Q4 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to parents fourth quarter Conference call.

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I would now like to hand, the conference over to your host Alan Roden.

Senior Vice President corporate development, Sir Please go ahead.

Thank you operator, good afternoon, and thank you for joining our conference call today, I'm here again, Bahner, Barents, CEO and Doug Robinson Barents CFO.

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I'd also like Detroit attention. The fact that certain matters discussed on this call may contain forward looking statements within the meeting of the private Securities Litigation Reform Act I'm not 95.

Other divisions other federal Securities laws.

Looking statements are based on management's current expectations are not guarantees of future performance.

Actual results could differ materially from those expressed and implied by the forward looking statements.

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For more detailed discussion how these and other raskin attorneys cars berries actual results could differ materially from those indicating forward looking statements. We see our form 10-K for this fiscal year ended January 1st 2020, which we filed today no other filings we make the FCC.

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The non-GAAP financial measures a company users have mutations and may differ from those used by other companies.

Now I'd like to trying to go over to Dan Dan.

Thank you Alan.

Good afternoon, everyone and thank you for joining us today.

Our thoughts and prayers go out to everyone on this call and their families.

And just aren't precedented time in our life.

Today will discuss the steps, we're taking to operate through the Colbert 19 pandemic.

Provide updates on three topics.

A customer engagement results and strong cloud momentum.

Our cyber intelligence results.

And softer moral transition, which is ahead of plan.

And the progress, we're making towards our separation into two independent public companies.

Our top priority is ensuring the health and safety of all our employees around the globe.

We continue to serve our customers.

Our agreed to remain fully engaged working either from home.

Well from offices that have been authorized to remain open.

We've made modifications and we believe our business continuity plan he is working well.

We're working closely with a global base of customers to help them navigate the cobot 19 challenges.

Including the urgent need for advanced analytics.

To gain visibility into their changing environment.

Our engagement with customers is very high.

And we're helping them through a variety of programs.

I will discuss a few examples later.

As we review each business.

Now, let me review our fiscal 20 results.

Oh I didn't results on a GAAP basis were $1.3 billion of revenue.

And 43 cents diluted earning per share.

And then I'll get basis, we achieved 1.34 billion.

Oh revenue.

And three dogs and 59 cents diluted EPS.

On a constant currency basis, non-GAAP revenue increased 8.3%.

Non-GAAP EPS increased faster than revenue.

12% year over year.

This was our third consecutive year of double digit earnings growth on a non-GAAP basis.

We're pleased with our full year results.

The growth we experienced over the last three years.

And the significant progress we're making these are strategic objective.

Now, let's review our customer engagements results.

Last year, we experienced a notable shift in cloud adoption.

Large enterprises.

And during Q4, we received many large cloud order.

Consistent consistent with this trend including.

An $18 million cloud renewal for me, leading technology company.

And 8 million dollar cloud order from a new health care customer.

Well, we displaced an on premise solution from another vendor.

If I haven't even though the order from an existing insurance customer that is migrating from various on privacy solution to various cloud solution.

And multiple $3 million plus orders from customers that are expanding their cloud deployments.

Looking back at cloud adoption in our industry.

Much of the initial adoption was driven by SMB customers.

And we believe that adoption by enterprise customers, it's been accelerating.

Oh customer and partner composition.

Make us uniquely positioned to help both S&P and large enterprise customers.

And we expand the mix of our business to continue shifting.

George the cloud.

Burnt off or they're highly differentiated portfolio for large enterprise customers.

And I'm pleased to share the social security administration.

Selected Verints solutions for large projects.

I think 45 minutes talking perpetual software licenses.

Lets services to support to be delivered over several phases.

The project Award was initially announced by the Social Security Administration in July last year.

We had expected to begin recognizing revenue in fiscal 20 Q4.

Due to appeal.

Starting to project is being delayed.

And we now expect it to contribute to revenue in the current year.

Customer engagement revenue last year increased 8.7%.

On a non-GAAP constant currency basis.

Copart double digit growth, we expected without delay on the large project.

Turning to slide.

We believe very selection by the customer for these large project.

He's a testimony to varying market leadership.

And our ability to win small medium and large deal.

Growing cloud demand from large enterprises is evidenced by 93% year over year increase in deals with Clos TCV greater than $1 million.

In response to this increased demand.

We revised our commission plans.

