Verint Systems Earnings Call Insights: Call Center Business, Guidance

On Wednesday, Verint Systems, Inc. (NASDAQ:VRNT) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Call Center Business

Shaul Eyal – Oppenheimer: So Doug, this is probably the second quarter or even the third quarter in a row of kind of strong cash from operations numbers, what’s behind it other than kind of the consistent performance, is it kind of stronger collection?

Douglas E. Robinson – Corporate Officer and CFO: Cash from operations will grow similarly to the operating income. However there are some timing differences. In Q1 we had particularly strong collection efforts, got in some large payments that we were expecting perhaps to get to Q2, but made for very strong cash from ops in Q1.

Shaul Eyal – Oppenheimer: Probably the second questions goes to Dan, I would imagine that some investors might as well as research analyst, what is happening in Europe and we’re getting kind of very, very kind of mixed use, what’s in Europe, East Europe, Southern Europe. Can you share with us kind of what you guys are seeing coming from that geography?

Dan Bodner – Corporate Officer, President, CEO and Director: It’s very mixed in Europe as you mentioned and we are very fortunate to be diversified across many industries as well as across many countries in Europe. So, EMEA was again a growth for us in EMEA in revenue and we saw that growth coming from certain emerging markets in Europe, but we also I think are holding pretty well in some of the countries where we have strong base like the U.K., and there are certain countries in Europe that suffer more, but overall I think it was strong across the industries we are in which include financial services and telecom as well as government, and we are monitoring the situation there, but so far, as you recall, so last year, every quarter was a growth quarter. So, so far so good for Verint.

Shaul Eyal – Oppenheimer: If I may squeeze a final question. Dan, the first example that you gave on I think the $4 million kind of that you got for back-office, I think as it relates to the call center business with kind of a major bank, from the bank’s perspective, do you think that it was driven by some growth or by some compliance in regulation requirements or is it kind of just that the normal course of business that they are kind of coming with big contracts, north of $4 million?

Dan Bodner – Corporate Officer, President, CEO and Director: I think it’s a combination of a number of factors, One is Verint has a broader portfolio and very good customer relations. So, going into our existing customers and leveraging the relationship, we’re able to sell some of the newer solutions. Back-office is a new solution, it’s also quite a new market overall as organizations recognize that workforce optimization can really work well. We’re actually seeing some customer organizations, the people that ran contact center successfully and implemented some of these analytical solutions at the contact center have been offered promotional position into the back-office to kind of emulate what they did in the contact center and bring those processes and tools into the back-office which is an area that has a much larger workforce. There are more agents in the back-office than there are in the contact center and there is a lot of room for optimization to reduce cost and also improve the overall efficiency and customer services. So, I think, we also mentioned last quarter that we see a trend that our average deal price is kind of creeping up over time. That’s also a result of the fact that we have a broader portfolio of analytical solutions and customers find – customers that originally bought recording and quality monitoring that were five, ten years ago, were very trendy, now this is a very established market but everybody is looking not just for a data capture but also for the data analytics.

Guidance

Paul Coster – JPMorgan: So, Dan, so you started off the year strong, you didn’t raise guidance. The commentary you just gave us regarding Europe sounded pretty generic in nature. In short, this decision not to raise guidance is just an expression of generic macro concerns and nothing specific that Verint is seeing, is that a true statement?

Dan Bodner – Corporate Officer, President, CEO and Director: Yeah, Paul. I think it’s very true. I mean, we did experience a very strong quarter in Q1 on all metrics basically, and business activity was strong and cash collection. Obviously, our P&L metrics came a little ahead of what we expected. So, with that overall strengths, we were just looking into the rest of the year and whether it’s prudent to raise guidance, and of course, with EMEA uncertainly, with some slow down in China, with some concerns about the U.S. economy, while we didn’t see anything in Q1 that give us a pause and business activity was strong in government, was strong in financial services. So, there was no red flag, but just I think overall it wasn’t prudent to raise guidance at this point.

Paul Coster – JPMorgan: You previously described this year as an investment year, given this macro environments are you changing any of your investments in sales and marketing and R&D?

Dan Bodner – Corporate Officer, President, CEO and Director: We are not changing any of the plans at this point of the year. We made comments that last year was a big investment year. We added last year close to 400 people. We did say that this year we will continue to hire, but not at that pace, at a lower pace, and that’s what we are maintaining. So we are benefiting from last year’s investments. We obviously are digesting the growth in infrastructure that we created last year and expanded in a number of geographies all over the world. This year we are not going to repeat the same level of growth, but we are going to be hiring.

Paul Coster – JPMorgan: Where do we stand in terms of the timing of introduction of your application for fighting cyber crime?

Dan Bodner – Corporate Officer, President, CEO and Director: So, it’s on track, which means that we are discussing this solution with customers already, but we don’t expect this to benefit revenues this year. Hopefully, we will be able to close some deals in the second part of the year, but we think that in terms of conversion of revenue that that’s only going to start to kick in next year.

Paul Coster – JPMorgan: Finally, what is the margin structure on these two $20 million orders that you got through, the same as the corporate average, higher or lower?

Dan Bodner – Corporate Officer, President, CEO and Director: We have a product mix and it really depends when customers tend to bundle a number of products into a larger order. It’s hard to predict what will be the mix in specific order. So you could expect, as Doug mentioned before, some lumpiness around gross margin as a result of product mix in large projects.

Douglas E. Robinson – Corporate Officer and CFO: Quarter-to-quarter.