Verint Systems Inc (VRNT) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Verint second quarter conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to hand the floor over to Alan Roden, Senior Vice President of Corporate Development. Please go ahead, sir.

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 Doug Robinson, Verint's CFO.

Prior to this call, we issued a press release that includes financial information for our second fiscal quarter ended July 31, 2017. 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'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 these 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 a more detailed discussion of how risks and uncertainties could cause Verint's actual results to differ materially from those indicated in the forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2017, 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 companies. Our financial outlook is provided only on a non-GAAP basis. Please see today's earnings release in the Investor Relations section of our website at verint.com for a reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from or a substitute for or superior to 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 and comparative purposes. The non-GAAP financial measures Verint 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 second quarter, on a GAAP basis, we delivered $275 million of revenue and a net loss per share of $0.10. On a non-GAAP basis, we delivered $278 million of revenue and $0.61 of diluted net income per share.

We are pleased with our second quarter and first half results. In both Q1 and Q2, we overachieved on our non-GAAP revenue and EPS outlook and generated very strong cash flow from operations. Our first half non-GAAP revenue represents 48% of our full year revenue outlook, and our overachievement in the first half gives us increased confidence in the full year.

In Q2, revenue increased year-over-year in both of our segments, with another quarter of double-digit revenue growth in Cyber Intelligence. We're pleased to report that we generated approximately $100 million of cash from operations during the first half of the year, driving $200 million of cash from operations in the trailing 4 quarters. We believe our results reflect our market leadership in Actionable Intelligence, and we are investing for sustained long-term growth.

Now I would like to review our second quarter results by segment. Starting with Customer Engagement, GAAP revenue was $180 million. Non-GAAP revenue was $184 million, representing a 5% sequential increase from Q1 and an approximately 3% year-over-year increase on a constant currency basis. We expect revenue to continue to increase sequentially in Q3 and in Q4 and expect year-over-year growth in our second half to be higher than our first half in part due to our focus on innovation, which I will discuss later.

For the full year, we expect mid-single-digit revenue growth overall with the cloud portion of revenue growing faster at a rate of approximately 25%. We continue to execute well on our cloud strategy while, at the same time, expanding -- expecting to expand gross margin as a result of scale efficiencies.

For the year, in our Customer Engagement segment, we expect approximately 60% of our total revenue to be generated from recurring sources and are pleased to expand our cloud business while, at the same time, expanding our overall Customer Engagement gross margin.

Verint is a customer engagement company with over 10,000 customers around the world using our broad portfolio across many market verticals. We believe our reputation for innovation and domain expertise has made us a strategic vendor capable of helping organizations evolve their customer engagement strategies. We continue to expand our presence with existing customers and win many new customers and believe our strong competitive position in the market is being driven by several factors. First, we provide our customers deployment flexibility and make it simple to choose the best deployment mode for their needs. Our solution can be deployed on-premises, in a private cloud, public cloud or in a hybrid fashion, with some solutions deployed on-premises and some in the cloud.

Second, we've invested in building an extensive partner network, which provides customer interoperability and simplicity in purchasing our solutions. We believe our ACD neutrality continues to be a competitive differentiator as it provides our customers significant benefits. In Q2, we continue to add new partners that are attracted to our infrastructure neutrality approach.

Third, Verint offers the industry broadest portfolio of best-of-breed solutions for holistic customer engagement, and we make it simple for our customers to start anywhere within our portfolio and expand over time. In a moment, I will highlight some of our recent innovations and specifically our investment in customer engagement automation.

But first, here are some examples of recent customer expansions and competitive wins: $8 million in orders from a leading financial services company in connection with their rollout of multiple components of our portfolio. This is a good example of a customer that is taking a holistic approach to evolve their customer engagement strategy over time. $7 million in orders from a leading telecommunications company for automated self-service solutions. This customer is a good example of how our investment in automation and cloud capabilities is enabling us to become a more strategic vendor by offering innovative self-service solutions. Approximately $5 million in orders from a leading insurance company, bringing total order from this customer to more than $20 million over the last 3 years. This customer, which continues to expand with Verint, is a good example of the success of our land-and-expand strategy. And $3 million in orders from a financial services company as part of a new strategic initiative focused on automation. This customer, which is deploying multiple components of our portfolio to automate the sharing of knowledge across both employees and customers, is a good example of the trend we are seeing towards greater automation.

