Verint Announces Q2 FY2020 Results with Strong Cloud Growth

4 Sep 2019

MELVILLE, N.Y.--(BUSINESS WIRE)--Verint® Systems Inc. (NASDAQ: VRNT), a global Actionable Intelligence® leader, today announced results for the three and six months ended July 31, 2019 (FY2020).

“We are pleased with our second quarter and first half results which reflect our strong innovation and market leadership. In Customer Engagement, we continue to execute well on our Cloud First initiative with strong cloud revenue growth and large enterprise wins. In Cyber Intelligence, our strategic initiative to unbundle and productize our data mining software is tracking well ahead of plan and resulted in significant gross margin expansion. Overall, we continue to accelerate innovation and evolve our business models which we believe is resonating well with our customers and large partner network,” said Dan Bodner, CEO.

FY2020 Financial Highlights (Three and Six Months Ended July 31, 2019, Compared to Three and Six Months Ended July 31, 2018)

 

Three Months Ended July 31, 2019

 

Six Months Ended July 31, 2019

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Revenue

$324 million

 

$331 million

 

$640 million

 

$655 million

y-o-y change

+5.9%

 

+7.4%

 

+7.4%

 

+9.2%

Revenue (Constant Currency)

$328 million

 

$335 million

 

$649 million

 

$664 million

y-o-y change

+7.1%

 

+8.6%

 

+9.0%

 

+10.6%

Gross Margin

64.1%

 

67.5%

 

63.9%

 

67.4%

y-o-y change

+110bps

 

+160bps

 

+210bps

 

+250bps

Operating Income

$15 million

 

$66 million

 

$30 million

 

$128 million

y-o-y change

-47.7%

 

+4.0%

 

-19.6%

 

+17.0%

Operating Margin

4.7%

 

19.9%

 

4.7%

 

19.6%

y-o-y change

-480bps

 

-70bps

 

-150bps

 

+140bps

Diluted EPS

$0.16

 

$0.82

 

$0.18

 

$1.55

y-o-y change

-51.5%

 

+8.0%

 

-40.0%

 

+20.3%

FY2020 First Half Highlights

Customer Engagement

  • Revenue growth of 8.1% on a GAAP basis and 12.2% on a non-GAAP constant currency basis
  • “Cloud First” strategy progressing well
    • Strong cloud revenue growth on a GAAP basis of 37% and on a non-GAAP basis of 49%
    • Strong new SaaS ACV growth of 84%
    • 11 cloud orders over $1 million Total Contract Value (TCV) versus 4 in the prior year first half
  • Automation innovation helping customers achieve elevated customer experience while reducing their operating costs

Cyber Intelligence

  • Revenue growth of 6.1% on a GAAP basis and 7.5% on a non-GAAP constant currency basis
    • While accelerating our planned reduction of low margin pass-through hardware revenue
  • Software model strategy ahead of plan
    • Gross margins (estimated fully allocated) up more than 600bps
  • Continuing to win large orders reflecting customer need for advanced data mining solutions
    • Added approximately 50 new customers in the first half

Financial Outlook for FY2020 (Year Ending January 31, 2020)

Our non-GAAP outlook for revenue and EPS for the year ending January 31, 2020 is as follows:

  • Revenue: $1.375 billion with a range of +/- 2%
    • Reflects 10.5% year-over-year growth
  • EPS: $3.65 at the midpoint of our revenue guidance
    • Reflects 14% year-over-year growth

Our non-GAAP outlook for the year ending January 31, 2020 excludes the following GAAP measures which we are able to quantify with reasonable certainty:

  • Amortization of intangible assets of approximately $55 million.
  • Amortization of discount on convertible notes of approximately $12 million.

Our non-GAAP outlook for the year ending January 31, 2020 excludes the following GAAP measures for which we are able to provide a range of probable significance:

  • Revenue adjustments are expected to be between approximately $26 million and $28 million.
  • Stock-based compensation is expected to be between approximately $75 million and $79 million, assuming market prices for our common stock approximately consistent with current levels.

Our non-GAAP outlook does not include the potential impact of any in-process business acquisitions that may close after the date hereof, and, unless otherwise specified, reflects foreign currency exchange rates approximately consistent with current rates.

We are unable, without unreasonable efforts, to provide a reconciliation for other GAAP measures which are excluded from our non-GAAP outlook, including the impact of future business acquisitions or acquisition expenses, future restructuring expenses, and non-GAAP income tax adjustments due to the level of unpredictability and uncertainty associated with these items. For these same reasons, we are unable to assess the probable significance of these excluded items. While historical results may not be indicative of future results, actual amounts for the three and six months ended July 31, 2019 and 2018 for the GAAP measures excluded from our non-GAAP outlook appear in Table 3 to this press release.

Conference Call Information

We will conduct a conference call today at 4:30 p.m. ET to discuss our results for the three and six months ended July 31, 2019 and outlook. An online, real-time webcast of the conference call will be available on our website at www.verint.com. The conference call can also be accessed live via telephone at 1-844-309-0615 (United States and Canada) and 1-661-378-9462 (international) and the passcode is 3464357. Please dial in 5-10 minutes prior to the scheduled start time.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of non-GAAP financial measures presented for completed periods to the most directly comparable financial measures prepared in accordance with GAAP, please see the tables below as well as "Supplemental Information About Non-GAAP Financial Measures" at the end of this press release.

About Verint Systems Inc.

Verint® (Nasdaq: VRNT) is a global leader in Actionable Intelligence® solutions with a focus on customer engagement optimization and cyber intelligence. Today, over 10,000 organizations in more than 180 countries—including over 85 percent of the Fortune 100—count on intelligence from Verint solutions to make more informed, effective and timely decisions. Learn more about how we’re creating A Smarter World with Actionable Intelligence® at www.verint.com.

