Verint Announces Q3 FY2020 Results

Verint Systems Inc. (NASDAQ: VRNT), a global Actionable Intelligence leader, today announced results for the three and nine months ended October 31, 2019 (FY2020). Revenue for the three months ended October 31, 2019 was $325 million on a GAAP basis and $331 million on a non-GAAP basis. Diluted EPS for the three months ended October 31, 2019 was $0.17 on a GAAP basis and $0.94 on a non-GAAP basis. Revenue for the nine months ended October 31, 2019 was $964 million on a GAAP basis and $987 million on a non-GAAP basis. Diluted EPS for the nine months ended October 31, 2019 was $0.35 on a GAAP basis and $2.48 on a non-GAAP basis.

We are pleased with our third quarter performance and the successful execution of our strategic plan. In Customer Engagement, we experienced strong cloud momentum evidenced by strong cloud revenue growth and strong new SaaS bookings growth. In Cyber Intelligence, our transition to a software model is ahead of this year’s plan with strong gross margin expansion. We believe our strong operational execution coupled with the strategic initiatives discussed below will position both businesses to continue to prosper and drive shareholder value long-term, said Dan Bodner, CEO of Verint.

Strategic Initiatives

Today, we also announced a plan to separate Verint into two independent public companies shortly after the end of Verints next fiscal year ending January 31, 2021. In connection with the separation, we entered into a minority investment agreement with funds advised by Apax partners. In addition, we also announced a $300 million share buyback program over the period ending on February 1, 2021 (on or shortly before the planned business separation). For more information regarding these announcements please see Verints Press Release titled Verint Announces Plan to Separate into Two Independent Publicly Traded Companies also issued today.

New Directors with Cloud Experience

Verint is also announcing the appointment of two new members of our Board of Directors. First, Mr. Andrew Miller was elected to the Verint Board bringing over 20 years of software experience. Mr. Miller is also serving on Verints Audit Committee. Most recently, Mr. Miller was Executive Vice President and Chief Financial Officer of PTC Inc., where he successfully led PTC’s transition from a perpetual license business model to a subscription business model. Prior to PTC, Mr. Miller was an executive with enterprise software companies, including Cadence and Autodesk.

Also joining the Board is Mr. Jason Wright, a partner at Apax Partners. Mr. Wright will join the Verint Board upon closing of the first tranche of the Apax investment (expected during our first quarter ending April 30, 2020). Mr. Wright leads Apaxs technology investment practice and has significant experience in carve-outs and cloud transitions. Apax has significant experience in the software sector, including through previous investments in TriZetto, Plex Systems, RealPage, Sophos, Epicor and Exact Software.

Customer Engagement Highlights

Bodner continued, In the third quarter, we experienced more than a 60% increase in cloud revenue and more than a 100% increase in new SaaS ACV bookings, reflecting our Customer Engagement cloud leadership. Our cloud software is designed for both SMB and enterprise customers and our cloud deployment models are flexible and address the specific cloud journeys of our customers. We are seeing more and more large enterprises embrace cloud and had 23 cloud contracts with a TCV of more than $1 million year-to-date compared to eight cloud contracts in the same period in the prior year.

Customer Engagement

Three Months Ended October 31, 2019

Nine Months Ended October 31, 2019

 

GAAP

Non-GAAP

GAAP

Non-GAAP

Revenue

$218 million

$224 million

$636 million

$658 million

y-o-y change

+10.4%

+11.3%

+8.8%

+10.9%

Estimated Fully Allocated Gross Margin

65.8%

70.1%

64.5%

69.0%

y-o-y change

+30bps

+110bps

-40bps

+70bps

Estimated Fully Allocated Operating Income

$26 million

$62 million

$49 million

$162 million

y-o-y change

+3.4%

+16.0%

-22.6%

+11.5%

Below is our non-GAAP outlook for our Customer Engagement segment:

  • For fiscal 2020, we expect non-GAAP revenue of $900 million, reflecting 11% year-over-year growth.
  • For fiscal 2021, in addition to initial non-GAAP revenue guidance, we are introducing a new operational metric – new perpetual license equivalent bookings – which management uses to measure the software growth of our business irrespective to customers choice of perpetual or SaaS in a given period. For fiscal 2021, we expect a 10% increase in new perpetual license equivalent bookings and a 7% increase in non-GAAP revenue. We believe both metrics are useful for investors to better understand the growth dynamics in our business.

Cyber Intelligence Segment

Bodner added, In the third quarter, we continued to see a reduction in low margin hardware and services revenue resulting from our transition to a software model. We believe customers benefit from having our software, easier to implement and more rapidly refreshed. Verint benefits from further competitive differentiation and margin expansion.

