Verint Systems Inc. (VRNT) CEO Dan Bodner on Q3 2018 Results - Earnings Call Transcript

About: Verint Systems Inc. (VRNT)
by: SA Transcripts

Verint Systems Inc. (NASDAQ:VRNT) Q3 2018 Results Conference Call December 6, 2018 8:30 AM ET


Alan Roden - Senior Vice President of Corporate Development

Dan Bodner - CEO

Doug Robinson - CFO


Shaul Eyal - Oppenheimer

Daniel Ives - Wedbush

Gabriela Borges - Goldman Sachs

Mark Strauss - JPMorgan

Jeff Kessler - Imperial Capital

Dan Bergstrom - RBC Capital Markets


Good morning, ladies and gentlemen. And welcome to Verint Systems’ Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference Mr. Alan Roden, Senior Vice President of Corporate Development. You may begin.

Alan Roden

Thank you, operator, and good morning everyone. And thank you for joining our conference call today. I am 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 third fiscal quarter ended October 31, 2018. 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 Web site at, and also on the SEC Web site.

Before starting the call, I'd like draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and other provisions of the Federal Securities Laws. These forward-looking statements are based on management's current expectations, and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by the forward-looking statements.

The forward-looking statements are made as of the date of this call, and 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 of how these and other risks and uncertainties could cause Verint's actual results to differ materially from those indicated in forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2018 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 Web site at for reconciliation of non-GAAP financial measures to GAAP measures.

Non-GAAP financial information should not be considered in isolation from, as a substitute, 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 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?

Dan Bodner

Thank you, Alan. Good morning everyone. And thank you for joining us to review our third quarter results. In Q3, we continued our positive momentum and delivered high single digit revenue growth, strong margin expansion and double digit earning growth.

We're very pleased with our Q3 results, which reflect our strategy to accelerate our business through innovation with the current focus on automation. We're also pleased to report strong results for the first nine months, including double digit earning growth, as well as more than 30% growth in cash from operations. These strong results improve our linearity across the quarter this year and establish a solid foundation for initial guidance for next year.

We believe that behind our positive momentum is demand for actionable intelligent solutions that help customers capture and analyze massive amounts of data and derive insights that are actionable. Our market leadership and competitive differentiation are supported by innovative automation technologies across many actionable intelligent use cases and I will provide examples later in the call.

Now, I’d like to review our third quarter results by segment. Starting with customer engagements. Our non-GAAP revenue increased 9% year over year to $201 million. As we discussed on the past calls, our customer engagement strategy is resonating well in the market and has been driving many competitive wins. This strategy is focused on four pillars; first, offer customers a broad enterprise portfolio across contact centers, self service, back office, customer experience, marketing, compliance and IT; second, offer our full portfolio in the cloud and make it easier for organizations to transition to SaaS through a hybrid cloud strategy; third, offer communications infrastructure and neutrality to provide enterprise customers flexibility with future infrastructure communication choices; and fourth, infuse automation across our entire customer engagement portfolio.

Today, I would like to highlight our progress in automation as we believe our automation strategy is a key differentiator and a potential catalyst for accelerated growth. Let me start with few examples of our third quarter progress with automation. The first example is related to customer innovation. We recently issued a press release together with UCB, a global biopharmaceutical company, working in Parkinson's disease and other chronic illnesses. UCB announced a new mobile app equipped with a conversational virtual health assistant, named April, powered by various intelligent virtual assistant solutions. April utilizes artificial intelligence technology to offer continuous support and encourage patients' adherence conforming the way patients interact with their healthcare provider. This is a good example of how organizations are looking to deploy automation to drive deeper relationship with customer, as well as of Verint's strategy of helping organizations elevate customer experience, while keeping operating costs low.

The second example is related to robotics process automation. In Q3, we launched automated verification a new advanced RPA application that eliminates time consuming and incomplete manual testing of communication systems. Today’s customer engagement environment is complex and many organizations don’t have the highly skilled technical resources that are required to proactively manage it. The problem is eventually discovered, accurate diagnosis to acquire skilled employees to examine the installation configuration and maintenance of multiple systems.