Cautions About Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding expectations, predictions, views, opportunities, plans, strategies, beliefs, and statements of similar effect relating to Verint Systems Inc. These forward-looking statements are not guarantees of future performance and they are based on management's expectations that involve a number of known and unknown risks, uncertainties, assumptions, and other important factors, any of which could cause our actual results or conditions to differ materially from those expressed in or implied by the forward-looking statements. Some of the factors that could cause our actual results or conditions to differ materially from current expectations include, among others: uncertainties regarding the impact of general economic conditions in the United States and abroad, particularly in information technology spending and government budgets, on our business; risks associated with our ability to keep pace with technological advances and challenges and evolving industry standards, to adapt to changing market potential from area to area within our markets, and to successfully develop, launch, and drive demand for new, innovative, high-quality products that meet or exceed customer needs, while simultaneously preserving our legacy businesses and migrating away from areas of commoditization; risks due to aggressive competition in all of our markets, including with respect to maintaining revenues, margins, and sufficient levels of investment in our business and operations; risks created by the continued consolidation of our competitors or the introduction of large competitors in our markets with greater resources than we have; risks associated with our ability to successfully compete for, consummate, and implement mergers and acquisitions, including risks associated with valuations, reputational considerations, capital constraints, costs and expenses, maintaining profitability levels, expansion into new areas, management distraction, post-acquisition integration activities, and potential asset impairments; risks relating to our ability to properly manage investments in our business and operations, execute on growth initiatives, and enhance our existing operations and infrastructure, including the proper prioritization and allocation of limited financial and other resources; risks associated with our ability to retain, recruit, and train qualified personnel in regions in which we operate, including in new markets and growth areas we may enter; risks that we may be unable to establish and maintain relationships with key resellers, partners, and systems integrators and risks associated with our reliance on third-party suppliers, partners, or original equipment manufacturers (“OEMs”) for certain components, products, or services, including companies that may compete with us or work with our competitors; risks associated with the mishandling or perceived mishandling of sensitive or confidential information, including information that may belong to our customers or other third parties, and with security vulnerabilities or lapses, including cyber-attacks, information technology system breaches, failures, or disruptions; risks that our products or services, or those of third-party suppliers, partners, or OEMs which we use in or with our offerings or otherwise rely on, including third-party hosting platforms, may contain defects, develop operational problems, or be vulnerable to cyber-attacks; risks associated with our significant international operations, including, among others, in Israel, Europe, and Asia, exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, and challenges associated with a significant portion of our cash being held overseas; risks associated with political factors related to our business or operations, including reputational risks associated with our security solutions and our ability to maintain security clearances where required, as well as risks associated with a significant amount of our business coming from domestic and foreign government customers; risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we operate, including, among others, with respect to trade compliance, anti-corruption, information security, data privacy and protection, tax, labor, government contracts, relating to our own operations as well as to the use of our solutions by our customers; challenges associated with selling sophisticated solutions, including with respect to assisting customers in understanding and realizing the benefits of our solutions, and developing, offering, implementing, and maintaining a broad and sophisticated solution portfolio; challenges associated with pursuing larger sales opportunities, including with respect to longer sales cycles, transaction reductions, deferrals, or cancellations during the sales cycle, risk of customer concentration, our ability to accurately forecast when a sales opportunity will convert to an order, or to forecast revenue and expenses, and increased volatility of our operating results from period to period; risks that our intellectual property rights may not be adequate to protect our business or assets or that others may make claims on our intellectual property, claim infringement on their intellectual property rights, or claim a violation of their license rights, including relative to free or open source components we may use; risks that our customers delay or cancel orders or are unable to honor contractual commitments due to liquidity issues, challenges in their business, or otherwise; risks that we may experience liquidity or working capital issues and related risks that financing sources may be unavailable to us on reasonable terms or at all; risks associated with significant leverage resulting from our current debt position or our ability to incur additional debt, including with respect to liquidity considerations, covenant limitations and compliance, fluctuations in interest rates, dilution considerations (with respect to our convertible notes), and our ability to maintain our credit ratings; risks arising as a result of contingent or other obligations or liabilities assumed in our acquisition of our former parent company, Comverse Technology, Inc. (“CTI”), or associated with formerly being consolidated with, and part of a consolidated tax group with, CTI, or as a result of the successor to CTI's business operations, Mavenir, Inc., being unwilling or unable to provide us with certain indemnities to which we are entitled; risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, internal controls, and personnel, and our ability to successfully implement and maintain enhancements to the foregoing, for our current and future operations and reporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays; risks associated with changing accounting principles or standards, tax laws and regulations, tax rates, and the continuing availability of expected tax benefits; and risks associated with market volatility in the prices of our common stock and convertible notes based on our performance, third-party publications or speculation, or other factors and risks associated with actions of activist stockholders. We assume no obligation to revise or update any forward-looking statement, except as otherwise required by law. For a detailed discussion of these risk factors, see our Annual Report on Form 10-K for the fiscal year ended January 31, 2019, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2019, our Quarterly Report on Form 10-Q for the quarter ended July 31, 2019, when filed, and other filings we make with the SEC.

VERINT, ACTIONABLE INTELLIGENCE, THE CUSTOMER ENGAGEMENT COMPANY, NEXT IT, FORESEE, OPINIONLAB, KIRAN ANALYTICS, TRANSVERSAL, TERROGENCE, SENSECY, CUSTOMER ENGAGEMENT SOLUTIONS, CYBER INTELLIGENCE SOLUTIONS, GI2, GITA, FIRSTMILE, OMNIX, WEBINT, LUMINAR, EDGEVR, RELIANT, VANTAGE, STAR-GATE, SUNTECH, and VIGIA are trademarks or registered trademarks of Verint Systems Inc. or its subsidiaries. Other trademarks mentioned are the property of their respective owners.

 

Table 1
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

 

 

 

Three Months Ended
July 31,

 

Six Months Ended
July 31,

(in thousands, except per share data)

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

109,983

 

 

$

110,042

 

 

$

214,207

 

 

$

215,906

 

Service and support

 

214,322

 

 

196,285

 

 

425,357

 

 

379,628

 

Total revenue

 

324,305

 

 

306,327

 

 

639,564

 

 

595,534

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

29,424

 

 

32,984

 

 

57,544

 

 

67,793

 

Service and support

 

81,430

 

 

74,803

 

 

160,791

 

 

146,660

 

Amortization of acquired technology

 

5,587

 

 

5,520

 

 

12,294

 

 

12,946

 

Total cost of revenue

 

116,441

 

 

113,307

 

 

230,629

 

 

227,399

 

Gross profit

 

207,864

 

 

193,020

 

 

408,935

 

 

368,135

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development, net

 

58,685

 

 

52,254

 

 

115,854

 

 

104,406

 

Selling, general and administrative

 

126,265

 

 

104,083

 

 

247,986

 

 

211,580

 

Amortization of other acquired intangible assets

 

7,639

 

 

7,452

 

 

15,352

 

 

15,136

 

Total operating expenses

 

192,589

 

 

163,789

 

 

379,192

 

 

331,122

 

Operating income

 

15,275

 

 

29,231

 

 

29,743

 

 

37,013

 

Other income (expense), net:

 

 

 

 

 

 

 

 

Interest income

 

1,687

 

 

1,134

 

 

3,113

 

 

1,927

 

Interest expense

 

(10,107

)

 

(9,922

)

 

(20,041

)

 

(18,984

)

Other income (expense), net

 

909

 

 

(1,241

)

 

119

 

 

(1,705

)

Total other expense, net

 

(7,511

)

 

(10,029

)

 

(16,809

)

 

(18,762

)

Income before benefit from income taxes

 

7,764

 

 

19,202

 

 

12,934

 

 

18,251

 

Benefit from income taxes

 

(4,507

)

 

(3,722

)

 

(3,098

)

 

(3,448

)

Net income

 

12,271

 

 

22,924

 

 

16,032

 

 

21,699

 

Net income attributable to noncontrolling interests

 

1,713

 

 

944

 

 

3,898

 

 

1,934

 

Net income attributable to Verint Systems Inc.