Turning to innovation. We continue to expand our portfolio organically and through tuck-in acquisitions. Yesterday, our U.K. subsidiary announced an offer to acquire EG Solutions, a small U.K.-based provider of workforce management software for the back office. This technology tuck-in acquisition is part of our strategy to provide innovative solutions for the back-office customer engagement market. And later in the year, we plan to release a new comprehensive solution to automate back-office operations, including robotics, process automation and work routing. Also, later in Q3, we plan to unveil several other very significant automation capabilities designed with cutting-edge artificial intelligence technology that makes it possible for organizations to drive further efficiencies and better customer experiences at a lower cost. We believe our ongoing innovations and the products we plan to launch in the second half will contribute to our future growth.

In summary, we believe our strong competitive position is largely a result of our focus on innovation, domain expertise and customer centricity, and we expect a strong second half and another year of growth in Customer Engagement.

Now turning to Cyber Intelligence. Q2 GAAP and non-GAAP revenue increased 4% sequentially and 12% year-over-year to $95 million, the second quarter in a row of double-digit revenue growth. In the second half, we expect revenue to continue to increase sequentially in Q3 and Q4 but with a tougher year-over-year comparison. For the year, we expect high single-digit revenue growth and are targeting double-digit revenue growth longer term, consistent with our historical growth rates. We also expect gross margins and fully allocated operating margins to improve in the second half compared to the first half. For the year, in Cyber Intelligence, we expect fully allocated operating margins to be similar to slightly up from last year and to expand further over time.

We continue to win large deals and were recently awarded 2 orders between $5 million and $10 million and 4 additional orders each around $5 million. We believe our ability to win large deals is due to having very strong data mining technology combined with deep domain expertise, intelligence methodology and our continuous commitment to innovation.

In Q2, our R&D expenses in security increased sequentially, and we expect to continue at this level in Q3 and in Q4 as we invest across our security portfolio. We see healthy demand in the security market as security threats continue to evolve and are investing for long-term market leadership.

In that regard, we recently announced the latest version of our web and social intelligence suite. Our new web and social intelligent solution includes enhanced real-time open-source collection with advanced machine learning and data mining capabilities to help transform large volumes of web and social media content into insights, identify suspicious behavioral patterns and generate predictive intelligence. The solution automates the complex process of data collection, analysis and investigation, enabling security and data analysts to address a variety of security challenges, including drug trafficking, terrorist activities, cyber threat intelligence and other illegal activities. This new solution is a good example of our commitment to helping our customers address complex risks.

In summary, we are pleased with our Cyber Intelligence growth in the first half of the year, and we are well positioned to achieve our annual revenue outlook.

Turning to annual guidance. We had a strong start to the year and continue to expect mid-single-digit non-GAAP revenue growth in Customer Engagement and high single-digit revenue growth in Cyber Intelligence. We continue to invest in our 2 segments to drive long-term growth and expect our non-GAAP earnings per share this year to grow around 10% due to some margin improvement. At this point, we maintain our revenue guidance for the year and increase our EPS guidance, as Doug will discuss later.

Before turning the call over to Doug, I would like to share with great sadness the recent passing of Victor DeMarines, the Chairman of Verint's Board of Directors. Vic was a good man and great leader and played a significant role in the growth of Verint, and we will all miss him. The board has now elected me to succeed Vic as the Chairman, and I will serve in the roles of Chairman and CEO. The board also appointed John Egan, who has served on the board since 2012, to serve as lead independent director.

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 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 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 second quarter, we generated $278 million of non-GAAP revenue. Segment revenues were $183 million in Customer Engagement and $95 million in Cyber Intelligence. This compares to $264 million of non-GAAP revenue in the second quarter of the prior year with $179 million in Customer Engagement and $85 million in Cyber Intelligence.

In terms of geography, in Q2, we generated non-GAAP revenue of $144 million in the Americas, $85 million in EMEA and $49 million in APAC. This compares to $139 million in the Americas, $82 million in EMEA and $43 million in APAC in the second quarter of the prior year.