To align ourselves fourth we saw a cloud first strategy.

We've also started to south conversion program.

Oh, sorry stalled based off no on premise is customers migrate to the cloud.

We're currently generating more than 300 million dog and you will support revenue.

Which we expect to migrate to the cloud over time with uplift.

In addition to incentivizing all direct sales force.

We're helping a growing channel partner network.

Offer cloud solutions to both the SMB and enterprise markets.

We believe the reason we have become the partner of choice.

It's all differentiated cloud solutions.

And our Nostix strategy.

We believe that improved market adoption and the steps we've taken was our salesforce and partner network.

We'll continue to drive a cloud growth.

To measure the progress toward the completion of a cloud transition.

I would like to review for key cloud metrics.

The first metric <unk> non-GAAP cloud revenue growth.

Which came in at 46% in fiscal 20.

The second metric is new Frost HCV growth.

Which came in at the strong 70%.

The third metric is new perpetual license equivalent booking.

Which we introduced last quarter to normalized booking growth for the cloud mix.

It's just got 20, we achieved 7% growth on this metric.

Prior to the 10% we'd expect it was a large project.

The fourth metric is the percentage of software revenue that is recurring.

This metric measure how close we are completing our cloud transition.

And we are pleased to report that in fiscal 20.

This metric increased approximately 400 basis points to around 75%.

Looking at other companies that have already completed their transition.

We believe we will substantially complete our position within the next three years.

We just significant majority of our software revenue.

Coming in as recurring revenue.

This transition presents variance with many long term benefits, which Doug will discuss later.

And we will continue to report these metrics going forward.

To provide visibility on our progress.

Now, let's spend a few minutes discussing the cobot 19 situation you know customer engagement business.

Okay. That's the mother facing pressing issues as a result of Kabi 19.

Including the urgent need for advanced analytics for improved visibility into their disrupted operations.

Addressing the increase in self service interactions volume.

And managing the workforce you work at home dynamics.

Here are few examples of various solutions are helping our customers today.

An example for advanced analytics is the centers for disease control intervention or does seem to see.

Longstanding varied customer.

Our solution helps the city seat to collect and analyzing directions regarding cobiz 19.

As you can imagine they seem to see as recently experienced a huge spike in website traffic.

And various analytics helped them drive cobot 19 insights.

An example for self service he's the work, we're doing far health <unk> health care customer.

Two other respond to high volumes offering direction.

Self service platform.

We enhanced our Vishal agents, we thought the fishing intelligence expanding the language library to better understand not dramatically respond to questions specifically related to corporate 19.

And an example for managing the increased work at home they not make is the financial services customer.

Recently shifted to work from home and these advanced analytics to ensure compliance.

And gain visibility to the performance of their workforce.

Over the last few weeks.

Our customers initially focused on deploying communication infrastructure.

To facilitate work from home.

No they're shifting their focus was to analytics productivity.

And compliance too.

Very well position to help them achieved this mission critical objectives.

Turning to cyber intelligence.

We finished the year strong.

With multiple large orders in Q4.

Including an order for approximately $15 million.

In order for $10 million.

And five orders for approximately $5 million each.

We believe these large orders reflect ongoing demand for data mining solutions and strong competitive position.

With a global set of customers across more than 100 countries around the world.

For the full year.

We believe that 7.7% constant currency non-GAAP revenue growth.

And at 13.1% increase.

Non-GAAP estimate what do you indicated gross profit.

Our transition to soften Mo is significantly ahead of plan.

And he's driving double digit growth you know gross profit.

I would like to discuss the benefits of our software model transition.

Historically security organization purchased customized solutions, incorporating softer hardware and integration services.

This project based approach resulted in closed system.

Limiting the pace of innovation.

It's upgrades were complex costly and time consuming.

Today, we see our customers purchasing software solutions that are open faster and easier to deploy.

And can be refreshed more quickly.

Over the last few years, we've shifted from a predominantly system integrator moral was softer moral.

And our the writing less revenue from no margin hardware and services.

Our non-GAAP estimate what are you looking at gross margin.

Every improved over the last three years, so what about 60% to 62%.

To almost 66% last year.

And we expect a gross margins to continue to expand over time.

Now, let's spend a few minutes discussing the cobbett 19 situation.

Cyber intelligence business.

Customers are responsible for maintaining law and order.

Turning to Steve any tons of crises.

