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VRNT Verint Systems

Participants
Matthew Frankel Manager, Investor Relations and Corporate Development
Dan Bodner Chairman and Chief Executive Officer
Douglas Robinson Chief Financial Officer
Dan Ives Wedbush
Ryan MacDonald Needham
Peter Levine Evercore
Samad Samana Jefferies
Brian Essex Goldman Sachs
Daniel Bergstrom RBC Capital Markets
Call transcript
Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Verint's First Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Matthew Frankel. Please go ahead.

Matthew Frankel

Thank you, Operator. Good afternoon and thank you for joining our conference call today. I'm here with Dan Bodner, Verint's CEO; Doug Robinson, Verint's CFO; and Alan Roden, Verint's Chief Corporate Development Officer.

Before getting started, I would like to mention that accompanying our call today is a Webex with slides.

If you'd like to view these slides in real-time during the call, please visit the IR section of our website at verint.com, click on the Investor Relations tab, click on the webcast link and select today's conference call. I'd also like to draw your attention to the fact that certain matters discussed in 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 these forward-looking statements. The forward-looking statements are made as of the date of this call and except as required by law. Verint assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements.

For a more detailed discussion of how these and other risks and uncertainties could cause Verint's actual results to differ materially from those indicated in these forward-looking statements, please see our Form 10-K for the fiscal year ended January 31, 2021, 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. Please see today's Webex slides, our earnings release and the Investor Relations section of our website at verint.com for a reconciliation of non-GAAP financial measures to GAAP measures. Non-GAAP financial information should not be considered in isolation from and as a substitute for, or superior to GAAP financial information, but is included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes. And 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, Matt. I'm pleased to report the strong first quarter with both revenue and diluted earnings per share coming in a head of our expectations.

Over the last few quarters, we discussed our expectation the cloud revenue would accelerate this year. And I'm pleased to report that in Q1, we deliver a 39% year-over-year growth in non-GAAP cloud revenue. PLE or Perpetual License Equivalents bookings, which measures our new software bookings on a perpetual license equivalent basis also came in strong with 28% year-over-year growth. Overall, our cloud metrics were strong across the board, including new [indiscernible], recurring revenue and PLE mix.

We expect the cloud momentum to continue and are raising our annual outlook for PLE booking growth.

Our strategy is to help brands navigate digital transformation with an open cloud platform that connects work, data and experience across the enterprise. To help explain and bring this strategy to life, I would like to review several recent large customer clouds win.

Our differentiated platform positioned us well to win new customers and also to capture wide space within our customer base. With thousands of customers globally, many of which are looking to Verint to help them expand their customer engagement strategies and connect the contact center with their office, branch and digital marketing.

Here are a few examples. In Q1 we received a $10 million order from one of the largest financial services company. This is an existing Verint customer transitioning from our on premises solution to our open cloud platform, while at the same time closing gaps in their wide space by adding new Verint's applications. This customer is using Verint across the enterprise to connect the contact center and back office and customer experience operations. This is a good example of a customer using the Verint cloud platform to eliminate silos, drive more efficiency and elevate customer experience.

Another example is a $17 million cloud order we received in early Q2 from one of the largest healthcare providers in the United States. This is also an existing Verint customer that decided to transition their various application platform to the cloud. And at the same time transition, their communications platform to the cloud with a new vendor. Because of our open platform and its broad set of pre-built integrations with leading communications platform, customer was able to select their communication vendor with the peace of mind that the Verint's application platform could be seamlessly integrated, regardless of who they choose. This is a good example of how the Verint platform gives customers the openness and flexibility they need.

In addition to these eight digit orders from existing customers, we continue to win new customers and displace competitors. In Q1, we received a $4 million cloud order from one of the world's largest logistics company and new customer for Verint. This is a good example of Verint's working together with a partner to package the Verint platform with the communication platform and offer the customer a pre-integrated offering. This competitive displacement was due to the best of bridge functionality of our open platform, and our strategy of working closely with partners. We believe these large orders reflect our differentiated technology and the successful execution of our open cloud platform strategy. We recently had the opportunity to showcase our innovation in our Annual Engage User Conference, where we had more than 5000 registrants, up nearly 40% year-over-year. At the conference, we unveiled many innovations, including real-time work, which I would like to discuss today. Real-time work is growing in importance in the post-COVID world of remote work and increasing demands on the workforce. Brands need new technology to help customer engagement employees respond better in real-time and increase workforce productivity.