Verint solutions includes robotic engineer that proactively alert organization to potential issues, saving significant time and effort associated with manual processes. Another example of our automation innovation is in the area of intellectual property. Just within the last 12 months with 50% growth in patents and applications in the area of automation. Verint has a large IP portfolio with close to 1,000 patents and applications, out of which close to 200 are related to automation.

In addition, Verint's focus on innovation is being recognized by industry analysts. For example, earlier this year, we received Best Overall Artificial Intelligence Award from AI Breakthrough, which recognize achievements in our AI drive self service. Our strategy is to help customers automate with advanced artificial intelligence technology to achieve elevated customer experience, while reducing operating cost and driving strong ROI. Our technology leadership has aligned us to expand our footprint with existing customers and win new customers with many competitive displacements.

For example, in Q3, we received $11 million in orders from a leading telecommunications company. This eight digit deal highlights the strength of our portfolio and the preference of large enterprise to work with the strategic vendor. This large deal was one of many competitive wins during Q3, and nearly $5 million subscription order from a leading consumer product company. This global company continues to invest in Verint to elevate their customers experience across the globe, and this is an expansion order as part of their subscription renewal. And order from an healthcare services organization for over $1 million bringing total orders from this customer to $2 million over the last two years. This customer initially deployed some of our solutions on premises and more recently deployed some of our solutions in the cloud. This is a good example of our hybrid cloud strategy, and now it can help customers transition to the cloud at their own pace.

Verint's entire customer engagement portfolio is available in the cloud and currently, we support more than 3 billion cloud interactions per year across our customer base. And nearly $2 million order from a leading IT services company. This customers who has previously deployed our solution in their contact center operation is now looking to automate manual functions in their back office operation. This is a good example for our ability to help customers drive automation across several enterprise departments. And nearly $2 million order from a leading financial services company. This order, which included our authentication and fraud solution, is another comparative win, reflecting the strength of our integrated voice biometrics and predictive analytics. This large order demonstrates our strong execution. Overall, our ability to help organizations advance their strategy to elevate customer experience, while at the same time reduce operating cost has contributed to our success and positions us well for continued momentum.

Turning to Cyber Intelligence. After a strong first half, I’m pleased with our Q3 7% year-over-year growth, achieving $107 million of revenue. And we believe demand for our data mining software is strong. For the year, we expect around 10% revenue growth. In Q3, we continue to win many large deals around the world, including recently receiving an order close to $20 million, as well $15 million, three orders of $10 million and two $5 million orders. We believe our success in winning these seven large deals is due to our ability to anticipate market trend and bring innovative solutions to market, including automation and data analytics capabilities. For example, one of the orders I mentioned includes our cyber intelligence fusion product, providing customers the capability to fuse large amount of structured and unstructured data for many sources and applies supervised and unsupervised machine learning to find insight into data.

Another example is an order from a large telecommunications company to help them automate their cyber SOC security operating center. Verint's cyber security solutions help customers collect large amounts of network traffic events and leverage artificial intelligence to bring automations security, reach investigation, reducing operating cost while accelerating detection and response. We believe these type of orders reflect our ability to address three market trends that we have discussed on past calls. First, security threats are becoming more complex. As a result, security and intelligence organizations find it more difficult to the task investigate and neutralize threat and are seeking new data mining solutions.

Second, there is a shortage of data scientists and cyber analysts and security organizations are seeking advanced automation capabilities to perform functions previously performed by humans. And third, security organizations are looking for predictive intelligence as a fourth multiplier. Predictive intelligence is generated by correlating massive amounts of data, a wide range of disparate sources to uncover previously unknown connections, identify suspicious behavior and predict future events. Overall, we believe demand for our innovative cyber intelligence solutions is strong and as a market leader, we’re well positioned for another year of growth with improving margins.