In the current environment, we've been asked by governments around the world.

To leverage our data mining software to help them address use cases directly related to copy 19.

A few examples.

Law enforcement agency responsible for quarantine enforcement.

Oh for helps to efficiently monitor and enforce quantities from a centralized control center.

Leveraging our facial recognition analytics.

We saw security operations Center solution.

We're helping them in show public safety by remotely managing the corn seed.

Another example is a government agency.

Using our data mining softer to analyze the internet and social media traffic.

For signs of greater criminal and terrorist activity.

And this time of increased uncertainty in their country.

Sustain called me 19 crisis can potentially lead to increased crime antero all over the world.

And we're proud to help our customers.

Make the world safer.

Turning now to our plan to separate variant into two public companies.

Since our last earnings call, we've made significant progress across all correct.

On the tax side, we've met with the tax authorities in both the U.S. in Israel.

And I talk sort of process is underway.

On the financial side, we've begun to prepare the required carve out financials for cyber intelligence business.

On the public reporting side.

Transactional and as you see documents that are required to effectuate the speed are being dropped it.

And on the I.D. side, we've begun to execute the infrastructure and applications separation plan.

Overall at this point, we're on track was the separation.

Well continue to update you on future, earning calls.

Now, let me turn over to Doug to discuss financials in more detail job.

Yeah. Thanks, Dan Good afternoon, everyone.

As discussed earlier fiscal 20 was successful year for our cloud transition with strong growth across every creek keep cloud metric.

As a new dashboard for a customer engagement business that we introduced last quarter, which includes our full year and Q4 results and can be found on our IR website.

It includes all the key metrics for our customer engagement business, which we believe are helpful to understand the performance of our business as we go through the transition.

Overall, we believe that the adoption cloud is accelerating at large enterprises.

The changes we've made in our business position us well for continued success with their cloud transition.

We expect to substantially complete or moved to the cloud and customer engagement within the next three years and we believe the transitional benefit us in many ways.

First.

Hi moved to the cloud will enable us to innovate faster for our customers.

Second.

Subscription model will make it easier to sell our software as it aligns with today's customers buying preferences.

Third it increases the lifetime value of each customer relationship.

Fourth it'll help us drive greater adoption of our portfolio and left our visibility is increasing as a recurring revenue grows.

Turning to cyber intelligence is Dan discussed today fiscal 20, Onesix successful year for our software model transition.

This is the new dashboard for our cyber intelligence business that we introduced last quarter, which can also we found on our website.

Similar to our customer engagement dashboard includes all the key metrics. We believe are helpful to understanding the performance of our cyber intelligence business as we go through our software model transition.

Overall I'm very pleased with the progress we've made in fiscal 20, particularly with our 13% increase in estimated fully allocated gross profit, which I believe is a key metric to focus on as we go through our software model transition.

The move towards software model in cyber intelligence will benefit us in many ways.

First faster innovation and software refresh cycles for our customers.

Second greater competitive differentiation.

Third higher gross margins.

And last higher operating margins.

Turning to our balance sheet in Q4, Derrick reached the milestone with their total assets exceeding 3 billion.

Today, we have a very strong balance sheet with more than 550 million of cash and short term investments and less than 450 million of bad debt.

Since our last call, we completed half of our 300 million stock buyback program.

Repurchasing 150 million of Soc.

Overall, our net debt to adjusted EBITDA ratio is approximately 1.4 times.

Hello level of leverage for financial profile.

All these numbers exclude the 200 million of proceeds we expect to receive from the first tranche of the apex investment once closed.

In addition to a strong balance sheet, we believe that Barents customer engagement and cyber intelligence solutions, our mission critical to our customers and that there will be well positioned in the market in the event of recession.

In customer engagement.

George Your revenue comes from large enterprise is concentrated in the financial services healthcare utilities technology and government verticals.

Total wouldn't 75% of a revenue comes from these verticals with less than 5% coming from the hospitality and travel industries.

Our solutions help organizations remain compliant.

Reduce operating costs eliminate fraud, which were all important objectives in both good and bad economies.

Furthermore, today around 75% of our software revenue is occurring.

In cyber intelligence, we have customers across more than 100 countries with more than 75% of or revenue coming from government agencies and the rest from large enterprises.

Our customers helped keep the world.

Responsible for maintaining law and order in times of piece as well as in times of crisis.