Our new real-time work innovation includes several cloud platform applications as follows; first, real-time agents assist and automatically detect unique moments of truth, such as customer complaints, escalations, positive and negative sentiments, long silences, compliance risks and coaching opportunities. Agents and managers receive real-time guidance, alerts and coaching with next best action and insights on how to improve interaction.

Second, contextual knowledge which is as advanced AI to create a more automated, natural and effective way to connect people to knowledge. AI infused contextual knowledge can be surfaced automatically and in real-time.

So that agents and managers can respond with the right answers and avoid long searches and customer frustration. And finally, Verint intelligence virtual assist for the workforce, which provides human agents with AI powered, continuous support during calls and chats and allows agents to improve response accuracy, compliance, training ramp time and customer experience. Overall, I'm happy to report that [indiscernible] of our security business, the new Verint is increasing the pace of our innovation and building more possible differentiation to accelerate growth.

As discussed on prior calls, our platform is open and designed with a native cloud architecture, supporting multiple clouds, making it easier for customers and partners to quickly innovate and integrate with their environments of choice. The value of Verint the platform comes not only from its on features, but for its ability to easily connect external tools, team, data and processes. This is critical today, as customer engagement is no longer solely a contact center function. With digital transformation, it's an enterprise function that requires the connection of data and workflows, of course, many departments and silos.

We have designed our platform to integrate seamlessly with other key enterprise platforms, including communication platforms, CRM solutions and enterprise business intelligence and analytics tools.

For communications platforms, [indiscernible] and enable our customers to quickly integrate with the vendor of their choice, as illustrated by the large waves we discussed earlier.

For CRM, we enable our customers to easily export and import data between their CRM systems and the Verint platform. And lastly, for business intelligence and analytics tools, we provide free access to the wealth of data managed by the Verint platform. Overall, we are pleased with our Q1 results, the increased pace of our platform innovation and the strong cloud momentum.

Now let me turn the call over to Doug. Doug?

Doug Robinson

Thanks, Dan. Good afternoon, everyone.

Our discussion today will include non-GAAP financial measures, a reconciliation between our GAAP and non-GAAP financial measures is available as Matt mentioned, in earnings release and in the IR section of our website. Differences between our GAAP and non-GAAP financial measures include adjustments related to acquisitions, including fair value revenue adjustments, amortization of acquisition-related intangibles, certain other acquisition-related expenses, stock-based compensation, separation-related expenses, as well as certain other items that can vary significantly in amount and frequency from period-to-period.

For certain metrics, it also includes adjustments related to foreign exchange rates. I'd also like to mention that our first quarter results exclude our Cyber Intelligence business, which was spun off on February 1 as Cognyte.

So now it's a standalone company and shown us a discontinued operation in our prior period results.

As Dan mentioned, we started the year strong with results that came in ahead of our expectations. Non-GAAP revenue came in at 202 million, adjusted EBITDA came in at 49 million and non-GAAP diluted EPS came in at $0.44.

Our cloud metrics were strong across the board. Non-GAAP cloud revenue increased 39% year-over-year, consistent with our objective to accelerate our cloud growth.

New PLE bookings increased by 28% year-over-year and for the first time, more than 50% of our new software bookings were from SaaS, we're pleased to cross the 50% mark for new bookings in Q1.

New SaaS ACV growth increased a strong 58% year-over-year, reflecting demand for our cloud solutions and this bookings growth will contribute to our revenue growth in future periods. The percentage of our software revenue that was recurring increased to 83% approximately 100 basis points year-over-year and RPO was 619 million, up 30% year-over-year, reflecting the multi-year commitments from our cloud customers.

Turning to our outlook, we are pleased with our strong start to the year, particularly with our cloud momentum. And we are increasing our annual outlook for two PLE bookings to more than 10% for the full year.

As a reminder, last quarter, we increased our annual outlook for cloud revenue growth to a range of 30% to 35%.

Regarding PLE bookings mix, this is an important metric to measure the progress of our new booking transition to SaaS.

As our customers continue shifting to the cloud, we expect a greater portion of our software bookings to come from SaaS this year, following a steady increase over the last three years.