Cyber Intelligence

Three Months Ended October 31, 2019

Nine Months Ended October 31, 2019

 

GAAP

Non-GAAP

GAAP

Non-GAAP

Revenue

$107 million

$107 million

$328 million

$328 million

y-o-y change

+0.4%

+0.4%

+4.2%

+4.2%

Estimated Fully Allocated Gross Margin

63.7%

64.7%

64.0%

65.2%

y-o-y change

+410bps

+360bps

+630bps

+530bps

Estimated Fully Allocated Operating Income

$3 million

$12 million

$11 million

$40 million

y-o-y change

-58.4%

-21.6%

+41.4%

+21.6%

Below is our non-GAAP outlook for our Cyber Intelligence segment:

  • For fiscal 2020, we now expect non-GAAP estimated fully allocated gross profit growth of more than 10% on non-GAAP revenue of $460 million.
  • For fiscal 2021, our initial outlook is for another year of 10% non-GAAP estimated fully allocated gross profit growth and 7% non-GAAP revenue growth as we continue to execute our software model and we expect continued gross margin expansion.

Non-GAAP Outlook for FY2020 and FY2021

  • Our non-GAAP outlook for revenue and EPS for the year ending January 31, 2020 is as follows:
    • Revenue: $1.360 billion with a range of +/- 2%
      • Reflects 9.2% year-over-year growth
    • EPS: $3.65 at the midpoint of our revenue guidance
      • Reflects 14% year-over-year growth
  • Our initial non-GAAP outlook for revenue and EPS for the year ending January 31, 2021 is as follows:
    • Revenue Growth: Approximately 7%
    • EPS: Approximately $4.00
      • Reflects 10% 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, less than $3 million of which is included within cost of revenue for our Cyber Intelligence segment.
  • 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, all but a negligible amount of which are included in our Customer Engagement segment.
  • Stock-based compensation is expected to be between approximately $74 million and $77 million, assuming market prices for our common stock approximately consistent with current levels, less than 5% of which is included within cost of revenue for our Cyber Intelligence segment.

Our initial non-GAAP outlook for the year ending January 31, 2021 excludes the following GAAP measures which we are able to quantify with reasonable certainty:

  • Amortization of intangible assets of approximately $49 million, less than $1 million of which is included within cost of revenue for our Cyber Intelligence segment.
  • Amortization of discount on convertible notes of approximately $13 million.

Our initial non-GAAP outlook for the year ending January 31, 2021 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 $9 million and $11 million, all of which are included in our Customer Engagement segment.
  • Stock-based compensation is expected to be between approximately $78 million and $82 million, assuming market prices for our common stock approximately consistent with current levels, less than 5% of which is included within cost of revenue for our Cyber Intelligence segment.

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, expenses to separate Verint into two independent public companies (as discussed above), 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 nine months ended October 31, 2019 and 2018 for the GAAP measures excluded from our non-GAAP outlook appear in Tables 2 and 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 nine months ended October 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 5793728. 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 and Operating Metrics” 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 countriesincluding over 85 percent of the Fortune 100count on intelligence from Verint solutions to make more informed, effective and timely decisions. Learn more about how were 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; challenges associated with our ability to accurately forecast when a sales opportunity will convert to an order, or to accurately forecast revenue and expenses, including as a result of our Customer Engagement segment cloud transition and our Cyber Intelligence segment software model transition, 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; 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; risks associated with the planned issuance of preferred stock to Apax Partners, including with respect to Apax’s significant ownership position and potential that their interests will not be aligned with those of our common stockholders; and risks associated with the planned spin-off of our Cyber Intelligence business, including the possibility that the spin-off transaction may not be completed in the expected timeframe or at all, that it does not achieve the benefits anticipated, or that it negatively impacts our operations or stock price. 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 October 31, 2019, when filed, and other filings we make with the SEC.

VERINT, ACTIONABLE INTELLIGENCE, THE CUSTOMER ENGAGEMENT COMPANY, CUSTOMER ENGAGEMENT SOLUTIONS, CYBER INTELLIGENCE SOLUTIONS, GI2, FIRSTMILE, OMNIX, WEBINT, LUMINAR, RELIANT, VANTAGE, STAR-GATE, TERROGENCE, SENSECY, and VIGIA are trademarks or registered trademarks of Verint Systems Inc. or its subsidiaries. Verint and other parties may also have trademark rights in other terms used herein.