Turning to our outlook.

We have been closely following the cobot 19 crisis.

During the rapidly changing conditions arising from covert 19 and uncertainty around its impact we are unable to provide guidance for the current year at this time.

Long term growth drivers in both customer engagement and cyber intelligence are intact.

Near term, we remain focused on our cloud first and software model strategies.

With that operator can we open up the call for questions.

As a reminder to ask a question you will need to press star one of your telephone to withdraw your question press the pound Keith I get that star one on your telephone to ask your question. Please standby, we compile the culinary roster.

My first question comes from a lot of show Yeah.

Oppenheimer.

A line is open.

Thank you good afternoon, guys. So Dan we totally understand that no one crisis.

Financial crisis Global crisis, no one questions a similar to two client.

And as someone who has already led company.

Through the 2008 nine crisis and I quote at that time, you can keep an add on top of that not at the parent Companys parents companies issue that also had an impact on very what are the puts and takes Oh are you taking a super overall conservative stance you in holding.

Annual guidance, despite what should be improved visibility that we had seen goal but of course, what a path to use given.

Cloud.

Cloud adoption model has been include people so from that perspective.

Which is different from what we had seen let's see 11 12 years ago, how could we be thinking about it.

Yes. Good question. So no one knows if we are headed to recession.

So.

Okay I'll give you sell the facts first we entered the year.

In February we the strong outlook and good coverage for 7% revenue growth in both segments.

Customer engagement, a visibility improve now with 75% of the softer revenue being we're carrying.

And in the cyber intelligence visibility also improved.

Close to 75% of our targets.

Already product backlog Orient recurring revenue.

Obviously this is one data point.

When we look at the first two months and today, we are completing the first two months of our Q1.

Oh booking in February and March is actually had year over year in both segments.

But obviously the third month of every quarter is a much bigger month.

So things are changing day by day. This clearly short term restrictions.

That our customers are placing on travel into their sites and obviously a driver restrictions that we have was our employees.

And.

We believe that it's prudent to basically take.

The situation day by day and not to provide guidance at this point.

Got it and I had a follow up.

Oh.

Alan and does want to take it.

As we think about the cloud.

Yeah.

He was more of a flattish performance.

This quarter.

Uh huh.

Yes, it's strictly because of some missing confusion out of social puberty needed contract.

Or either.

Oh, no associated with that and also can talk a little bit about some of it killed graphic trends you're seeing what do you. The overall business environment. Thank you.

Yeah, So I'll take it. Thank you for a club revenue increased 28%.

And for the year, Oh, it was $242 million with 46% growth for the year.

And and we know the cloud revenue consistent bundle saw us an unbundled. So that's the way we are off retail customers.

And we have a very strong cloud bookings growth, so that nice 70% growth in new cloud they city.

And also big increase in a number.

Large contracts TCV more do they didn't doors, we had 93% growth in large large contracts.

Which is it varies could signal that the enterprise market. It is also adopting cloud and obviously the vast majority of our revenue is into enterprise market.

While we also playing if somebody that's still a small part of what we do.

And you know, we think that potentially cloud will be accelerating its a resort <unk> as a result of the coping 19 dynamics.

We currently targets to substantially complete the cloud transition in three years.

But what we see now these customers are certainly finding it easier to update and upgrading the cloud Oh, because the folded physical access restrictions.

So that could be potentially accelerating the cloud transition.

In terms of their geographical distribution in Q4.

Hey, Buck in EMEA Oh, we're on target. So it's only the Americas that was below target and ER.

You know as we discussed before a we had the expectation that Sofia secure administration.

Will contribute to Q4.

And this project is as been appealed so it was actually awarded in July July last year.

And then following an appeal.

We expect to this to be.

Finalized in in Q4 in January.

He was again, we awarded by the Social Security Security Administration.

In March in early March.

Ah, but it's going through a second appeal and it's not quite done a we do expect it to be completed.

And that you know we will we will trying to decide we will get this revenue this year.

Well, we didn't see any.

Any impact in Q4 in eight Bucks.

Although we start to feel the Corona.

Dynamics in a buck already in Q4, but he was late in Q4 and.

We believe that a they are lagging effect between wind up in Debbie Inc. is causing prediction and where it is actually a potential impact on on the business.

Thank you.

Thank you want to next question comes from Daniel lives of Wedbush. Your line is open.