Before I turn the call over to Doug, I would like to summarize as follows. We believe demand for actionable intelligence solution is strong and we’re targeting long-term double-digit revenue growth by continuing to focus on innovation, including in area of automation which I highlighted today. We believe we have the opportunity to expand margins as we continue to build scale. We expect the combination of revenue growth and margin expansion will enable us to continue growing earnings faster than revenue. We're very pleased with our Q3 and year to date performance. This year's guidance reflected the midpoint 8% revenue growth, a 12% earnings growth on a non-GAAP basis.

Our strong execution year-to-date makes our year more linear. Today, while early, we're introducing initial guidance for the fiscal year ending January 31, 2020, as we usually do as part of our third quarter earnings call. Our initial guidance reflects another year of strong revenue growth, margin expansion and double digit earning growth.

And now, let me turn the call over to Doug.

Doug Robinson

Thanks, Dan and good morning, 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 Web site. 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 items that can vary significantly in amount and frequency. I'll start my discussion today with the areas of revenue, gross margin and operating margin.

In the third quarter, we generated $308 million of non-GAAP revenue. Non-GAAP segment revenues were $201 million in customer engagement and $107 million in cyber intelligence. This compares to $284 million of non-GAAP revenue in the third quarter of the prior year with $185 million in customer engagement and $99 million in cyber intelligence. In terms of geography, in Q3, we generated non-GAAP revenue of $170 million in the Americas, $79 million in EMEA and $59 million in APAC. This compares to $150 million in the Americas, $88 million in EMEA and $46 million in APAC in the third quarter of the prior year.

Turning to gross margin. Our Q3 non-GAAP gross margin was approximately 66%, up from approximately 65% in Q3 last year. As we discussed, our strategy is to drive up gross margins over time and we're pleased with our expansion in Q3 and expect gross margins for the full year to be about a point higher compared to last year.

Turning to operating income. During the third quarter, we generated non-GAAP operating income of $69.2 million with an operating margin of 22.5%, approximately 3 points higher than Q3 last year. Our objective has been to grow earnings faster than revenue and we are very pleased with our strong operating margin improvement in Q3, both sequentially and year-over-year. Our adjusted EBITDA for the quarter came in at $76.3 million or 24.8% of non-GAAP revenue.

Now, let's turn to other income and interest expense. In the third quarter, non-GAAP other expense net totaled $4.5 million. Our non-GAAP tax rate was 10.8% for the third 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 $66.2 million average diluted shares outstanding. These results drove diluted non-GAAP earnings per share of $0.85 for the quarter compared to $0.66 in the prior year, a 29% year-over-year increase. We're very pleased with our Q3 non-GAAP gap earnings growth of 29%, and plan to continue to invest for long-term growth, while delivering margin expansion. Given the strong momentum, we intend to continue hiring in Q4 ahead of next year's planned growth and expect 12% non-GAAP EPS for full growth next year.

Now, turning to the balance sheet. At the end of Q3, we had $462 million of cash and short-term investments, including short-term and long-term restricted cash and investments. Cash flow from operations on a GAAP basis in Q3 came in strong at $27 million, bringing the year-to-date figure to more than $130 million, a 37% increase from the prior year. We believe the strong year-over-year increases in GAAP cash flow from operations speaks for the help of our business. We ended the quarter with net debt $358 million, including long-term restricted cash and investments and excluding discounts and issuance cost primarily associated with our convertible debt.

Before moving to Q&A, I'd like to review our non-GAAP guidance for the current year ending January 31, 2019. Starting with revenue, in customer engagement, we expect annual revenue growth of about 7%. In cyber intelligence, we expect annual revenue growth of around 10%. Overall, we expect revenue of $1.24 billion with a range of plus or minus 1%. We expect our non-GAAP quarterly interest and other expense, excluding the potential impact of foreign exchange, to be approximately $5.7 million. Given volatility in foreign exchange rates, there could be future gains or losses related to the 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 $66.1 million average diluted shares outstanding for the year, we expect non-GAAP diluted earnings per share at the midpoint of our revenue guidance to be approximately $3.15, representing 12% year-over-year earnings growth.