 

$

10,558

 

 

$

21,980

 

 

$

12,134

 

 

$

19,765

 

 

 

 

 

 

 

 

 

 

Net income per common share attributable to Verint Systems Inc.:

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.34

 

 

$

0.18

 

 

$

0.31

 

Diluted

 

$

0.16

 

 

$

0.33

 

 

$

0.18

 

 

$

0.30

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

66,272

 

 

64,694

 

 

65,870

 

 

64,314

 

Diluted

 

67,519

 

 

65,840

 

 

67,338

 

 

65,509

 

 

Table 2
VERINT SYSTEMS INC. AND SUBSIDIARIES
Segment Revenue
(Unaudited)

 

 

 

Three Months Ended
July 31,

 

Six Months Ended
July 31,

(in thousands)

 

2019

 

2018

 

2019

 

2018

GAAP Revenue By Segment:

 

 

 

 

 

 

 

 

Customer Engagement

 

$

211,436

 

$

200,807

 

$

418,531

 

$

387,263

Cyber Intelligence

 

112,869

 

105,520

 

221,033

 

208,271

GAAP Total Revenue

 

$

324,305

 

$

306,327

 

$

639,564

 

$

595,534

 

 

 

 

 

 

 

 

 

Revenue Adjustments:

 

 

 

 

 

 

 

 

Customer Engagement

 

$

6,988

 

$

2,126

 

$

15,760

 

$

4,845

Cyber Intelligence

 

24

 

25

 

151

 

69

Total Revenue Adjustments

 

$

7,012

 

$

2,151

 

$

15,911

 

$

4,914

 

 

 

 

 

 

 

 

 

Non-GAAP Revenue By Segment:

 

 

 

 

 

 

 

 

Customer Engagement

 

$

218,424

 

$

202,933

 

$

434,291

 

$

392,108

Cyber Intelligence

 

112,893

 

105,545

 

221,184

 

208,340

Non-GAAP Total Revenue

 

$

331,317

 

$

308,478

 

$

655,475

 

$

600,448

       

Table 3
VERINT SYSTEMS INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)

 

 

 

Three Months Ended
July 31,

 

Six Months Ended
July 31,

(in thousands, except per share data)

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Gross Profit to Non-GAAP Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

207,864

 

 

$

193,020

 

 

$

408,935

 

 

$

368,135

 

GAAP gross margin

 

64.1

%

 

63.0

%

 

63.9

%

 

61.8

%

Revenue adjustments

 

7,012

 

 

2,151

 

 

15,911

 

 

4,914

 

Amortization of acquired technology

 

5,587

 

 

5,520

 

 

12,294

 

 

12,946

 

Stock-based compensation expenses

 

2,034

 

 

1,945

 

 

3,438

 

 

2,791

 

Acquisition expenses, net

 

5

 

 

(38

)

 

20

 

 

(21

)

Restructuring expenses

 

1,055

 

 

717

 

 

1,504

 

 

1,080

 

 

Non-GAAP gross profit

 

$

223,557

 

 

$

203,315

 

 

$

442,102

 

 

$

389,845

 

Non-GAAP gross margin

 

67.5

%

 

65.9

%

 

67.4

%

 

64.9

%

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Operating Income to Non-GAAP Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income

 

$

15,275

 

 

$

29,231

 

 

$

29,743

 

 

$

37,013

 

As a percentage of GAAP revenue

 

4.7

%

 

9.5

%

 

4.7

%

 

6.2

%

Revenue adjustments

 

7,012

 

 

2,151

 

 

15,911

 

 

4,914

 

Amortization of acquired technology

 

5,587

 

 

5,520

 

 

12,294

 

 

12,946

 

Amortization of other acquired intangible assets

 

7,639

 

 

7,452

 

 

15,352

 

 

15,136

 

Stock-based compensation expenses

 

20,551

 

 

17,455

 

 

37,654

 

 

33,914

 

Acquisition expenses, net

 

2,508

 

 

72

 

 

6,376

 

 

2,387

 

Restructuring expenses

 

1,639

 

 

906

 

 

3,076

 

 

1,997

 

Other adjustments

 

5,732

 

 

625

 

 

7,791

 

 

1,220

 

Non-GAAP operating income

 

$

65,943

 

 

$

63,412

 

 

$

128,197

 

 

$

109,527

 

As a percentage of non-GAAP revenue

 

19.9

%

 

20.6

%

 

19.6

%

 

18.2

%

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Other Expense, Net to Non-GAAP Other Expense, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP other expense, net

 

$

(7,511

)

 

$

(10,029

)

 

$

(16,809

)

 

$

(18,762

)

Unrealized losses (gains) on derivatives, net

 

639

 

 

416

 

 

1,318

 

 

(127

)

Amortization of convertible note discount

 

3,102

 

 

2,943

 

 

6,163

 

 

5,848

 

Acquisition expenses, net

 

(23

)

 

303

 

 

(57

)

 

331

 

Non-GAAP other expense, net(1)

 

$

(3,793

)

 

$

(6,367

)

 

$

(9,385

)

 

$

(12,710

)

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Benefit from Income Taxes to Non-GAAP Provision for Income Taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP benefit from income taxes

 

$

(4,507

)

 

$

(3,722

)

 

$

(3,098

)

 

$

(3,448

)

GAAP effective income tax rate

 

(58.0

)%

 

(19.4

)%

 

(24.0

)%

 

(18.9

)%

Non-GAAP tax adjustments

 

9,462

 

 

9,737

 

 

13,463

 

 

13,719

 

Non-GAAP provision for income taxes

 

$

4,955

 

 

$

6,015

 

 

$

10,365

 

 

$

10,271

 

Non-GAAP effective income tax rate

 

8.0

%

 

10.5

%

 

8.7

%

 

10.6

%

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Net Income Attributable to Verint Systems Inc. to Non-GAAP Net Income Attributable to Verint Systems Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income attributable to Verint Systems Inc.

 

$

10,558

 

 

$

21,980

 

 

$

12,134

 

 

$

19,765

 

Revenue adjustments

 

7,012

 

 

2,151

 

 

15,911

 

 

4,914

 

Amortization of acquired technology

 

5,587

 

 

5,520

 

 

12,294

 

 

12,946

 

Amortization of other acquired intangible assets

 

7,639

 

 

7,452

 

 

15,352

 

 

15,136

 

Stock-based compensation expenses

 

20,551

 

 

17,455

 

 

37,654

 

 

33,914

 

Unrealized losses (gains) on derivatives, net

 

639

 

 

416

 

 

1,318

 

 

(127

)

Amortization of convertible note discount

 

3,102

 

 

2,943

 

 

6,163

 

 

5,848

 

Acquisition expenses, net

 

2,485

 

 

375

 

 

6,319

 

 

2,718

 

Restructuring expenses

 

1,639

 

 

906

 

 

3,076

 

 

1,997

 

Other adjustments

 

5,732

 

 

625

 

 

7,791

 

 

1,220

 

Non-GAAP tax adjustments

 

(9,462

)

 

(9,737

)

 

(13,463

)

 

(13,719

)

Total GAAP net income adjustments

 

44,924

 

 

28,106

 

 

92,415

 

 

64,847

 

Non-GAAP net income attributable to Verint Systems Inc.

 

$

55,482

 

 

$

50,086

 

 

$

104,549

 

 

$

84,612

 

 

 

 

 

 

 

 

 

 

Table Comparing GAAP Diluted Net Income Per Common Share Attributable to Verint Systems Inc. to Non-GAAP Diluted Net Income Per Common Share Attributable to Verint Systems Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per common share attributable to Verint Systems Inc.