Yeah. Thanks.

So maybe just a bit and follow up but.

Well I think everyone understands unprecedented uncertainty.

But to that point why not use these provide some framework in terms of ranges around guidance I'm James I, just wanted to understand that I mean, obviously every once in certain gene deals and can move around scheme or seem I guess just to maybe drill into that point was that a thought process.

In wireline thanks.

Yeah, So we see.

The situation is changing but today, we are already mentioned before.

We're very active right now with the customers they are calling and asking for help.

And we help them to adjust to the carbon 19 situation by using our analytics and adjusting it to applied to the current situation and.

You know, there's all kind of request that we are we address a on both sides on the security side as well.

And the south processes are ongoing.

But it's very difficult at this point to predict.

Whether there's gonna be any impact going forward the situation is changing but today.

Nobody knows how long, it's gonna take including our customers.

And while as I reported February and March for booking perspective.

Well good its very because it's very difficult to look at the forecast from the South force.

And to put probabilities on whether you.

You know this will be close Oh pushed.

And for how long a and rather than try to.

Predict and then change it on a daily basis, a we think that you get its more prudent not to give guidance.

We also a little bit up ahead of the cycle here because we are now reporting Q4. So everything is shortened started to to change quickly over the last few weeks into U.S.

And then also in other countries you know every countries in different cycle, we ought to do you see some countries that already flattened occur.

Kind of close to that point and we see some countries that are early.

So the impact is very different and trying to predict all that in a way of guidance. We just felt is not responsible.

Hi.

And and just maybe I mean for Doug you, obviously lot of concerning not giving guidance and just environment excuse me, we talk about how we should just think about things in terms of.

No cash flow profitability margins to make sure that despite some of the volatility on top line at least preservation.

From a from a margin perspective in cash flow you know as much as possible some of things you're doing things.

Yeah, So Doug.

Maybe you can give some more visibility into.

You know, how we think about the snorers.

You know you can see that Q4, we had very strong.

GAAP cash from operations.

We actually grew up cash in Q4, 20% and for the year, we generated or get get Oh get cash from operations of 240 million.

Which is 110% growth for the year year over year.

So we are generating cash, but a duck is provide some more color on on.

How we think about the impact of coffee 19.

Yes, sure again, yeah, we had a great cashier in fiscal 20.

You know group last couple of years, we've grown over 200 million cash going this year, we expected to be another good cash generation year things are look a little different right now.

But we've got a five over 550 million of cash today on the balance sheet.

So I think we're well positioned going forward.

With liquidity of and we'll keep an eye on things and try to you know.

Decent margins.

And just a kind of work at month by month as we go through the year in the near term here, but we do feel very good in terms or liquidity and the current cash position.

Thanks.

Thank you. Our next question comes from Dan Bergstrom of RBC capital markets. Your question. Please.

Hi, Thanks for taking my questions here, you've talked about this a little bit let's start with the social Security administration deal you know great win by the way could you drill down into it a little bit what will you be providing them how should we think about the deployments stages and then what what does delayed by appeal means is that unusual or is that just particles.

From an contracts.

Yeah I'm, okay. So.

They surface grid administration.

He is looking to modernize their operation and put us and RSP and there were number be theirs.

Basically last July a variant partner was awarded.

Oh system integrator, who is responsible for a very large.

These very large project.

So.

When they were when they were awarded they paid is a pretty normal process other bidders.

After right on a different or in relation to appeal.

And ER and the government decided to repeat so.

Oh, it would be just had an opportunity to resubmit proposal, which they did.

In early Q4.

And we expect that a a partner to win and we expected revenue to be in floor in Q4.

And what happened is that still to be took longer than our partner did win again and.

You know, but there was a second appeal ER and at this point, we don't know how long.

Second appeal will last.

But we do expect that you know they saw security needs. These type of technology and Oh expectation is that we will eventually will be under contract.

They contract is a is it perpetual software license so.

We talked in the past about our condition to the clouds and that we expect it to substantially completed in three years, but we do have very large customers that we believe we'll decide to remain perpetual and in this case. This is a perpetual contracts.

But it does have in addition to $35 million, a softer which is up many pieces of our portfolio.

It has.

Services over you over several years with too much bigger contract and you know we expected to contribute for quite some time.

In terms of today.

You know the phases you asked about the faces this is something Thats obviously.