Looking ahead to next year, the year ending January 31, 2020, we expect non-GAAP revenue of $1.325 billion with a range of plus or minus 2%. At the midpoint of our revenue range, we expect $3.50 of non-GAAP diluted earnings per. Our initial guidance reflects approximately 7% of revenue growth and 11% earnings growth year-over-year as we expect to expand non-GAAP operating margins again next year.

In conclusion, we believe demand for our excellent intelligence remains strong. We're executing well on our growth strategy with many competitive wins and a focus in innovation and automation, and we are well position for another of positive momentum.

So with that, operator, can we please open-up the lines for questions.

Question-and-Answer Session


[Operator Instructions] And our first question comes from Shaul Eyal with Oppenheimer. Your line is open.

Shaul Eyal

Thank you. Good morning guys. Congrats on another solid set of results, and I think this time also next year's guidance. Dan, it would appear as if Verint is back to it's -- what I'd define, as old selves. By that I mean high-single digit top line growth, double-digit earnings growth. And I believe that has been the third consecutive year of this solid and consistent execution. What's driving that? And also talk to us to the philosophy behind it.

Dan Bodner

So the guidance that we gave for next year is reflecting what we saw this year as a continued momentum in the business. So let me elaborate on this. First, I would say innovation across our portfolio is resonating well with customers. We made investments over the last couple of years, especially in the area of automation and this is in response to market demand. Geographically, we see positive trends in all three regions. We had many competitive wins this year, including very large orders. This year is more linear across the quarter and less back end loaded. And in addition to consistent revenue growth, which we're improving, we are driving margin expansion. Of course, the gross margin as well as getting OpEx leverage from scale.

Overall, we have strong execution of our strategy for accelerating the growth and margin expansion. And this year throughout the year we have the opportunity to raise guidance twice. So all this clearly gives us confidence for next year that our strategy is working and our execution is strong. And that’s why initial guidance for next year is actually stronger than the guidance we gave one year ago, reflecting what we see as an ongoing momentum in the business.

Shaul Eyal

That was actually my next one. I think this is -- correct me I'm wrong it's been first year in some time that your initial next year guidance is actually coming better than the various estimates out there. I understand this is probably a reflection of the solid trends and execution that you guys have been seeing out there. And also maybe while addressing that. Maybe can you just talk to also about some of the geographic dynamics that you’re seeing? I know that you're expecting growth within the next three territories as we think about it for the next year. But can you talk to us little bit about what’s happening in H1 to consider are little bit of different dynamics, for example, between the U.S and Europe for the APAC, what you’re seeing absolutely solid growth, but also from a decision perspective that would be quite helpful. Thank you for that.

Dan Bodner

So when we look at the customer engagement strategy, our strategy is to grow in all three areas -- all three regions geographical regions. And we see over the last two years customers really looking to simplify, modernize and automate customer engagement and that's across customers across the globe. And when we discuss this customer is a strategy to help them elevate customer experience, while reducing costs. This is really applicable to all regions. So what's going on in customer engagement is because there are more channels, not just the voice channels but many digital channels as well, number of interactions is actually going up. And we hear from customers around the world that they are now hiring more and more people and that’s not sustainable.

So while they are looking to accommodate their customers, they are asking for more interaction across many digital channels. They can now sustain this hiring and that’s why automation is becoming very strong driver for the business. They need to elevate customers cost, it's just trying to go for low labor cost is not necessarily going to address the need to elevate customer experience. So with automation and some of the examples I gave before, people can get back to responses, they can get it in any channel they chose and at the same time through automation, a lot of this is addressed by bots.

And what we see again, it's a global trend is that the emerging of the hybrid workforce, which is really people working side-by-side with robots, where people are doing the more complex tasks and robots -- the more straightforward tasks, but they're working side-by-side to address the -- elevating the customer experience but of course with us this unsustainable increase in manual labor, and this a big driver for Verint. We saw this. We heard it from customers early. We've invested in a lot of innovation. And I think it's paying-off in all three regions.