Q2 non-GAAP gross margins were approximately 65%. 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. 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 quarter, similar to other software companies with the same product, services mix. Our non-GAAP gross margins in our Cyber Intelligence segment are lower than Verint's overall gross margins, reflecting the mix of hardware, software and services including from third-party vendors in that business. For the year, we continue to expect our total non-GAAP gross margins to be in the mid-60s, similar to last year. During the second quarter, we generated non-GAAP operating [income] of $45.6 million with an operating margin of 16.4%. Our adjusted EBITDA for the quarter came in at $53.2 million or 19.1% of non-GAAP revenue.

Now let's turn to other income and interest expense. In the second quarter, non-GAAP other expense net totaled $1.3 million, reflecting $5.8 million of interest and other expense, net of $3.2 million gain from foreign exchange, primarily related to balance sheet translations as a result of the strengthening of the euro, and benefited from a $1.3 million reversal of the tax accrual that was no longer needed. Our non-GAAP tax rate was 11% for the second quarter.

As we've discussed previously, we expect to enjoy a low non-GAAP 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 64 million average diluted shares outstanding. These results drove diluted non-GAAP EPS of $0.61 for the quarter.

Now turning to the balance sheet. At the end of Q2, we had $441 million of cash in short-term investments, including both short-term and long-term restricted cash. Cash flow from operations on a GAAP basis in Q2 was approximately $40 million, bringing cash from operations in the first half to approximately $100 million compared to $69 million in the first half of last year. We ended the quarter with net debt of $385 million including both short-term and long-term restricted cash and excluding discounts and issuance costs primarily associated with our convertible debt.

During the quarter, we took advantage of attractive credit markets to refinance our term loan, extending the maturity 7 years.

Before moving to Q&A, I'd like to discuss our guidance for the year ending January 31, 2018. Starting with revenue, our outlook remains unchanged. In Customer Engagement, we expect mid-single-digit revenue growth. In Cyber Intelligence, we expect 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 expect operating margins in the current year to improve slightly from last year. In Customer Engagement, we expect fully allocated operating margins to slightly improve as we deliver another year of margins in the low 20s. In Cyber Intelligence, we expect fully allocated operating margins to be similar to slightly above the 10% we achieved last year. Longer term, we expect our Cyber Intelligence margins to trend upwards as we scale the business. You can approximate our fully allocated segment operating margins by distributing our shared support expenses, which are shown in our 10-Q segmentation footnote, proportionally to segment revenue. We also present how we estimate fully allocated operating margin in the tables to our earnings release. We expect our non-GAAP quarterly interest and other expense to be approximately $6 million, excluding the potential impact of foreign exchange. Given the 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 11% 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 expect non-GAAP diluted EPS at the midpoint of our revenue guidance to be approximately $2.75, an increase of $0.05 from our prior guidance.

In addition to our annual guidance, we'd like to provide some color on the progression of the year for modeling purposes. We expect another quarter of sequential revenue increase in Q3 with revenue in the range of $280 million to $285 million and to finish the year with a strong fourth quarter. Relative to margins, we expect expenses to be a similar level in Q3 followed by the usual Q4 ramp we generally experience with our highest revenue quarter. As a reminder, our typical seasonal pattern is for the second half of the year to be stronger than the first half.

In conclusion, we're pleased with our first half performance and have increased confidence at our full year outlook. This concludes my prepared remarks. With that, operator, can we please open up the lines for questions?

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

Apologies for the background noise. Can you hear me well?

Yes, we can hear you well.

Awesome. Without a doubt, congrats on the improved EPS outlook. Dan, what is it that provides you, Doug and the board with this improved perception and feeling about the rest of the year? Is it the quarter you just reported? Is it the upcoming products? Is it the improved environment? All of the above? Or is there one specific point? And then maybe just any update about the progress you guys are experiencing with refocusing both segments in prior quarters? You did provide us with a little bit of additional color. We didn't hear it this quarter so far.