One of the major financial benefits of our cloud transition is the increase in our recurring revenue.

Following steady increases in recurring revenue in the last three years, for this year, we expect to again increase the percentage of our software revenue coming from recurring sources.

Another major benefit of our cloud model is improved economics over time.

Turning to the balance sheet, following the spin of Cognyte on February 1, we completed several capital market transactions which strengthened our balance sheet. We closed the second tranche of Apex investment, following which Apex holds about 13% of our shares on an as converted basis. We issued new convertible notes with an effective conversion price of $100 per share after giving effect to the cap call. We repurchased 1.6 million shares of common stock for 75 million. We paid down our term loan to a current balance of 100 million and we settled our prior convertible notes upon maturity the first week in June.

Following these transactions, we have a strong balance sheet with approximately 400 million of cash and net debt of approximately 50 million.

For the year, we expect to have 76 million fully diluted shares outstanding, including the apex preferred shares on an as converted basis and excluding any accrued dividends. To help you further with your models, with respect to interest and other expense, we expect 3 million in Q2, and 1.5 million in Q3 and in Q4.

In addition, for the year we expect a 10% tax rate and a 1 million non-controlling interest. Based on the momentum we experienced in Q1, for the year, we expect 860 million of non-GAAP revenue plus or minus 2% and $2.23 of non-GAAP diluted EPS at the midpoint of the revenue range.

Regarding our cloud outlook for the year, last quarter, we raised our cloud revenue growth outlook and today we are raising our outlook for new PLE bookings growth to more than 10%.

Let me also discuss how we were seeing the year progressing.

For Q2, we expect revenue to increase sequentially to between 205 million and 210 million with additional sequential increases in Q3 and Q4. From an expense perspective, given our expectation for strong cloud growth this year, we're making investments to support that growth. Based on our revenue expense outlook, we expect to run $0.40 EPS in Q2.

As a reminder, we took steps during Q2 of last year to lower expenses due to COVID. In summary, with a strong first quarter driven by our differentiated cloud platform, expect strong cloud performance for the year. With that operator, let's open up the lines for questions.

Operator

Thank you. [Operator Instructions] Our first question comes from Dan Ives of Wedbush.

Dan Ives

Solid quarter.

So what's the biggest driver? And of why customers move into cloud today was there. I mean, why not wait, like? Can you just talk about like catalyst and what you're hearing from customers?

Dan Bodner

Yes, sure.

So customers are moving to the cloud with Verint today because the workforce has been disrupted by digital transformation. And also COVID, is accelerating the digital transition.

So COVID has changed the workforce dynamics in some aspects permanently. And the Verint cloud platform provides our customers better visibility and efficiency tools to manage the new workforce of humans and bots. But looking at digital transformation, this is a more strategic driving force. If it's driving a massive increase in the number of digital and social interactions and also consumers expect faster and more contextual service. And the result of this at brands cannot afford to hire more employees to respond to this massive increase in volume and expectations.

So this is causing an engagement capacity gap. And as you know, Verint offers today, an open cloud platform that is focused on empowering this workforce of human and bots.

So that Verint can close the engagement capacity gap. This is a strategic challenge to our customers and they are moving to the cloud is Verint, so they basically want to accelerate closing the capacity gap.

Dan Ives

Great. And just serve as follow up, like what percent of the Bs has today is moved to cloud. Like, I mean, we're supposed to read the amount of penetration of an average existing Verint customer today and going forward. Thank you.

Dan Bodner

Yes.

Okay.

So basically two questions.

So first, today, the majority of our customers are moving to the cloud and have made plans or have made plans to move to the cloud.

So we offer more than 50% of our PLE booking coming from SaaS. And we expect this to continue to improve and gradually approach 60% for the year.

The second part of the question is on penetration.

So we did a study of our top 1000 customers and we believe that on average, they are less than 25% penetrated with the cloud platform. And the reason for this relatively low penetration today is basically the time and complexity associated with the on-prem expansions. And, of course, with the cloud platform, Verint makes it easy for customers to expand in the cloud.

So we believe that our open cloud platform is the main reason behind a double-digit, new booking growth rates, as we see more penetration accelerating relative to the pace we had on prem. And we have significant opportunity with our base to move to the cloud. But let's also not forget that we also win new customers, directly and with partners and for example, we discussed earlier, a $4 million win of new customer, which we did together with one of our partners. And this is also due to the open cloud platform.