 

$

0.16

 

 

$

0.33

 

 

$

0.18

 

 

$

0.30

 

Non-GAAP diluted net income per common share attributable to Verint Systems Inc.

 

$

0.82

 

 

$

0.76

 

 

$

1.55

 

 

$

1.29

 

 

 

 

 

 

 

 

 

 

GAAP weighted-average shares used in computing diluted net income per common share attributable to Verint Systems Inc.

 

67,519

 

 

65,840

 

 

67,338

 

 

65,509

 

Additional weighted-average shares applicable to non-GAAP diluted net income per common share attributable to Verint Systems Inc.

 

 

 

 

 

 

 

 

Non-GAAP diluted weighted-average shares used in computing net income per common share attributable to Verint Systems Inc.

 

67,519

 

 

65,840

 

 

67,338

 

 

65,509

 

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Net Income Attributable to Verint Systems Inc. to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income attributable to Verint Systems Inc.

 

$

10,558

 

 

$

21,980

 

 

$

12,134

 

 

$

19,765

 

As a percentage of GAAP revenue

 

3.3

%

 

7.2

%

 

1.9

%

 

3.3

%

Net income attributable to noncontrolling interest

 

1,713

 

 

944

 

 

3,898

 

 

1,934

 

Benefit from income taxes

 

(4,507

)

 

(3,722

)

 

(3,098

)

 

(3,448

)

Other expense, net

 

7,511

 

 

10,029

 

 

16,809

 

 

18,762

 

Depreciation and amortization(2)

 

21,117

 

 

20,302

 

 

43,410

 

 

43,612

 

Revenue adjustments

 

7,012

 

 

2,151

 

 

15,911

 

 

4,914

 

Stock-based compensation expenses

 

20,551

 

 

17,455

 

 

37,654

 

 

33,914

 

Acquisition expenses, net

 

2,508

 

 

72

 

 

6,376

 

 

2,387

 

Restructuring expenses

 

1,640

 

 

906

 

 

3,077

 

 

1,996

 

Other adjustments

 

5,732

 

 

625

 

 

7,791

 

 

1,220

 

Adjusted EBITDA

 

$

73,835

 

 

$

70,742

 

 

$

143,962

 

 

$

125,056

 

As a percentage of non-GAAP revenue

 

22.3

%

 

22.9

%

 

22.0

%

 

20.8

%

 

 

 

 

 

 

 

 

 

Table of Reconciliation from Gross Debt to Net Debt

 

 

 

 

July 31,
2019

 

January 31,
2019

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

 

 

 

$

4,263

 

 

$

4,343

 

Long-term debt

 

 

 

 

 

782,589

 

 

777,785

 

Unamortized debt discounts and issuance costs

 

 

 

 

 

29,661

 

 

36,589

 

Gross debt

 

 

 

 

 

816,513

 

 

818,717

 

Less:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

388,546

 

 

369,975

 

Restricted cash and cash equivalents, and restricted bank time deposits

 

 

 

 

 

24,239

 

 

42,262

 

Short-term investments

 

 

 

 

 

25,590

 

 

32,329

 

Net debt, excluding long-term restricted cash, cash equivalents, bank time deposits, and investments

 

 

 

 

 

378,138

 

 

374,151

 

Long-term restricted cash, cash equivalents, bank time deposits and investments

 

 

 

 

 

27,257

 

 

23,193

 

Net debt, including long-term restricted cash, cash equivalents, bank time deposits, and investments

 

 

 

 

 

$

350,881

 

 

$

350,958

 

 

 

 

 

 

 

 

 

 

(1) For the three months ended July 31, 2019, non-GAAP other expense, net of $3.8 million was comprised of $5.4 million of interest and other expense, net of $1.6 million of foreign exchange gains primarily related to balance sheet translations.

 

(2) Adjusted for financing fee amortization.

 

Table 4
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

 

 

 

July 31,

 

January 31,

(in thousands, except share and per share data)

 

2019

 

2019

Assets

 

 

 

 

Current Assets:

 

 

 

 

Cash and cash equivalents

 

$

388,546

 

 

$

369,975

 

Restricted cash and cash equivalents, and restricted bank time deposits

 

24,239

 

 

42,262

 

Short-term investments

 

25,590

 

 

32,329

 

Accounts receivable, net of allowance for doubtful accounts of $5.5 million and $3.8 million, respectively

 

349,161

 

 

375,663

 

Contract assets

 

55,239

 

 

63,389

 

Inventories

 

28,459

 

 

24,952

 

Prepaid expenses and other current assets

 

89,556

 

 

97,776

 

Total current assets

 

960,790

 

 

1,006,346

 

Property and equipment, net

 

106,393

 

 

100,134

 

Operating lease right-of-use assets

 

100,924

 

 

 

Goodwill

 

1,430,082

 

 

1,417,481

 

Intangible assets, net

 

215,332

 

 

225,183

 

Other assets

 

118,185

 

 

117,883

 

Total assets

 

$

2,931,706

 

 

$

2,867,027

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Current Liabilities:

 

 

 

 

Accounts payable

 

$

73,021

 

 

$

71,621

 

Accrued expenses and other current liabilities

 

218,533

 

 

212,824

 

Contract liabilities

 

347,226

 

 

377,376

 

Total current liabilities

 

638,780

 

 

661,821

 

Long-term debt

 

782,589

 

 

777,785

 

Long-term contract liabilities

 

34,967

 

 

30,094

 

Operating lease liabilities

 

93,137

 

 

 

Other liabilities

 

94,255

 

 

136,523

 

Total liabilities

 

1,643,728

 

 

1,606,223

 

Commitments and Contingencies

 

 

 

 

Stockholders' Equity:

 

 

 

 

Preferred stock - $0.001 par value; authorized 2,207,000 shares at July 31, 2019 and January 31, 2019, respectively; none issued.

 

 

 

 

Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 68,444,000 and 66,998,000 shares; outstanding 66,771,000 and 65,333,000 shares at July 31, 2019 and January 31, 2019, respectively.

 

68

 

 

67

 

Additional paid-in capital

 

1,628,665

 

 

1,586,266

 

Treasury stock, at cost - 1,673,000 and 1,665,000 shares at July 31, 2019 and January 31, 2019, respectively.