Okay. So in terms of our confidence, you're right, we have increased confidence. First, we exceeded our outlook now 3 quarters in a row, Q4 last year and in Q1 and Q2. We had a strong growth in security in the first half of the year, double digit in each quarter. Very pleased with many competitive wins we had in Customer Engagement and the progress with our cloud strategy, growing fast with our cloud and expanding margin at the same time. 48% of the year is already done, which is consistent with prior year. So it's less back-end loaded. And as a result, we feel good about our annual outlook. And lastly, we are bringing new innovations to market. We're accelerating the innovation cycle. And these are innovations that customers across both segments are very excited about, and we are developing these products based on customer feedback. So that's good that we feel we hear our customers. We know what they need. We operate in very dynamic markets. Those markets present growth opportunities for companies who are able to have the agility to innovate quickly and to bring new capabilities to address their pain points. So all of the above is providing us increased confidence for the year. And related to the second part of your question on operational agility, we have discussed increasing operational agility in both segments. We've done a lot of different things. Again, just as a reminder, we have 2 segments that are both in Actionable Intelligence, but our Customer Engagement is pursuing a hybrid cloud model similar to other enterprise software companies, while our Cyber Intelligence business is focused on governments and on deploying data mining software on-premise for government projects as well as deploying third-party hardware and software as part of turnkey solution. So clearly, we are providing the 2 businesses the agility through building business models that are specific for each one. We already have 2 dedicated management team that are focused on their respective markets, and we are enhancing our systems and business processes. Specifically in Q2, we have completed the upgrade of our ERP system. We discussed that a few quarters ago. It was a major upgrade, and now this was completed successfully. And we have a better foundation, a better platform to support the specific needs of each segments. We're tracking new metrics to help improve operational performance. We talked about designing compensation plans that link bonuses to performance of each business specifically. So in summary, our 2 businesses performed well in the first half and are expected to grow this year and improve margins. And we believe that with even greater agility, they can accelerate growth over time.

And our next question comes from the line of Gabriela Borges with Goldman Sachs.

Dan, I'm hoping you can expand a little bit on the healthy demand you're seeing in the security and the Cyber Intelligence business. Maybe just a little color on how you're seeing the pipeline develop both by -- to the extent, call it, by region, that would be very helpful. And what do you think has to happen to get that business back to the double-digit growth that you've been talking about?

Yes. So the demand is driven by, first of all, security threats around the world that are not diminishing and they're increasing in complexity. So we are focused on helping security organizations that struggle to hire qualified security analysts and data scientists to tackle those ever-increasing threats of terror or cybercrime and financial crimes. What they are looking for is a sophisticated data mining software that can simplify and automate the process of data collection and generate real-time insights and automate the investigation process. So that demand is pretty strong. In our pipeline, we see demand from national security agencies, from law enforcement agencies, from cyber security and cyber intelligence different type of applications, it's across the spectrum. And obviously, we're happy with the double-digit growth we had in the first half, but our goal is to sustain double-digit growth for the long run. And that's consistent with our historical patterns of having low double-digit growth in this business for many, many years. And as part of that, we have increased our investments in R&D. If you look at our results, you'll see that R&D went up from Q2 -- from Q1 to Q2 by about approximately $3 million, which is all in security. And we are planning to sustain that level of R&D in Q3 and Q4. And that increasing R&D is to address the demand that we see from the security markets across the different areas that I discussed. In terms of pipeline, we have small, large and very large projects in our pipeline. The timing of large projects is obviously difficult to predict, but we're happy. We announced 6 deals that are large and very large that we had in Q2, large being over $5 million and very large over $10 million. And we have even bigger deals in our pipeline, but some of our customers will buy projects in one lump sum. Others will buy on a piecemeal basis. So any large deal over $5 million obviously is a very good data point for us to increase our confidence that there is healthy demand for our solutions. So overall, in terms of revenue growth, I think we -- you asked about geography, as you know, we are a global company. We operate in about 100 countries. About 50% of our business is in emerging markets and the remaining is in developed markets. And we're investing geographically in all markets and basically driving growth from those countries that have more pressing needs and budgets. And we think that the combination of our reputation in this market and our continued investment in cutting-edge technology is going to drive the growth in this market for the long term.