So I think we have both a real good opportunity now with the cloud platform to accelerate the penetration to the base, which is less than 25% and to continue to differentiate and win new customers.

Operator

Thank you.

Our next question comes from Ryan MacDonald with Needham.

Ryan MacDonald

Congrats on a nice quarter here. Dan, first for you, I'd be curious as to seeing -- what you're seeing from a market dynamic perspective. Obviously, we're seeing, increased demand for cloud based solutions. But how is peak activity trending, when you think quarter-over-quarter and how are you feeling about win rates currently today?

Dan Bodner

Doug, you want to take this?

Doug Robinson

Yes, sure. Hey, Ryan. Have you seen the pace of the cloud transitions accelerating and as you've seen with their strong cloud revenue and bookings growth, when you look at our new bookings mix, we just crossed the midpoint, so that more than 50% is coming from SaaS now.

So we think the mid point is a key inflection point. And we've got the tailwind from the cloud growth now stronger than the headwind that we've been getting from the perpetual decline.

So from a revenue perspective, we expect a revenue growth to accelerate every year as the perpetual revenue declining this year and then it travels next year. And then, from a margin perspective, going forward, we expect an improvement also, as a mix of recurring revenue, continues to improve.

Our recurring revenue carries a higher gross margin, right.

So we don't expect margin improved this year but going forward, we're looking for improvement every year, starting from next.

Ryan MacDonald

Excellent. And as a follow up, interesting to see the real-time work solutions offering that you introduced to the conference, just curious, what sort of feedback you've been getting from customers thus far? And how should we start to think about that layering into bookings as we progress through the remainder of the year? Thanks.

Doug Robinson

Dan, are you going to take that?

Dan Bodner

Yes, sure.

So the response we got from customers during the engage conference was terrific, and also from partners who are excited to carry the product. The concept of real-time work and assisting the workforce in the moment with AI driven decision-making it's not a new idea. The market has shown interest in this for years now. But we believe that technology was just not effective to do that in real-time. And of course, when you start to guide a person during an interaction, if you're not very accurate and provide value, then you just basically disrupting the person from doing the work.

So I think we got to the point now that we feel that we've packed a lot of AI from different types of disciplines, all sitting in one platform, based on what we call Da Vinci which is the AI engine in our platform. And this is AI that is causing disciplines.

So we have AI relative to understanding the intent of a voice call. With AI, looking at the acoustic dynamics of the call, looking at sentiment and also looking at what the agent is doing on the desktop with applications and understanding all in real-time. What is the context of what the agent is trying to do and how we can suggest help.

Some of yourself could be based on knowledge that is pushed to the agent in real-time.

So they don't have to search.

Some is based on a body, a virtual assistant body that the agent can interact with, in real-time and get faster answers.

So they don't have to put customers on hold and do a long grid search results, which obviously, is loss of productivity, but also very annoying to the consumers.

So we think that, this technology now is ready and can basically help close the engagement capacity gap by doing both increasing productivity of the workforce and at the same time elevating the customer experience as they get faster and more contextual responses.

Now, in terms of the impact on -- the second part was the impact on our growth rates. Like any, this is not a new -- completely new product. It's part of the platform, it's now available for our customers to turn on as a cloud service from the platform. And obviously, with my comments earlier, we just expect in the cloud that it's going to be easier.

So the whole sales cycle is much faster, customer can actually start with a small number of agents and test the technology and expand over time.

So this is one of the innovations that we do in the platform that will help us accelerate growth.

Operator

Thank you.

Our next question comes from Peter Levine with Evercore.

Peter Levine

So the first one is for Dan, the case deals running through the pipeline, how's that trending today versus 12 months ago? Are we back to pre-COVID levels?

Dan Bodner

I would say definitely in perpetual. A year ago we said perpetual is on hold and it's going to come back. It is coming back, but much of it is coming back as cloud.

So in terms of the overall demand, I think we're showing great growth in booking and then obviously, booking will become revenue over time in the SaaS model. But the shift from perpetual to cloud is also very clear trend.

So I would shift in both areas, we see the shift from our customer base and the number of conversions that we have of legacy solutions to the cloud. But also, very important with new booking, as we just said, I guess, several times because we think it's a very important milestone that we just crossed the midpoint that more [indiscernible] and it's going to continue to go towards that.