Thank you. And our next question comes from Daniel Ives with Wedbush. Your line is open.

Daniel Ives

Yes, thanks guys, and again I mean good quarter but also, good granularity walking through the pillars. Could you talk about sales cycles? Do you feel like you're shortening or a change in terms of you're seeing specifically on the customer service side. It seems like deals you signed that -- specifically on some of the larger deals just maybe talk about that anecdotally.

Dan Bodner

Yes, I think that we work with enterprise customer. So their sales cycle evolves, looking at the different technologies that exist in order to address business problems. We are very focused on helping customers achieve ROI, and I think that drives somewhat a shorter sales cycle. So when customers are looking to reduce costs and get a return on investment quickly and they can see higher ROI software that's obviously very attractive, I think another contributor to shorter sales cycle is our hybrid cloud approach where customers sometimes, looking at a very large infrastructure and how they can move to the cloud in phases.

And hybrid cloud is really an opportunity for them to run some of our solutions on premises, software solutions run in the Verint cloud and some of our solutions can run in own cloud or in the partner cloud. And this is allowing them a very -- an evolution, a transition to the cloud at their own pace. And I think that's also encouraging and helping them to move faster and purchase the software they need to create ROI, and not so much worry about the infrastructure and how long it's going to take them to implement it.

So I can't give you specific cycles and how they got shortened, but it does look like we have momentum. We're getting the business done faster and I think it's driven by primarily these two factors, the cloud transition that we allow in a very flexible way and the ROI that we generate with a lot of innovation.


Thank you. Our next question comes from Gabriela Borges with Goldman Sachs. Your line is open.

Gabriela Borges

Dan, I am hoping you can comment on your visibility into cyber intelligence backlog going into next year in the context of what we've seen recently and some of the macro data like the volatility in oil prices and U.S dollar appreciation. How’s that changed at all customer willingness to invest in cyber intelligence? Any color on what you’re seeing in broader demand trends in cyber intelligence would be helpful. Thanks.

Dan Bodner

So first, we're very pleased with the activity in Q3. We just announced seven large deals with $20 million, $50 million and three $10 million. So clearly the signal right now is that customers around the world and we operate as you know in 100 countries in our cyber intelligence business. Clearly, see the demand for modernizing the security operations and have the budget to support it. We don’t see any signs right now. We don't hear anything from customers any concern about budgets. So our initial guidance for next year reflects a normal budget cycle in this business. And we clearly see that the complexity around security investigation is growing as we highlighted before. The shortage of data analytics is being even getting worse clearly. The demand in commercial market that government agency need to compete with enterprises on cyber analytics. So these types of trends that we highlighted are certainly long-term catalyst for growth. And our ability to deliver large projects with sophisticated data mining software is really a good differentiator for us. So at this point, I don’t see any signs for slow down related to U.S dollar or oil prices that affect our business.

Gabriela Borges

And the follow us either for you Dan, or for Doug. Could you detail the priorities on the operating efficiency sides going into next year, maybe the top two or three initiatives that you’re targeting to expand margins? And as a part of that, could you comment on how the transition away from hardware is growing on the cyber intelligence side? Thank you.

Dan Bodner

Let me start and Doug can give some color. So margin expansion comes from gross margin expansion and OpEx leverage, and it's in both business segments. So let me start with the gross margin. Very clearly in our cyber intelligence, it's driven by a change of the mix toward more software. And clearly, in customer engagement is driven by the transition to SaaS, and we highlighted in part that in customers engagement, our overall gross margin now is now 70% but the SaaS margins are about 80%. So as customers migrate more to SaaS, we have margin expansion. And Doug mentioned before that we expect this year to have point of gross margin expansion.

In addition to margin expansion on operating expenses side, we're creating efficiencies from a number of different initiatives, including hiring across the globe. So to give you a number, this year, we've hired about 500 people and this is consistent with our expectation for accelerating growth. But we're hired people all over the world. We have operations not just in the U.S. but in many countries where it's low cost. And we are expanding our headcount but in a way that creates a lot of scale efficiencies. So we continue to see that the sales into the next few years with gross margin expansion driven by the trends that I discussed, as well as the initiatives that we are doing internally to drive more office efficiencies.