 

(58,072

)

 

(57,598

)

Accumulated deficit

 

(122,140

)

 

(134,274

)

Accumulated other comprehensive loss

 

(175,197

)

 

(145,225

)

Total Verint Systems Inc. stockholders' equity

 

1,273,324

 

 

1,249,236

 

Noncontrolling interests

 

14,654

 

 

11,568

 

Total stockholders' equity

 

1,287,978

 

 

1,260,804

 

Total liabilities and stockholders' equity

 

$

2,931,706

 

 

$

2,867,027

 

 

Table 5
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)

 

 

 

Six Months Ended
July 31,

(in thousands)

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

Net income

 

$

16,032

 

 

$

21,699

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

44,766

 

 

44,935

 

Stock-based compensation, excluding cash-settled awards

 

37,605

 

 

33,871

 

Amortization of discount on convertible notes

 

6,163

 

 

5,848

 

Non-cash gains on derivative financial instruments, net

 

(728

)

 

(2,709

)

Other non-cash items, net

 

3,305

 

 

(2,606

)

Changes in operating assets and liabilities, net of effects of business combinations:

 

 

 

 

Accounts receivable

 

23,439

 

 

45,515

 

Contract assets

 

7,884

 

 

(12,217

)

Inventories

 

(4,436

)

 

175

 

Prepaid expenses and other assets

 

8,169

 

 

(2,984

)

Accounts payable and accrued expenses

 

(8,291

)

 

(14,736

)

Contract liabilities

 

(24,460

)

 

(5,695

)

Other, net

 

(11,169

)

 

(6,943

)

Net cash provided by operating activities

 

98,279

 

 

104,153

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Cash paid for business combinations, including adjustments, net of cash acquired

 

(49,258

)

 

(27,442

)

Purchases of property and equipment

 

(17,718

)

 

(17,897

)

Purchases of investments

 

(20,101

)

 

(9,261

)

Maturities and sales of investments

 

23,836

 

 

7,152

 

Cash paid for capitalized software development costs

 

(6,581

)

 

(2,902

)

Change in restricted bank time deposits, and other investing activities, net

 

3,807

 

 

(22,079

)

Net cash used in investing activities

 

(66,015

)

 

(72,429

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Repayments of borrowings and other financing obligations

 

(3,194

)

 

(2,728

)

Payments of debt-related costs

 

(212

)

 

(206

)

Purchases of treasury stock

 

(474

)

 

(173

)

Dividends or distributions paid to noncontrolling interests

 

(655

)

 

(760

)

Payments of deferred purchase price and contingent consideration for business combinations (financing portion)

 

(22,601

)

 

(9,351

)

Other financing activities, net

 

 

 

(433

)

Net cash used in financing activities

 

(27,136

)

 

(13,651

)

Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents

 

(1,890

)

 

(3,578

)

Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents

 

3,238

 

 

14,495

 

Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period

 

412,699

 

 

398,210

 

Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period

 

$

415,937

 

 

$

412,705

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period to the condensed consolidated balance sheets:

 

 

 

 

Cash and cash equivalents

 

$

388,546

 

 

$

375,077

 

Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits

 

23,702

 

 

35,476

 

Restricted cash and cash equivalents included in other assets

 

3,689

 

 

2,152

 

Total cash, cash equivalents, restricted cash, and restricted cash equivalents

 

$

415,937

 

 

$

412,705

 

 
 

Table 6
VERINT SYSTEMS INC. AND SUBSIDIARIES
Calculation of Change in Revenue on a Constant Currency Basis
(Unaudited)

 

 

 

 

GAAP Revenue

 

 

Non-GAAP Revenue

(in thousands, except percentages)

 

Three Months
Ended

Six Months
Ended

 

Three Months
Ended

Six Months
Ended

Total Revenue

 

 

 

 

 

 

Revenue for the three and six months ended July 31, 2018

 

$

306,327

 

$

595,534

 

 

$

308,478

 

$

600,448

 

Revenue for the three and six months ended July 31, 2019

 

$

324,305

 

$

639,564

 

 

$

331,317

 

$

655,475

 

Revenue for the three and six months ended July 31, 2019 at constant currency(1)

 

$

328,000

 

$

649,000

 

 

$

335,000

 

$

664,000

 

Reported period-over-period revenue growth

 

5.9

%

7.4

%

 

7.4

%

9.2

%

% impact from change in foreign currency exchange rates

 

1.2

%

1.6

%

 

1.2

%

1.4

%

Constant currency period-over-period revenue growth

 

7.1

%

9.0

%

 

8.6

%

10.6

%

 

 

 

 

 

 

 

Customer Engagement

 

 

 

 

 

 

Revenue for the three and six months ended July 31, 2018

 

$

200,807

 

$

387,263

 

 

$

202,933

 

$

392,108

 

Revenue for the three and six months ended July 31, 2019

 

$

211,436

 

$

418,531

 

 

$

218,424

 

$

434,291

 

Revenue for the three and six months ended July 31, 2019 at constant currency(1)

 

$

214,000

 

$

425,000

 

 

$

221,000

 

$

440,000

 

Reported period-over-period revenue growth

 

5.3

%

8.1

%

 

7.6

%

10.8

%

% impact from change in foreign currency exchange rates

 

1.3

%

1.6

%

 

1.3

%

1.4

%

Constant currency period-over-period revenue growth

 

6.6

%

9.7

%

 

8.9

%

12.2

%

 

 

 

 

 

 

 

Cyber Intelligence

 

 

 

 

 

 

Revenue for the three and six months ended July 31, 2018

 

$

105,520

 

$

208,271

 

 

$

105,545

 

$

208,340

 

Revenue for the three and six months ended July 31, 2019

 

$

112,869

 

$

221,033

 

 

$

112,893

 

$

221,184

 

Revenue for the three and six months ended July 31, 2019 at constant currency(1)

 

$

114,000

 

$

224,000

 

 

$

114,000

 

$

224,000

 

Reported period-over-period revenue growth

 

7.0

%

6.1

%

 

7.0

%

6.2

%

% impact from change in foreign currency exchange rates

 

1.0

%

1.5

%

 

1.0

%

1.3

%

Constant currency period-over-period revenue growth

 

8.0

%

7.6

%

 

8.0

%

7.5

%

 

(1) Revenue for the three and six months ended July 31, 2019 at constant currency is calculated by translating current-period GAAP or non-GAAP foreign currency revenue (as applicable) into U.S. dollars using average foreign currency exchange rates for the three and six months ended July 31, 2018 rather than actual current-period foreign currency exchange rates.

For further information see "Supplemental Information About Constant Currency" at the end of this press release.

 

Table 7
VERINT SYSTEMS INC. AND SUBSIDIARIES
GAAP to Non-GAAP Customer Engagement Cloud Revenue, Recurring Revenue,
and Nonrecurring Revenue
(Unaudited)

 

 

 

Three Months Ended
July 31,

 

Six Months Ended
July 31,

(in thousands)

 

2019

 

2018

 

2019

 

2018

Table of Reconciliation from GAAP Cloud Revenue to Non-GAAP Cloud Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Engagement

 

 

 

 

 

 

 

 

Cloud revenue - GAAP

 

$

47,813

 

 

$

36,658

 

 

$

94,898

 

 

$

69,463

 

Estimated revenue adjustments

 

6,918

 

 

2,056

 

 

15,562

 

 

4,573

 

Cloud revenue - non-GAAP

 

$

54,731

 

 

$

38,714

 

 

$

110,460

 

 

$

74,036

 

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Recurring Revenue to Non-GAAP Recurring Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Engagement

 

 

 

 

 

 

 

 

Recurring revenue - GAAP

 

$

129,332

 

 

$

117,759

 

 

$

252,690

 

 

$

225,589

 

As a percentage of GAAP revenue

 

61.2

%

 

58.6

%

 

60.4

%

 

58.3

%

Estimated revenue adjustments

 

6,988

 