So yes, the demand is strong, but definitely shifting to clouds across the platform.

Peter Levine

Okay. Maybe one for you Doug, sticking to the full year guide, let's understand what's behind that right. What are the tailwinds that you're building in? What do you not building in that are not big enough, could potentially be the upside as we progressed through the year?

Doug Robinson

Yes.

I think what we've modeled into the guidance is our expected mix of business as we see it. We've talked about headwinds, tailwinds. Customers come back one more perpetual licenses that would drive additional revenue growth. If it's more bundled and it's more later, that's a bit of a tailwind.

For us, so it's really, the mix. The expense side is pretty steady, right? The software companies mostly headcount and much of that is fixed.

So it's really kind of a revenue mix that will give us upside. And we think we model it conservatively.

So, hopefully, we're in good shape for the year and maybe it's an upside.

Dan Bodner

Yes. And I would say that you have to look at the P&L, but also the cloud metrics, because we just talked about -- we expect now PLE growth to be double-digit more than 10%.

Now, the higher the booking growth, not necessarily translating to revenue this year. But actually, oh, no, this booking is going to be revenue over the next few years.

So it's going to accelerate our three year targets, but not necessarily this year target.

We also discussed, our RPO remaining performance obligations.

So basically we getting more multi-year cloud deals.

So that was, I believe, 30% growth year-over-year. And that also translates into future revenue, future commitments that we have from customers for revenue that are locked up this year.

So there's a lot of things that can definitely improve, and you will be able to see that from our cloud metrics but not necessarily going to be reflected in the P&L for this year.

So I think it's important for investors to look both at our annual guidance, but also we discussed three year targets and any improvement in booking will suggest also in our ability to achieve and overachieve our three year targets.

Operator

Thank you.

Our next question comes from Samad Samana with Jefferies.

Samad Samana

I guess the first one, just a follow up question on the guidance, where I know that we're only to the first quarter of the year and then a couple of weeks into the next quarter. But that 30% to 35% range is fairly on the wide side.

So maybe, Doug, could you help us understand kind of directionally where we are headed in that range and maybe a better triangulation around 2Q specifically?

Doug Robinson

Yes. I mean, as Dan just went through, it really depends on the bookings mix that drives the revenue growth.

So you really need to look at that hand-in-hand, right? So it depends on the mix and it's the timing. And while that seems like a loud band, wide band, that's the way it trickles into our revenue. But I think you need to look at the RPO, which is up 30%. That gives us good basis going forward for the year. When reporting our new ACV bookings that was up what 58% in Q1.

So we're building some good momentum here. It's just a question of the mix of how much ends up in the revenue line actually, but the revenue line no longer as we're going through, this is really the full measure of the strength of the business, right? You have to look at all the kind of the data points collectively.

Dan Bodner

Yes, the cloud revenue -- just to add to this, cloud revenue, we last quarter, we raised the guidance to 30% to 35%. And obviously, we achieved 39% in Q1. And at this point, we feel good about achieving the cloud revenue growth targets that we have for the year.

Samad Samana

And maybe, Dan, a follow up for you.

On the kind of business environment one of your top partners, they obviously have their own WFO offering now, but they've seen a kind of steady acceleration in their bookings, in their business. And I'm curious if you're seeing maybe the same mix coming from the same partners, are you seeing any change in the partners that are helping drive your WFO offering?

Dan Bodner

Yes.

So in terms of change, we see more activity with partners and more adoption of partners of a cloud platform.

You refer to WFO but obviously, cloud platform, we have now, many, many different applications that are much bigger than WFO, they include all aspects related to managing the workforce across the enterprise and also just managing workflows.

So it's not just the box, of course, all the different digital channels, social channels, voice channel, obviously, and also the workflows that are going to drive the productivity in the customer experience that are very key. And we discussed the fact that the workforce is a $2 trillion expense, if you remember when we discussed our TAM, we spoke about 50 million workers in customer engagement and approximately the cost of an employee is $40,000 that's a $52 trillion. And with the increase in volume in interactions, obviously, brands cannot afford to hire.

So that's the capacity gap. And that's where we definitely focusing, that's where we have differentiated functionality, a real open platform that cut across all aspects of the workforce and the future of work.