Oh, the governments or decide that they can change their mind.

You know, we think that Ah.

You know they they need this technology and.

Oh, obviously in this environment the social security is getting a lot of course, but it that they don't they we when we looked at our Q4 focused.

We had a range that we focus at the revenue from social security similar to our we do we Oh, how we do with all other large deals.

And you know when we have many other deals that are largely in that we announced an 18 million dollar dealing we received in Q4 so.

This is very typical when we focus long.

Large deals.

So as we look back to Q4.

Doing well and number of large deals going to focus and.

Some Kenny some came in exactly was in the expected range and some are were pushed out since the end. This delay for the social security was clearly a largest oh single or delay.

And.

I'd like to point out that if they have to say deal came in on time.

It would have achieved 10% growth in new perpetual equivalent booking.

Oh, we reported 7.3% and obviously.

That's a very important metric to measure the true gross booking in the mix of cloud and perpetual environments. So this is a substantial deal that would would that oh brought us to the 10 cents guidance that we gave.

Oh, and while they didn't slipped out of Q4. It is a great deal for very and the award is a testimony that.

We are very differentiated competitively for large enterprises.

Great. Thanks, very helpful. And then speaking on the cloud I believe you've engaged a couple of a spot sales teams you know what the idea pushing customers along helping with the road map to the cloud just curious what what they're hearing and customer conversations and then any change in customer preference for the cloud. Thanks.

[music].

Yes, so I'm very clear last year.

<unk> the number of large deals over a million dollars TCV.

Gave us the complete confidence that the enterprise market is now ready to move to the clogging we engaged.

Customers in any conversation, including conversion of their existing installed base to the cloud.

Or adding new new capabilities, what's interesting is that when we engage customers in conversion usually that's a good openings to discuss additional.

Software module that we can add and it's a natural time to expand.

So we adjusted the self wasn't supposed behavior by adjusting to commission plan.

And giving them accelerators on cloud deals. So we clearly set the behavior of the salesforce towards cloud first and our customers are more inclined to buy cloud.

And that's why we so a very.

<unk> increase in our recurring revenue they.

There was the increase of 400 bips in softer revenue that came in as recurring.

Which is obviously.

You know very strong increase.

So the question is you know how how the situation with Corona is going to impact customers. It's hard to tell it's really too early.

But we clearly see customers no.

I think the benefits of being in the cloud when they are restrictions on physical access to the office.

That that makes it easier to Oh change the softer into cloud.

And as we discussed before we have.

Upgraded analytics with language morals, there are specific to the copied 19 situation to help customers understand.

You know what are what our board their customers are calling about an hour. They can improve a response and shorten calls and and you know you know.

Good productivity over their workforce and also improved customer experience at the same time.

So all that is obviously easier to going to cloud when there is a troubled travel restrictions.

We all understand that the trouble restriction would be lifted at some point hopefully soon.

So I can't say if this is really haven't lasting effect on customers in terms of their preference for the cloud.

But it does demonstrate some of the clear benefits to our customers where the infrastructure is in the cloud and the vendor or can do more quick a refresh of software a without dependency on on there I T or dependency on site DOCSIS.

Great. Thanks, Dan.

Thank you. Your next question comes from Paul Coster objective Morgan. Please go ahead.

Yeah. Thanks for taking my questions. This is mark strouse on for Paul.

Dan you alluded to this a bit ago, but I'm just wanted to go back to the yes. That's a deal can you just talk about the.

The impact the total revenue.

It wasn't that full 35 million expected in the in the fourth quarter.

No no as I mentioned as I mentioned every large deal we ticket range.

So when we do focus we look at.

You know what we believe we'll be at the low end, an eye and there's a range.

Well, we do expect a social security to implement this in phases.

But it's a perpetual deals. So we we also expect that the software that they need for phase one will be recognized revenue will be recognized that fonts and the services will be recognized over time.

So at this point, we have no reason to believe that this.

The social security administration will change the business small when we still believe it is gonna be a a perpetual deal.

Okay.

And then as far as the Apacs investment goes are there any kind of a material adverse conditions clause included in that investments.

Yeah, Let's say, we do slip into a recession is there anything in that agreement that would.

Allow either party to kind of exit either in tranche, one where she wants to.

Okay. So there are differences in tranche, one and two.

So tranche one as of today, we are on track to complete a tranche one we already.