 

2,126

 

 

15,760

 

 

4,845

 

Recurring revenue - non-GAAP

 

$

136,320

 

 

$

119,885

 

 

$

268,450

 

 

$

230,434

 

As a percentage of non-GAAP revenue

 

62.4

%

 

59.1

%

 

61.8

%

 

58.8

%

 

 

 

 

 

 

 

 

 

Table of Reconciliation from GAAP Nonrecurring Revenue to Non-GAAP Nonrecurring Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Engagement

 

 

 

 

 

 

 

 

Nonrecurring revenue - GAAP & non-GAAP

 

$

82,104

 

 

$

83,048

 

 

$

165,841

 

 

$

161,674

 

 
 

Table 8
VERINT SYSTEMS INC. AND SUBSIDIARIES
Estimated GAAP and Non-GAAP Fully Allocated Gross Margins
(Unaudited)

 

 

 

Three Months Ended
July 31,

 

 

2019

 

2018

(in thousands)

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

GAAP product revenue

 

$

54,468

 

 

$

55,515

 

 

$

109,983

 

 

$

55,528

 

 

$

54,514

 

 

$

110,042

 

GAAP service revenue

 

156,968

 

 

57,354

 

 

214,322

 

 

145,279

 

 

51,006

 

 

196,285

 

Total GAAP revenue

 

211,436

 

 

112,869

 

 

324,305

 

 

200,807

 

 

105,520

 

 

306,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products costs

 

8,852

 

 

18,649

 

 

27,501

 

 

8,523

 

 

23,373

 

 

31,896

 

Service expenses

 

57,165

 

 

18,560

 

 

75,725

 

 

52,989

 

 

17,604

 

 

70,593

 

Amortization of acquired technology

 

5,224

 

 

363

 

 

5,587

 

 

4,104

 

 

1,416

 

 

5,520

 

Stock-based compensation expenses (1)

 

1,570

 

 

464

 

 

2,034

 

 

1,574

 

 

371

 

 

1,945

 

Shared support expenses allocation (2)

 

3,647

 

 

1,947

 

 

5,594

 

 

2,199

 

 

1,154

 

 

3,353

 

Total GAAP cost of revenue

 

76,458

 

 

39,983

 

 

116,441

 

 

69,389

 

 

43,918

 

 

113,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

134,978

 

 

$

72,886

 

 

$

207,864

 

 

$

131,418

 

 

$

61,602

 

 

$

193,020

 

GAAP gross margin

 

63.8

%

 

64.6

%

 

64.1

%

 

65.4

%

 

58.4

%

 

63.0

%

Revenue adjustments

 

6,988

 

 

24

 

 

7,012

 

 

2,126

 

 

25

 

 

2,151

 

Amortization of acquired technology

 

5,224

 

 

363

 

 

5,587

 

 

4,104

 

 

1,416

 

 

5,520

 

Stock-based compensation expenses (1)

 

1,570

 

 

464

 

 

2,034

 

 

1,574

 

 

371

 

 

1,945

 

Acquisition expenses, net (3)

 

3

 

 

2

 

 

5

 

 

(25

)

 

(13

)

 

(38

)

Restructuring expenses (3)

 

688

 

 

367

 

 

1,055

 

 

470

 

 

247

 

 

717

 

Non-GAAP gross profit

 

$

149,451

 

 

$

74,106

 

 

$

223,557

 

 

$

139,667

 

 

$

63,648

 

 

$

203,315

 

Non-GAAP gross margin

 

68.4

%

 

65.6

%

 

67.5

%

 

68.8

%

 

60.3

%

 

65.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
July 31,

 

 

2019

 

2018

(in thousands)

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

GAAP product revenue

 

$

108,470

 

 

$

105,737

 

 

$

214,207

 

 

$

103,892

 

 

$

112,014

 

 

$

215,906

 

GAAP service revenue

 

310,061

 

 

115,296

 

 

425,357

 

 

283,371

 

 

96,257

 

 

379,628

 

Total GAAP revenue

 

418,531

 

 

221,033

 

 

639,564

 

 

387,263

 

 

208,271

 

 

595,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products costs

 

17,314

 

 

36,499

 

 

53,813

 

 

17,322

 

 

48,385

 

 

65,707

 

Service expenses

 

114,688

 

 

37,074

 

 

151,762

 

 

104,510

 

 

34,291

 

 

138,801

 

Amortization of acquired technology

 

10,612

 

 

1,682

 

 

12,294

 

 

8,369

 

 

4,577

 

 

12,946

 

Stock-based compensation expenses (1)

 

2,654

 

 

784

 

 

3,438

 

 

2,258

 

 

533

 

 

2,791

 

Shared support expenses allocation (2)

 

6,078

 

 

3,244

 

 

9,322

 

 

4,693

 

 

2,461

 

 

7,154

 

Total GAAP cost of revenue

 

151,346

 

 

79,283

 

 

230,629

 

 

137,152

 

 

90,247

 

 

227,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

267,185

 

 

$

141,750

 

 

$

408,935

 

 

$

250,111

 

 

$

118,024

 

 

$

368,135

 

GAAP gross margin

 

63.8

%

 

64.1

%

 

63.9

%

 

64.6

%

 

56.7

%

 

61.8

%

Revenue adjustments

 

15,760

 

 

151

 

 

15,911

 

 

4,845

 

 

69

 

 

4,914

 

Amortization of acquired technology

 

10,612

 

 

1,682

 

 

12,294

 

 

8,369

 

 

4,577

 

 

12,946

 

Stock-based compensation expenses (1)

 

2,654

 

 

784

 

 

3,438

 

 

2,258

 

 

533

 

 

2,791

 

Acquisition expenses, net (3)

 

13

 

 

7

 

 

20

 

 

(14

)

 

(7

)

 

(21

)

Restructuring expenses (3)

 

981

 

 

523

 

 

1,504

 

 

708

 

 

372

 

 

1,080

 

Non-GAAP gross profit

 

$

297,205

 

 

$

144,897

 

 

$

442,102

 

 

$

266,277

 

 

$

123,568

 

 

$

389,845

 

Non-GAAP gross margin

 

68.4

%

 

65.5

%

 

67.4

%

 

67.9

%

 

59.3

%

 

64.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents the stock-based compensation expenses applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual segment operations and service expense wages, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

 

 

 

 

 

 

 

(2) Represents the portion of our shared support expenses (as disclosed in footnote 16 to our July 31, 2019 Form 10-Q, when filed) applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual non-GAAP segment revenue, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

(3) Represents the portion of our acquisition expenses, net and restructuring expenses applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual non-GAAP segment revenue, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

 

Table 9
VERINT SYSTEMS INC. AND SUBSIDIARIES
Estimated Non-GAAP Fully Allocated Operating Margins and Estimated Fully Allocated Adjusted EBITDA
(Unaudited)

 

 

 

Three Months Ended
July 31,

 

 

2019

 

2018

(in thousands)

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP segment revenue

 

$

218,424

 

 

$

112,893

 

 

$

331,317

 

 

$

202,933

 

 

$

105,545

 

 

$

308,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment contribution (1)

 