That's helpful color. And as a follow-up, if I may. On the margin potential of the Cyber Intelligence business longer term, Doug, you certainly touched upon a modest -- potential for margin expansion this year. When do you think you'll start to see more material leverage on some of the R&D investments you're making today? And how should we think about the margin profile of that business longer term?

Traditionally, we've been in the mid to high teens in that business over the past year as we had some good revenue growth. We're doing some kind of nearer-term investments now, as Dan just mentioned, some R&D spending a quarter. So with those investments, this year, we expect similar or maybe slightly up margins there but then leveraging what we're doing now and being able to bring the margins in that business kind of back more to the historical levels over time.

Right. So just to add to what Doug said, so our R&D expense is around 16% overall. And now that we can discuss some more visibility into the 2 segments, we expect for the year the R&D expense in Customer Engagement around 12% and the R&D in Cyber Intelligence to be close to 20%. So you can see that 20% is a high investment in R&D. Obviously, that's something we want to do this year, but we believe that we can reduce that over time and that will -- gross margin expansion and some more normalized R&D expense will help us increase gross margin in Cyber Intelligence over time.

And our next question comes from the line of Dan Bergstrom with RBC Capital Markets.

Another cyber question. Could you talk a little bit about how you're evolving the segment to be more product focused versus project focused? And then what should we look for as this takes place? I guess, I'd assume the web and social intelligence suite, that should probably be a good example of it.

Yes. So many of our capabilities are actually delivered as products. And web and social intelligence, we certainly provide this to customers as a product. However, some of our customers and especially when we announce large deals, they expect us to combine multiple solutions from our portfolio and provide them additional project services, which include sometimes third-party hardware, which could be storage, servers and so forth. But that's part of their desire to buy a turnkey solution from a vendor. So we clearly are not interested to become a system integrator. And our focus is on developing cutting-edge products with high margin. But many of our customers still prefer that we act as the system integrator; or sometimes even when we sub to a larger system integrator, they would prefer that we take an overall responsibility. And what's driving our gross margin down in the business is mostly the fact that we are passing through hardware -- standard hardware. And we had this -- the same trend we had it 10 years ago, 15 years ago in the enterprise market. We were providing hardware as well. And over time, our customers got comfortable to buy software from Verint and provide the hardware themselves. We believe that, over time, government customers, some of them may get comfortable in doing so, but we want to be responsive to our customer needs. And customers that would like to buy turnkey solution from Verint, we'll continue to deliver. So you should expect us to be delivering high-margin products, but at the same time, passing through hardware that may still keep the margin in this business lower than our Customer Engagement margins.

And our next question comes from the line of Jeff Kessler with Imperial Capital.

I'm sorry to sound like a broken record on the cyber question I'm asking, but I'm actually in the middle of writing our semi-annual report on integrators. So this subject has come up with me about 10x in the last 10 days. There are a group of integrators out there who are morphing from the physical side on to the IT side, and it's kind of hard to tell where they are. But the biggest problem they seem to have is, number one, people; and number two, the product providers who have the technical capability to help out the end user when the integrator is not quite there yet. To what extent is the growth in your cyber business related to the -- let's just say the demands of the channel that you help them out and provide a higher-value proposition to both them and the end user so that you can charge more and not just have pass-throughs and project-type revenues?

Right. Right. That's clearly our strategy, and we work very often with integrators. But because of the expertise we have in data mining software, the end user is always having direct visibility into what we do. And the result of the interactions are that, very often, the conclusion is that Verint is better positioned to deliver a turnkey solution than the integrator. We very much welcome the integrators to get stronger and be able in this field to integrate the software and hardware and do some of the work that we do and we do well. But it's not our core strategy, so we can focus on delivering the high-margin products.

Okay. One other question. How are you engaging in this what I'd call the high-wire balancing act between trying to increase the amount of -- increasing the amount of cloud-based solutions to your Customer Engagement side and keep margins moving at the same time?