Doug Robinson

I think you've got it covered, Dan. So basically on the gross margin side in cyber intelligence, driving more of a product model, trying to drive some of the pass through hardware out of there. And so the real focus on the components of each of the deliverables and how we of might be able to bring the product cost of those down, we're seeing some impact of that. In the customer engagement side, the whole approach to hybrid cloud is making I think our business more efficient, we're driving some better top line margins out of that. And the overall expansion we're careful in terms of where we are investing our money, where we are expanding and trying to do very efficiently, effectively with an eye on cost. And then just to benefit again from scale. So I think all of those things are contributing to about a point of operating margin expansion this year and probably another point for next year as well.


Thank you. Our next question comes from Paul Coster from JPMorgan. Your line is open.

Mark Strauss

This is Mark Strauss on for Paul, thanks for taking our questions. So just wanted to start with the cloud hosted contact center as a service business. Where do you peg your market share within that business within that business? And can you just talk about how that has trended over the past few quarter or years?

Dan Bodner

So all our solutions and customer engagements are available in the cloud, and it's at this point, is a customers' choice whether they want to implement on-prem or in the cloud. And even when they go cloud, they can implement it with the Verint cloud where we hosted for them or they can choose to buy or lift the software and use it in a different cloud. So we are very flexible and this is what we call hybrid cloud. We hear from enterprise customers that it is exactly the way they would like to move to the cloud. One of the $2 million orders that I mentioned before, I think is a good example. The customers that first chose Verint software, because they realized that this provides them the ROI. Initially, they give us an order to implement the software on-prem, because they were just not ready for the cloud. And then in Q3, they gave us another $1 million order to implement software in the cloud.

So they have a hybrid cloud of some of our software running on-prem some in the cloud. They can choose in the future to obviously move the on-prem to the cloud at a pace that suits them in the particular situation. And we accommodate our customers to do that and different customers are in a different pace and in the cloud evolution. We see the cloud migration as a clear trend, but we also see that enterprise customers need to do that on a piecemeal basis. And we designed our software and made investment, this investment is already behind us to have a future priority that whether you implement the software on-prem or SaaS, the functionality is the same and that provides great flexibility to our customers. So this is our strategy.

In terms of growth, our cloud software business is growing faster than the overall growth rate and that’s what we continue to expect as customers migrate to cloud overtime.

Mark Strauss

And the debt to EBITDA ratio continues to improve. Just curious if you can give an update on how we should think about M&A over the near-term?

Dan Bodner

I think our EBITDA is growing and our cash is growing. So yes, our net debt to EBITDA is just 1.2 approximately. We opportunistically look at the M&A. We’re operating in fragmented markets. So we are we looking to opportunities that make sense, and can add more innovation and be accretive to our results. Over the last few years, we were doing some tuck-ins. More technology specific areas that we feel we can augment our portfolio. But our approach to M&A is opportunistically and we have done very little this year, one small tuck-in that we did in the end of Q2, but we were certainly searching for opportunities.


Thank you. Our next question comes from Jeff Kessler with Imperial Capital. Your line is now open.

Jeff Kessler

Your situational awareness business, which is tucked into cyber -- started out as [PCM]. Can you talk about how that has evolved beyond that? And what the customers who originally were involved in that -- interested in the business, or what types of demands are they making on your ability to provide them with more than just what is going on at the scene at this point in time.

Dan Bodner

So situational awareness is part of our data mining software business, exactly because what you just described, which is customers looking to fuse data from a lot of different sources. Some data is from centers and some comes from data bases. But in order to create insights that are fourth multiplier, the ability to use predictive intelligence based on sensory data to predict security breaches and investigating faster with less people that’s the same trends that we see across our entire cyber intelligence business and are relevant also to the evolution of what you call piece them into situational awareness. So in security, generally, there is a desire to use less people and become more effective. And you can only do that by using technology that can create insights and predictive analytics to accelerate the security breach investigations, and that’s where we’re focused.