78,788

 

 

31,571

 

 

110,359

 

 

78,759

 

 

24,549

 

 

103,308

 

Shared support expenses allocation (2)

 

28,959

 

 

15,457

 

 

44,416

 

 

26,172

 

 

13,724

 

 

39,896

 

Estimated non-GAAP operating income

 

49,829

 

 

16,114

 

 

65,943

 

 

52,587

 

 

10,825

 

 

63,412

 

Depreciation and amortization (3)

 

5,146

 

 

2,746

 

 

7,892

 

 

4,808

 

 

2,522

 

 

7,330

 

Estimated adjusted EBITDA

 

$

54,975

 

 

$

18,860

 

 

$

73,835

 

 

$

57,395

 

 

$

13,347

 

 

$

70,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated non-GAAP fully allocated operating margin

 

22.8

%

 

14.3

%

 

19.9

%

 

25.9

%

 

10.3

%

 

20.6

%

Estimated fully allocated adjusted EBITDA margin

 

25.2

%

 

16.7

%

 

22.3

%

 

28.3

%

 

12.6

%

 

22.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
July 31,

 

 

2019

 

2018

(in thousands)

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

 

Customer
Engagement

 

Cyber
Intelligence

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP segment revenue

 

$

434,291

 

 

$

221,184

 

 

$

655,475

 

 

$

392,108

 

 

$

208,340

 

 

$

600,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment contribution (1)

 

157,606

 

 

58,861

 

 

216,467

 

 

145,561

 

 

45,771

 

 

191,332

 

Shared support expenses allocation (2)

 

57,552

 

 

30,718

 

 

88,270

 

 

53,664

 

 

28,141

 

 

81,805

 

Estimated non-GAAP operating income

 

100,054

 

 

28,143

 

 

128,197

 

 

91,897

 

 

17,630

 

 

109,527

 

Depreciation and amortization (3)

 

10,279

 

 

5,486

 

 

15,765

 

 

10,187

 

 

5,342

 

 

15,529

 

Estimated adjusted EBITDA

 

$

110,333

 

 

$

33,629

 

 

$

143,962

 

 

$

102,084

 

 

$

22,972

 

 

$

125,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated non-GAAP fully allocated operating margin

 

23.0

%

 

12.7

%

 

19.6

%

 

23.4

%

 

8.5

%

 

18.2

%

Estimated fully allocated adjusted EBITDA margin

 

25.4

%

 

15.2

%

 

22.0

%

 

26.0

%

 

11.0

%

 

20.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) See footnote 16 to our July 31, 2019 Form 10-Q, when filed.

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Represents our shared support expenses (as disclosed in footnote 16 to our July 31, 2019 Form 10-Q, when filed), allocated proportionally based upon our non-GAAP segment revenue for the year ended January 31, 2019 and 2018, respectively, which we believe provides a reasonable approximation for purposes of understanding the relative non-GAAP operating margins of our two businesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

(3) Represents certain depreciation and amortization expenses, which are otherwise included in our non-GAAP operating income, allocated proportionally based upon our non-GAAP segment revenue for the year ended January 31, 2019 and 2018, respectively, which we believe provides a reasonable approximation for purposes of understanding the relative adjusted EBITDA of our two businesses.

Verint Systems Inc. and Subsidiaries
Supplemental Information About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, consisting of non-GAAP revenue, non-GAAP recurring revenue, non-GAAP nonrecurring revenue, non-GAAP cloud revenue, non-GAAP gross profit and gross margin, non-GAAP operating income and operating margin, non-GAAP other income (expense), net, non-GAAP provision (benefit) for income taxes and non-GAAP effective income tax rate, non-GAAP net income attributable to Verint Systems Inc., non-GAAP net income per common share attributable to Verint Systems Inc., adjusted EBITDA, net debt, constant currency measures, estimated GAAP and non-GAAP fully allocated gross margins, and estimated non-GAAP fully allocated operating margins. The tables above include a reconciliation of each non-GAAP financial measure for completed periods presented in this press release to the most directly comparable GAAP financial measure.

We believe these non-GAAP financial measures, used in conjunction with the corresponding GAAP measures, provide investors with useful supplemental information about the financial performance of our business by:

  • facilitating the comparison of our financial results and business trends between periods, by excluding certain items that either can vary significantly in amount and frequency, are based upon subjective assumptions, or in certain cases are unplanned for or difficult to forecast,
  • facilitating the comparison of our financial results and business trends with other technology companies who publish similar non-GAAP measures, and
  • allowing investors to see and understand key supplementary metrics used by our management to run our business, including for budgeting and forecasting, resource allocation, and compensation matters.

We also make these non-GAAP financial measures available because a number of our investors have informed us that they find this supplemental information useful.

Non-GAAP financial measures should not be considered in isolation as substitutes for, or superior to, comparable GAAP financial measures. The non-GAAP financial measures we present have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures. These non-GAAP financial measures do not represent discretionary cash available to us to invest in the growth of our business, and we may in the future incur expenses similar to or in addition to the adjustments made in these non-GAAP financial measures. Other companies may calculate similar non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

Our non-GAAP financial measures are calculated by making the following adjustments to our GAAP financial measures:

Revenue adjustments. We exclude from our non-GAAP revenue the impact of fair value adjustments required under GAAP relating to cloud services and customer support contracts acquired in a business acquisition, which would have otherwise been recognized on a stand-alone basis. We believe that it is useful for investors to understand the total amount of revenue that we and the acquired company would have recognized on a stand-alone basis under GAAP, absent the accounting adjustment associated with the business acquisition. Our non-GAAP revenue also reflects certain adjustments from aligning an acquired company’s revenue recognition policies to our policies. We believe that our non-GAAP revenue measure helps management and investors understand our revenue trends and serves as a useful measure of ongoing business performance.

Amortization of acquired technology and other acquired intangible assets. When we acquire an entity, we are required under GAAP to record the fair values of the intangible assets of the acquired entity and amortize those assets over their useful lives. We exclude the amortization of acquired intangible assets, including acquired technology, from our non-GAAP financial measures because they are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. We also exclude these amounts to provide easier comparability of pre- and post-acquisition operating results.

Stock-based compensation expenses. We exclude stock-based compensation expenses related to restricted stock awards, stock bonus programs, bonus share programs, and other stock-based awards from our non-GAAP financial measures. We evaluate our performance both with and without these measures because stock-based compensation is typically a non-cash expense and can vary significantly over time based on the timing, size and nature of awards granted, and is influenced in part by certain factors which are generally beyond our control, such as the volatility of the price of our common stock. In addition, measurement of stock-based compensation is subject to varying valuation methodologies and subjective assumptions, and therefore we believe that excluding stock-based compensation from our non-GAAP financial measures allows for meaningful comparisons of our current operating results to our historical operating results and to other companies in our industry.