Right. That's a good question. And of course, typically, cloud transitions create pressure on margins. But I think we are pretty much beyond that transition because our cloud business is now substantial. And because of the scale in the cloud business, we're able to create cloud efficiency. So that overall, while cloud revenue grows faster than the pressure revenue, the efficiencies we get in the business are such that the margin is expanding. And that's something, obviously, when we were just at the beginning of the cloud transition and the cloud business was subscale, there was pressure on our margin, but it looks like we're now at the point that we have a hybrid cloud. So we don't think that our entire revenue will become SaaS. But the combination of our hybrid cloud, which is public cloud, private cloud and perpetual is favorable. Also, as we move our products more and more to public cloud, we improve the product so they require less professional services. So you can see that our professional services are lower in terms of the attachment to products as we are in the public cloud. So the mix of having all the components of cloud services, professional services and perpetual software is providing us the ability to expand margin.

(Operator Instructions) Our next question comes from the line of Jonathan Ho with William Blair.

I just wanted to start out with your last comments around sort of the customer base. And can you maybe give us a little bit more color in terms of how your new customers are choosing between the public cloud versus premise versus hybrid and maybe what that mix looks like?

Yes. I would think -- I would say that when you look at the SMB market, there is a much bigger interest in moving to public cloud and there are clear benefits. We talked about SMB initiative a couple of quarters ago, and we have signed up a lot of new channel partners. So our go-to-market for SMB public cloud is all indirect, and we have more than 100 channel partners. And we're expanding our presence in that part of the market. When you go up to the enterprise customers, they tend to look at things more practically. And in some cases, public cloud makes sense; in some cases, they would like private cloud. They like to do private hosting or they want to host it themselves. And giving them the flexibility to choose the deployment model that they prefer is a big competitive advantage. And we heard it from customers that some of our competitors are very restrictive in how they offer deployment. And that's something that they feel is not helpful to protect their investments in prior decisions they made. So customers generally want to evolve and modernize customer engagement and not to be worried about purchasing things they already have cloud -- in a cloud fashion. So they want to keep what they have perhaps on the perpetual but add new capabilities that can work in the cloud and are integrated with their infrastructure. The Customer Engagement industry overall, I believe, is going through some rapid changes. Consumers expect better service. They want to do it through digital and mobile platforms. The customers require -- all our customers require is greater automation. That's a very strong trend in the market. They see machine learning and artificial intelligence technologies is enabling pretty much a revolution in reducing cost of customer engagement while, at the same time, improving the customer experiences. So generally, to answer your cloud question, what we hear from customers, they want to focus on what's the next thing that is innovative and important to them in order to deliver benefits to the organization. And the mode of deployment is secondary. And we see -- it's very difficult to predict. We see customers generally asking us to deliver proposals in multiple fashions. And then they'd take the time to look at our public cloud, private cloud and perpetual proposals. And they make a decision what is the best deployment model that they choose for that specific product, while another product they can choose a different model.

Got it. Just to follow up on your point around automation and AI solutions. Can you talk about what type of opportunity that could present for Verint? And is it just a different sort of add-on type of capability that you're adding on to your solutions?

Yes. We're actually investing significantly in automation. We think that presents a great opportunity for our customers and, therefore, a great place to invest. We also think that Verint is very well positioned because of our presence with legacy products. We are the leader in Workforce Optimization, and there's a lot of automation opportunities within the workforce. So it lends itself very, very nicely to our legacy solutions. And the automations are in many different areas of Customer Engagement. Obviously, I mentioned before back office. There's a lot of people in the back office that are doing very repetitive and mundane activities, and those can be automated. Quality monitoring is an area where we can automate based on speech analytics to create more automated quality monitoring process that requires less resources, and supervisor can focus on managing agents as opposed to just scoring agents. There are areas in knowledge and ability to drive self-service. Obviously, self-service is not a new thing. But historically, companies that try to deflect calls from the contact center to self-service channels found that their customers were very upset. And with new artificial intelligence capabilities, it is possible to automate more of the calls using voice self-service and chat self-service and email and web self-service to provide customers much faster responses and much more accurate ones that deflect the need to call, improve the customer experience and reduce the cost for the organization. So many, many different opportunities. We believe the technology is here and available. And we believe we have the domain expertise to leverage this technology to provide our customers real solutions that could give them great return on investments.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to management for any closing comments.

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

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.