Went through the HSR process and we currently waiting for serious clearance.

Oh variance in a box all work together through the due to this record of regulatory process, we see fees.

And once this is cleared a we expected to close before the next earnings call.

They the investment agreement.

Were filed so everybody can see that Ah. It does contain customary closing conditions, but a pandemic is not a Mac.

To your question about about the pandemic. So that's the first tranche.

Instead of the second tranche just to remind you. This is the second 200 million dollar tranche.

There's not a care until the time with the spin.

Oh, which we expect a on February onest.

So if copied 19, continuing to keep up the markets in the stock price.

Oh varied at the time to spin is down.

Oh common stockholders are protected with the floor price.

And the floor was negotiated ready and it's part of the investment agreement.

So basically if the spoke is below the floor.

Eight bucks does not have to invest a the second tranche.

But they can still invest and pay the price with the floor.

And the floor is around $50 per share.

Oh, but they accept the correlation wouldn't be done at the time to spin.

Okay. That's helpful thing and then just one more quick one if I can maybe for Doug.

Just given the uncertainty that you've talked about.

Can you talk about your plans this year for share buybacks.

Yes, both regular and is associated with the apex deal.

Now can you take this yes sure yes, you may remember Mark back in December we announced a 300 million dollar buyback program. So far we've repurchased a half of that 150 million.

We have a you know plenty cash in the balance sheet and a it's a you know you're just asking about the pack. So we expect that cast becoming into.

So we still would have a another half.

On the buyback program to go over the year.

Okay very helpful. Thank you very much.

Sure.

Thank you. Your next question comes from Ryan Macdonald of Needham Your question. Please.

Good afternoon, everyone. Thanks for taking my question I guess as we look at back over the past three weeks here and really this is where we started to see the most uncertainty you talk about how we're or and what areas to conversations have shifted the most whether it be in customer engagement versus cyber intelligence.

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Yes, let me start with customer engagement I think the first.

A couple of weeks.

Especially as we're moving their employees to work at home.

They were highly focused on making the infrastructure to work.

So software customers don't have laptops employees don't have laptops.

So they had to go in the you know a purchase laptops and make sure they have conductivity.

In some places like in India for example.

It's hard for people to work at home.

Actually was bought U.P.S. devices for employees to make sure they have power at home.

Really.

The impact was very much focused on how do we ensure continuity with infrastructure.

To connect to our employees.

And then what do you start to see over the last week is more and more customers are looking now at the chaos that a this restructured operation.

He is generating.

Financial services, there is a very.

Big focus on compliance.

How did they how did they know that employees are adhering to the compliance regulations.

For example, PC I compliance and making sure that you know there's no.

Oh, the relation and also fraud because that that.

New environment can potentially create issues these data privacy and lead to fraud.

That's one one area.

The second area is a workforce productivity.

You know tools that help to minister workforce at home to gain better visibility it didn't work poor locked.

And ER and just to be more in control over the over the workforce.

And the third focus is on analytics.

The next to understand what our customers asking about I'll give an example, wonderful customers large bank, they they announced or a program to customers that they are they don't have to pay there in credit cards for three months.

And if I was already makes that a large majority of their age and at home when customers call. They insist that they need to pay the credit card on time or else, they're going to be charge interest.

So visibility into you know how do we.

Give employees at home the right knowledge.

To be able to a address customer requests efficiently.

And this is just.

You know this just obviously very new so we expect these trends to continue.

As they settle it was infrastructure and look more into the productivity compliance analytics.

On the security side, we also very high level, the very I'd volumes of discussion with customers. They.

Basically are focusing on on two things one is.

Directly related to covert 19 saw for law enforcement agencies are responsible for a the corporate 19 enforcement.

And clearly they are people that are.

In order to be other quarantine and they don't respond.

And it's very important to protect the public safety.

To make those quarantine and force so so far data mining software.

And I mentioned wonderful product with facial recognition that helps to make sure that.

People are basically quarantined at home and Oh adhering to that to their requirements.

The other.

Thinks that of course is focused on is a concern that in time of crisis, there will be an increase in crime antero.

And that trying to look for signals.

That you know they helped to focus on on on this type of.

Potential implications.

So in some countries that are.

The military he's already to help and and.

And show law and order, but that's obviously claims to be very short lived.

And a and there is a concern that the sound <unk>.