Unrealized gains and losses on certain derivatives, net. We exclude from our non-GAAP financial measures unrealized gains and losses on certain foreign currency derivatives which are not designated as hedges under accounting guidance. We exclude unrealized gains and losses on foreign currency derivatives that serve as economic hedges against variability in the cash flows of recognized assets or liabilities, or of forecasted transactions. These contracts, if designated as hedges under accounting guidance, would be considered “cash flow” hedges. These unrealized gains and losses are excluded from our non-GAAP financial measures because they are non-cash transactions which are highly variable from period to period. Upon settlement of these foreign currency derivatives, any realized gain or loss is included in our non-GAAP financial measures.

Amortization of convertible note discount. Our non-GAAP financial measures exclude the amortization of the imputed discount on our convertible notes. Under GAAP, certain convertible debt instruments that may be settled in cash upon conversion are required to be bifurcated into separate liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s assumed non-convertible debt borrowing rate. For GAAP purposes, we are required to recognize imputed interest expense on the difference between our assumed non-convertible debt borrowing rate and the coupon rate on our $400.0 million of 1.50% convertible notes. This difference is excluded from our non-GAAP financial measures because we believe that this expense is based upon subjective assumptions and does not reflect the cash cost of our convertible debt.

Acquisition expenses, net. In connection with acquisition activity (including with respect to acquisitions that are not consummated), we incur expenses, including legal, accounting, and other professional fees, integration costs, changes in the fair value of contingent consideration obligations, and other costs. Integration costs may consist of information technology expenses as systems are integrated across the combined entity, consulting expenses, marketing expenses, and professional fees, as well as non-cash charges to write-off or impair the value of redundant assets. We exclude these expenses from our non-GAAP financial measures because they are unpredictable, can vary based on the size and complexity of each transaction, and are unrelated to our continuing operations or to the continuing operations of the acquired businesses.

Restructuring expenses. We exclude restructuring expenses from our non-GAAP financial measures, which include employee termination costs, facility exit costs, certain professional fees, asset impairment charges, and other costs directly associated with resource realignments incurred in reaction to changing strategies or business conditions. All of these costs can vary significantly in amount and frequency based on the nature of the actions as well as the changing needs of our business and we believe that excluding them provides easier comparability of pre- and post-restructuring operating results.

Impairment charges and other adjustments. We exclude from our non-GAAP financial measures asset impairment charges (other than those already included within restructuring or acquisition activity), rent expense for redundant facilities, gains or losses on sales of property, gains or losses on settlements of certain legal matters, and certain professional fees unrelated to our ongoing operations, including $5.6 million and $7.5 million of fees and expenses for the three and six months ended July 31, 2019 related to a shareholder proxy contest, all of which are unusual in nature and can vary significantly in amount and frequency.

Non-GAAP income tax adjustments. We exclude our GAAP provision (benefit) for income taxes from our non-GAAP measures of net income attributable to Verint Systems Inc., and instead include a non-GAAP provision for income taxes, determined by applying a non-GAAP effective income tax rate to our income before provision for income taxes, as adjusted for the non-GAAP items described above. The non-GAAP effective income tax rate is generally based upon the income taxes we expect to pay in the reporting year. Our GAAP effective income tax rate can vary significantly from year to year as a result of tax law changes, settlements with tax authorities, changes in the geographic mix of earnings including acquisition activity, changes in the projected realizability of deferred tax assets, and other unusual or period-specific events, all of which can vary in size and frequency. We believe that our non-GAAP effective income tax rate removes much of this variability and facilitates meaningful comparisons of operating results across periods. Our non-GAAP effective income tax rate for the year ending January 31, 2020 is currently approximately 9%, and was 11% for the year ended January 31, 2019. We evaluate our non-GAAP effective income tax rate on an ongoing basis and it can change from time to time. Our non-GAAP income tax rate can differ materially from our GAAP effective income tax rate.

Customer Engagement Cloud, Recurring and Nonrecurring Revenue Metrics

Recurring revenue, on both a GAAP and non-GAAP basis, is the portion of our revenue that we believe is likely to be renewed in the future, and primarily consists of initial and renewal post contract support and cloud revenue.

Nonrecurring revenue, on both a GAAP and non-GAAP basis, primarily consists of our perpetual licenses, consulting, implementation and installation services, and training.

Cloud revenue, on both a GAAP and non-GAAP basis, primarily consists of SaaS and optional managed services.

SaaS revenue includes bundled SaaS, software with standard managed services and unbundled SaaS that we account for as term licenses where managed services are purchased separately.

We believe that recurring revenue, nonrecurring revenue, and cloud revenue, provide investors with useful insight into the nature and sustainability of our revenue streams. The recurrence of these revenue streams in future periods depends on a number of factors including contractual periods and customers' renewal decisions. Please see “Revenue adjustments” above for an explanation for why we present these revenue numbers on both a GAAP and non-GAAP basis.

New SaaS Annual Contract Value (ACV) includes the annualized contract value of all new SaaS contracts received within the period; in cases where SaaS is offered to partners through usage-based contracts, we include the quarterly values of all usage contracts.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before interest expense, interest income, income taxes, depreciation expense, amortization expense, revenue adjustments, restructuring expenses, acquisition expenses, and other expenses excluded from our non-GAAP financial measures as described above. We believe that adjusted EBITDA is also commonly used by investors to evaluate operating performance between companies because it helps reduce variability caused by differences in capital structures, income taxes, stock-based compensation, accounting policies, and depreciation and amortization policies. Adjusted EBITDA is also used by credit rating agencies, lenders, and other parties to evaluate our creditworthiness.

Net Debt

Net Debt is a non-GAAP measure defined as the sum of long-term and short-term debt on our consolidated balance sheet, excluding unamortized discounts and issuance costs, less the sum of cash and cash equivalents, restricted cash, restricted cash equivalents, restricted bank time deposits, and restricted investments (including long-term portions), and short-term investments. We use this non-GAAP financial measure to help evaluate our capital structure, financial leverage, and our ability to reduce debt and to fund investing and financing activities, and believe that it provides useful information to investors.

Supplemental Information About Constant Currency

Because we operate on a global basis and transact business in many currencies, fluctuations in foreign currency exchange rates can affect our consolidated U.S. dollar operating results. To facilitate the assessment of our performance excluding the effect of foreign currency exchange rate fluctuations, we calculate our GAAP and non-GAAP revenue, cost of revenue, and operating expenses on both an as-reported basis and a constant currency basis, allowing for comparison of results between periods as if foreign currency exchange rates had remained constant. We perform our constant currency calculations by translating current-period foreign currency results into U.S. dollars using prior-period average foreign currency exchange rates or hedge rates, as applicable, rather than current period exchange rates. We believe that constant currency measures, which exclude the impact of changes in foreign currency exchange rates, facilitate the assessment of underlying business trends.

Unless otherwise indicated, our financial outlook for revenue, operating margin, and diluted earnings per share, which is provided on a non-GAAP basis, reflects foreign currency exchange rates approximately consistent with rates in effect when the outlook is provided.

We also incur foreign exchange gains and losses resulting from the revaluation and settlement of monetary assets and liabilities that are denominated in currencies other than the entity’s functional currency. We periodically report our historical non-GAAP diluted net income per share both inclusive and exclusive of these net foreign exchange gains or losses. Our financial outlook for diluted earnings per share includes net foreign exchange gains or losses incurred to date, if any, but does not include potential future gains or losses.

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