So I will give you an example just to understand, what I said in terms of expansion across the platform.

So one of our customers is a large bank, they have 50,000 employees overall. And they purchase from Verint 3500 licenses in the kind of contact center, but also additional 5000 licenses for the back office workforce, an additional 9000 licenses for the bench workforce.

So although 17,500 licenses and of course, the contact center, back office and branches.

So this banking customer has recognized the benefits of having a single platform that is open and they connect the silos that exist today in the concern of the customer branch. And of course, from a Verint perspective, they have a single sales person that is for this account, obviously, this effort is being supported by subject matter experts.

So we can offer the customer additional functionality from our platform. But this is, one of the unique capabilities that we have in the platform and some of our partners, our system integrators that, they like this type of model and they like to help enterprise connect silos from a contact center throughout the enterprise.

So we have system integrator, aside this partner, obviously, with resellers. And then we also have communication platform vendors as partners as well, which you refer to one of them.

So I think it's important for you to understand, what is really the size of the platform, what are we able to solve for the end customer and we are solving a really, really important problem today, which is, they can't afford hiring. And they need to bring more AI automation and they need to manage the workforce and the work in a way that they can connect because, again, that how many companies today are able to connect, chat on the website with the connector, right? When we chat with someone on the website and it doesn't work and we call into the contact center very, very few brands today are able to say, yeah, we can see what you did on the work side and let's help you. In most cases, you have to start over again. And this is because of the silos that are created historically. And then, those silos don't work anymore in the digital information, when more and more of the interactions are digital, chats, social media, community, messaging, lots of different vehicles to engage customers beyond the traditional call into contact center. And that's how we definitely report customers and also our partners.

So we see a partner business growing a little bit faster than direct.

So to answer the question numerically, today, our direct business is a little bigger than a partner business. And in terms of growth rates our partner business have joined a little bit more, but pretty much the same rates, but we expect with the greater adoption, that the mix will change more toward partners gradually. And that we will see faster growth rates from partners over time.

Operator

Thank you. [Operator Instructions] Our next question comes from Brian Essex with Goldman Sachs.

Brian Essex

Great to see the strong cloud growth in the quarter. I was wondering, Dan, maybe if you could unpack that a little bit. It looks like unbundled SaaS accelerated really nicely year-on-year. But was sequentially down a little bit and certainly more than we thought it was going to be. What were some of the dynamics and maybe this kind of goes towards your partner comment? What were some of the dynamics that play in the quarter that drove bundled and unbundled SaaS expectations for the year and maybe help us understand seasonality and case that unbundled number of moves around a little bit? I know there's a lot in there but…

Dan Bodner

Yes. The bundles in Q1 just the number of days in the quarter.

If you neutralize number of days, was actually growing a little bit, but more importantly is to really understand how we offer bundle and unbundle SaaS to our customers. Basically in a bundle SaaS, we licensed the product and the hosting services bundled together. And the unbundle SaaS, we license the product and give the customer an option to purchase the hosting services from Verint at a later time.

Now it's an option they may not but sometimes they want to host themselves, sometimes they want to host with another partner of choice.

So they don't necessarily have to host as Verint. But in essence, we expect the two models to really work together.

And some customers may start with unbundled and then maybe six months later, they buy hosting services, and they become more like bundle with the same economics.

So that's kind of our approach. It is really to help the customers to give them more choice and flexibility. It's part of the openness. Because, when we talk about open cloud platform, it's not just the API's and the development tools and the community environments to support development and we're getting more and more developers in our community now. And that's great. That's a lot of people writing functionality around the platform. But we look at openness very seriously also in many other facets, including, for example, our marketplace, we have a free marketplace where customers can download the assets and some of their assets are contributed by partners into the marketplace.

So we see the flexibility in cloud environments. We're multi cloud architecture, the flexibility in SaaS models, the ability to bundle or unbundle to your specific question, the flexibility to do hybrid where some solutions are on-prem and some already are in the cloud that many, many of our customers take advantage of because they want to move to the cloud. And to the question from Dan Ives, that's why I think I made it clear cut, to really see that important to move to the cloud and accelerate the innovation. But sometimes they don't necessarily want to move the legacy product that works well for the cloud now.

