedback, make it actionable and put it back in real-time into improving operations. So that sounds simple but collecting the feedback, analyzing the feedback, finding the insights and operationalizing the insights is basically what our customers are looking for Verint to do. We had different ways to collect the voice of the customer. We do it through proactive surveying and we also do it through passive listening by recording and analyzing interactions between customers and agents as well as interaction with self-service robotics. So now with OpinionLab, we really have a full portfolio of listening to the voice of the customer and providing that to the business as intelligence that they can leverage to optimize the customer experience.

Your next question comes from Jeff Kessler with Imperial Capital.

With regard to the flexibility that you are trying to provide customers, particularly in your customer service side, this requires them to put a lot of trust in you if they're going to take on you as a long-term partner and trust whether or not a hybrid or a fully blown cloud solution or for that matter, just an in-house solution, on their part, is needed. How -- it's more than just having a customer service day as -- a customer service day in a place. What are you doing to make sure that you are getting traction out of your Customer Engagement so that you have a longer-term touch, longer-term stickiness with each and every individual customer you seem to have a different -- you're going to have a different situation with? How much you have to invest in education, support, service and the like to make those customers stay with you longer and increase your recurring revenue?

Yes, I think it's a very good question that goes into customer-centric culture and how do you make your land-and-expand strategy really work over time. And I think that if you remember 2 years ago, we heard customers saying, "Verint, you have a very large portfolio and we may be interested in a transformational project." And we were trying to help them to bundle together a lot of capability in a very large project. And we reported to investors that really, we saw that while there was a lot of interest, we cannot transfer that to revenue. So I think it's exactly because of what you are alluding to, that it's very difficult for customers to trust, to do a large transformational project with any vendor and it takes a very, very long sales cycle and a very long approval cycle. Since then, since 2 years ago, we adjusted our go-to-market strategy to start anywhere. And we opened our portfolio, we did a lot of integration with many other vendors and we allow our customers in a modular approach to start anywhere in our portfolio. So they don't need to trust us, they just need to try us. And they try with whatever they think is the highest priority that they have. And if it's working well, they will expand over time. One of the examples I gave today was a $5 million order. But from a customer that actually spent $20 million over the last 2 years, expanding over time. I think if we try to get a $20 million order with this customer, we will really need to do a leap of trust. But we just kept getting orders every year and sometimes multiple times in a year to implement over time. And we're not -- the fact is we're not forcing customers to go to a public cloud. Many customers prefer private cloud because of the heightened security. The fact that we're not forcing them to move away from on-prem, they can do it when it's the right time for them. I mean, all of these things are, I think, very helpful to our sales force when they become advisers to the customers of what is the best approach to move from where they are to where they want to be because the vast majority of customers are not starting with clean slates. They already have Customer Engagement operations. They're just looking to make it better. They are looking to reduce cost, but they also want to improve the customer experience. They also want to increase revenue and customer loyalty. So their journey could be different for different customers, and we are there to help them in whatever way they decide to do it.

Okay, one quick follow-up question. And that is a few years ago, analytics was somewhat of a bad name in some areas because they didn't -- the software was not up to expect -- final expectation of the end-users. What are you seeing today? What areas are you seeing today where the greatest success that not just you, but -- you're seeing in the industry? And perhaps where -- what areas are still a little bit need more development in analytics?

Yes, so I can give you a few examples. Robotics, process automation to automate steps or the entire process and offload work from employees. We -- the Verint Process Assistant that automatically presents scripts and help guide employees through their work. Our identity authentication that through voice biometrics automates the authentication process, shaving an average of 20 or so seconds off the average call. And of course, customers appreciate that they don't need to answer a lot of security questions for authentication. Our automated quality that uses speech analytics to create more automated quality monitoring process. These are all real products that we sell and we hear from customers that they get value. So analytics is not hype for Verint. Analytics is part of the solutions we provide customers every day.

There are no further questions at this time. I will now turn the call back over to Alan Roden for closing remarks.

Thanks, operator. Before ending the call, I'd like to mention 3 upcoming investor events. As discussed, our intention is to provide a better understanding of our 2 segments and in particular, our strategy for Cyber Intelligence segment. So next Tuesday, the 4th, we'll be in New York for investor meetings hosted by Goldman Sachs. On April 12, we'll be participating in the William Blair technology conference in Boston. And on May 24, we'll be participating in the JPMorgan technology conference also in Boston. We look forward to seeing you at these and other investor events. Thanks for joining our call today, and have a great evening.

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