Potential applications with this pandemic will will create a lawlessness and this order so they want to be prepared.

There's lot discussion on you know how can are.

Technology helped him to address these issues.

Excellent and then my second questions on the on the process with the spin out you mentioned that the tax ruling with the IRS in United Kingdom process can you talk about what the timeline, we should expect here for when this could be completed and is there a risk at all of delays to this process I guess given everything that's going on thanks.

Yeah. So we made a lot of progress since I last earning call I'm not going to repeat a tough talks a tax ruling was one of the areas and ER.

Oh, we think that are conversation so far has been favorable with both the IRS into U.S. and the idea in Israel.

Where we need ruling for both so lot of progress was made and.

You know at this point, we are on track and we'll of course continue to monitor or any cobot 19 situation.

Oh and reported progress.

Great. Thank you.

Okay.

Thank you again to ask your question. Please press star one on your touched on telephone again, that's star one on your Touchtone telephone to ask a question.

Your next question comes from the line of just Kessler of Imperial capital. Please go ahead.

Thanks for taking my question.

On the err on the security side.

What specific you have several divisions inside of that business. What decisions are are the ones that are most impacted right now.

And the ones the ones that are being putting in internet and turns the most service and the second part of that question is.

Going forward what are you doing now.

In terms of raising March in getting margins that are going to go up in the middle of Cobot 19 that may help you or that May help you transition some of the what you're doing now.

Oh, well operationally into a different period, when we don't have us when we when things get back to normal other words, what are you learning what do you learning now that you Didnt know that May help your margins as you go into the next phase of this business once that once the business is split off.

Yeah. So that's the first question the three use cases for our product in <unk> customer in cyber intelligence. So that we see some physical security cyber security and intelligence.

And the way, we see no cyber security duties are again, it concern a that will be an increase.

In cyber attacks a lot of people at home, we already see increase in fishing and you know attempts to took advantage of people clicking on messages.

And.

You know at this point, we we don't see at this point any change in cyber security area.

I think is physical security you know one of the or use cases, I mentioned before about court enforcement, we leverage our salk.

Analytics to be able to help morning, tore quarantine enforced quarantine remotely.

So I think that's a benefit of our physical security.

And in terms of our cyber intelligence or what I mentioned before is Ah just gaining more insights into.

Potential increase in criminal activity, which would be in the dark web.

Or you know other sources that Oh governments are looking at to try to predict criminal events and preventing before they become.

Severe.

So that's what we see right now I think it's early but I can say that Ah customers around the world and we selling more than 100 countries.

Oh, hi, alerts and and we have a tremendous amount of communications in terms of how can we help them address what they see as change in and it's not the stay the same thing for every country.

But almost every one of our countries at some point of you know where they are under the pandemic and they tried to flatten the curve like like we are in the U.S.

So that's on the first a on the first idea in terms of margins.

Most of the investment that we needed to improve margin he's already behind us.

It was to decouple, the hardware and software to open the softer and reduce the amount of customization.

And we did see last year, almost 400 bips with improvements in gross margin.

As a result of selling less hardware and lets customization.

And.

They customer reaction is very positive because they see the opportunity to refresh the softer foster which is obviously more difficult when they buy everything a customized so the investment is behind us and.

Oh I believe this trend will will continue.

There are some customers that will take longer because they prefer one throat to choke and they want to see variant.

At the system integrator that provides them also the hardware, but we do see obviously every year as I mentioned before.

Are we improved gross margin from 60 to 62 and almost 66.

That's a trend over several years that are the investments we made into product is actually.

I'm working well and customers are embracing it.

Can you get to 70%.

That's a target that's a target definitely.

Within within the next few years to get to 70%.

And.

We think that that's not only putting course gross profit obviously, but in improving do it.

Operating margin as well.

So we do.

Work toward tomorrow, or increasing gross margin and profitability in this business.

And that's part of the Spain, you noted that we Oh preparing the soccer intelligence to be a separate public company with a software company margin.

Okay, great. Thank you very much appreciate it.

Thank you at this time I like to turn the call back over its Alan Roden for any closing remarks Sir.

Thanks, operator, before finishing the call like by an update on our Investor Day, Our Investor Day was originally scheduled for April given Cobot 19, you plan to reschedule Investor day to later in year, well announce that date at a later time.

Thank you for during the call Tonight, and hope at one stay safe and healthy.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.

Yeah.

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