So we give them an option to have a hybrid of on-prem and cloud. And in that sense, they can be partially unbundled and partially bundled.

So bottom-line is, we are focusing on cloud growth. And we believe that the economics behind the models of cloud, whether this or that are much better. Then perpetual as Doug said, we have we have better margins on our current business.

Brian Essex

Right. That's helpful. Thank you for that. And maybe just a follow up, if I can understand the margins, differential between bundled and unbundled. And what's the deal differential? So if you do like, say a $5 million deal that's bundled, what might the difference would be between a bundle deal of that size versus an unbundled deal and impact on the fundamentals like gross margins of the business?

Dan Bodner

Yes.

So for $5 million unbundled will be basically as licensing the product let's say for three years, this is 5 million. And in the bundles bundle situation, this could be 5 million for the product plus let's say another million or 1.5 million for the hosting services, so which they can buy separately. In an unbundled, they can buy the 5 million and the 1.5 million in separate production, or they can buy them in one transaction bundled. The margin on the product is the same and the margin on the hosting services is obviously lower margins, but it's pretty typical margins on services. But, if the customer starts with a $5 million unbundled, and then purchase a $1.5 million hosting services, they're going to end up exactly the same place with the same margin as a bundled.

So no difference and that's why it's so compelling for customers, because we're not trying to push them one way or the other. We're trying to tell them do what's right for you based on your circumstances.

Operator

Our next question comes from Daniel Bergstrom with RBC Capital Markets.

Daniel Bergstrom

Say in the prepared remarks the large deals you talked about some success in the white-spaces, when customers transition to the cloud from on-premise, but then you also mentioned with your surveys that customers were about 25% penetrated in the cloud.

Just curious, if there are a some common adjacencies or products that maybe are really standing out for you in driving success in that white-space?

Dan Bodner

Yes. I would say the first thing and the most important thing about that white-space is the customers want to know that signing up to an open platform. Because some of the vendors today in the market are trying to push a closed platform and customers realize that the customer engagement challenge is much bigger than anyone's platform. And that's why the first thing they look at Verint is, how do you play with the communication platform, because we may have all kinds of different communication vendors. It could be CCaaS, UCaaS or CPaaS.

So collaboration, like Teams and Zoom, like there a lots of choices.

So they want to be -- they want to see that we play well integrated with communication platform. They want to see that we play well with CRM platform and that we can support their enterprise bi and analytics, which is obviously important for them for any data driven enterprise.

So once they kind of understand what the open platform offers, where they adapt is very different.

So let's look at these three examples that I mentioned earlier and let's look at one dimension, because we're very often being asked, our customers moving to the cloud and they are moving their communication platform at the same time, not at the same time in one-day in two days.

So I want to discuss the openness and show you what happened with the three customers.

So let's look first at the $10 million win.

Okay, so with the $10 million, the customer has actually moved Verint to the cloud, a bunch of Verint applications they already have and they expanded at the same time, buying deeper into the platform. But the legacy communication channel is still on-prem.

So the ACV, the routing, they decided they don't need to change that it's working.

So this was -- the reason was to move this Verint to the cloud to accelerate innovation. And they didn't see right now any urgency to change their communication platform.

So that was a $10 million deal.

Now, when we look at a $17 million deal, this customer actually decided to move everything to the cloud, both the communication platform and the business application platform from Verint. But they decided to do it in separate deals.

So Verint basically was awarded the cloud platform deal. And they went on and chose another communication platform vendor and they had the peace of mind that Verint will work with any of them, because they know we have not fixed to the communication platform.

So that was a case in the 17 million.

Now let's look at the $4 million, which was a win which was a new customer for Verint. And again, you'll see a different story.

Here this deal was won together with a partner, this partner has their own communication platform and the customer wanted to buy from one vendor, both communication and application platform.

So we join forces and we displaced the competitor and gave the customer one solution in one deal. And the customer chose basically the solution based on the functionality that Verint as in the platform.

So you can see that customers want to behave in a lot of different ways. And they need openness and flexibility, which is what we are focused on providing them.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Matthew Frankel, for any further remarks.

Matthew Frankel

Great, thank you everyone for taking the time.

Of course, feel free to reach out with any questions you have more than happy to chat. But thank you again and I look forward to talk to you again soon. Have a good day.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

You may now disconnect.