Jeff Kessler

So my follow up question is with regard to the amount of employees that you have. As you look at your customers and are trying to get them to use, because of competition obviously for the same minds, trying to get them to be more efficient with less people. How are you using that to essentially affect your own business? You said you're hiring 500 people. But is that 500 less than what you would have been doing had you not move toward automation?

Dan Bodner

That’s interesting. I think we’re using automation also in-house. One good example is in our -- because the velocity of our innovation has increased. We’re launching more softer versions more frequently and we invested quite a bit in order to increase automation in our testing. So when you have frequent software leases, each needs to have regression testing and it's just not sustainable to do it with people even in low cost labor markets. And we've invested quite a bit in automating large portion of our software testing and verification is automated. So that’s an example. We also invested in our professional services. A lot of the implementation work that we do can be automated and part of it has been automated. So that’s part of the margin expansion that we want to scale, not just in terms of top line growth but in terms of more efficient delivery of our solutions to customers with remote implementation and automated implementations, as well as faster software releases with faster testing and verification.


Thank you. And our next question comes from Dan Bergstrom with RBC Capital Markets. Your line is now open.

Dan Bergstrom

So you just wanted to build on Gabriella's question in cyber bid here. Could you talk a little bit more about the large telecommunication win this quarter? Are you seeing more opportunities, such as this may be a more non-traditional security customers or enterprises? It seems like there's a natural opportunity around automating security and providing insight to network traffic and automating processes around breach discovery and investigation?

Dan Bodner

We do see opportunities. We talk about our cyber intelligence as predominantly government business. But we do have enterprise and greater infrastructure customers as well, including telecom, which we discussed before, this $5 million order. So it is predominantly government today, because that’s where we started the business and it grew quite nicely and there's still very strong demand for cyber intelligence from government agencies. But as you pointed out, there is certainly interest in enterprise market. And maybe I should highlight one area, which is called enterprise threat intelligence. This is scenario where we have also great wins, but it's still relatively small relative to the overall cyber intelligence revenue.

So threat intelligence is about finding threats within Web and social media data this is another source of data, which is huge. There's a lot of information within the Web that is relevant to enterprises. This could be threats to executives, threats in different parts of the world where travel alerts needs to be created, because global companies have people in different countries. This could be information that has been stolen from enterprise and is offered in the dark web for sale and alerting enterprise that actually such private information has been stolen. In many cases, there are cyber thefts that are undetected and only after the fact you are alerted that you've been breached by having your data offered -- traded in the dark web.

So a lot of the tools that we have in terms of Web intelligence, social media intelligence infusion are of great interest to enterprises as well. As I said, we certainly have very good solutions but primarily our sales force is focused on the government market and we expect to grow enterprise market over time.

Dan Bergstrom

And then maybe for Doug. Doug, the outlook for next year is good as is. But what are some of the opportunities or drivers that could track numbers towards the upper end of the range?

Doug Robinson

I think it's all about the top line. As you've seen from the great performance we've had through the first three quarters of this year, when the top line comes in greater than expected, it fall to the bottom line. We're driving 29% operating income year-over-year increases. So if we can continue this momentum really in both the areas with the trends that we've been talking about through this year and on this call and we can get little bit more generate it out of the top line that really should allow us to have some nice earnings performance for next year too.


Thank you. There are no further questions in the queue. I'd like to turn the call back to Mr. Alan Roden for any further remarks.

Alan Roden

Thank you, Operator. Before ending the call today, I'd like to discuss two upcoming investor events. Next week, we'll be participating in Imperial Capital Investor Conference in New York hosted by Jeff Kessler. In addition, we'll be scheduling multiple road shows, including one with Daniel Ives from Wedbush Securities who recently re-launch coverage of Verint. We look forward to seeing you at these and other investor events in the coming weeks. Thanks for joining our call today and have a great day.


Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.