 

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

 

 

 

Three Months Ended October 31,

 

Nine Months Ended October 31,

(in thousands, except per share data)

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

116,331

 

 

$

111,670

 

 

$

330,538

 

 

$

327,576

 

Service and support

 

208,536

 

 

192,313

 

 

633,893

 

 

571,941

 

Total revenue

 

324,867

 

 

303,983

 

 

964,431

 

 

899,517

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

30,533

 

 

33,124

 

 

88,077

 

 

100,917

 

Service and support

 

76,771

 

 

72,182

 

 

237,562

 

 

218,842

 

Amortization of acquired technology

 

5,968

 

 

5,933

 

 

18,262

 

 

18,879

 

Total cost of revenue

 

113,272

 

 

111,239

 

 

343,901

 

 

338,638

 

Gross profit

 

211,595

 

 

192,744

 

 

620,530

 

 

560,879

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development, net

 

57,694

 

 

51,587

 

 

173,548

 

 

155,993

 

Selling, general and administrative

 

116,306

 

 

99,902

 

 

364,292

 

 

311,482

 

Amortization of other acquired intangible assets

 

7,778

 

 

7,585

 

 

23,130

 

 

22,721

 

Total operating expenses

 

181,778

 

 

159,074

 

 

560,970

 

 

490,196

 

Operating income

 

29,817

 

 

33,670

 

 

59,560

 

 

70,683

 

Other income (expense), net:

 

 

 

 

 

 

 

 

Interest income

 

1,404

 

 

1,319

 

 

4,517

 

 

3,246

 

Interest expense

 

(10,102

)

 

(8,686

)

 

(30,143

)

 

(27,670

)

Other income (expense), net

 

1,082

 

 

(489

)

 

1,201

 

 

(2,194

)

Total other expense, net

 

(7,616

)

 

(7,856

)

 

(24,425

)

 

(26,618

)

Income before provision for income taxes

 

22,201

 

 

25,814

 

 

35,135

 

 

44,065

 

Provision for income taxes

 

9,218

 

 

5,601

 

 

6,120

 

 

2,153

 

Net income

 

12,983

 

 

20,213

 

 

29,015

 

 

41,912

 

Net income attributable to noncontrolling interests

 

1,302

 

 

1,293

 

 

5,200

 

 

3,227

 

Net income attributable to Verint Systems Inc.

 

$

11,681

 

 

$

18,920

 

 

$

23,815

 

 

$

38,685

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

 

$

0.29

 

 

$

0.36

 

 

$

0.60

 

Diluted

 

$

0.17

 

 

$

0.29

 

 

$

0.35

 

 

$

0.59

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

66,799

 

 

65,122

 

 

66,181

 

 

64,690

 

Diluted

 

67,442

 

 

66,200

 

 

67,452

 

 

65,885

 

 

Table 2 VERINT SYSTEMS INC. AND SUBSIDIARIES Reconciliation of GAAP to Non-GAAP Measures by Segment (Unaudited)

 

 

 

Three Months Ended October 31,

 

 

2019

 

2018

(in thousands)

 

Customer Engagement

 

Cyber Intelligence

 

Consolidated

 

Customer Engagement

 

Cyber Intelligence

 

Consolidated

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Total GAAP revenue

 

$

217,936

 

 

$

106,931

 

 

$

324,867

 

 

$

197,467

 

 

$

106,516

 

 

$

303,983

 

Revenue adjustments

 

6,213

 

 

 

 

6,213

 

 

3,981

 

 

24

 

 

4,005

 

Total non-GAAP revenue

 

$

224,149

 

 

$

106,931

 

 

$

331,080

 

 

$

201,448

 

 

$

106,540

 

 

$

307,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESTIMATED GROSS PROFIT AND GROSS MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

Segment products costs

 

$

8,422

 

 

$

20,093

 

 

$

28,515

 

 

$

9,132

 

 

$

22,912

 

 

$

32,044

 

Segment service expenses

 

56,507

 

 

16,526

 

 

73,033

 

 

51,025

 

 

17,279

 

 

68,304

 

Amortization of acquired technology

 

5,605

 

 

363

 

 

5,968

 

 

4,573

 

 

1,360

 

 

5,933

 

Stock-based compensation expenses (1)

 

1,363

 

 

403

 

 

1,766

 

 

1,106

 

 

261

 

 

1,367

 

Shared support expenses allocation (3)

 

2,601

 

 

1,389

 

 

3,990

 

 

2,354

 

 

1,237

 

 

3,591

 

Total GAAP estimated fully allocated cost of revenue

 

74,498

 

 

38,774

 

 

113,272

 

 

68,190

 

 

43,049

 

 

111,239

 

GAAP estimated fully allocated gross profit

 

$

143,438

 

 

$

68,157

 

 

$

211,595

 

 

$

129,277

 

 

$

63,467

 

 

$

192,744

 

GAAP estimated fully allocated gross margin

 

65.8

%

 

63.7

%

 

65.1

%

 

65.5

%

 

59.6

%

 

63.4

%

Revenue adjustments

 

6,213

 

 

 

 

6,213

 

 

3,981

 

 

24

 

 

4,005

 

Amortization of acquired technology

 

5,605

 

 

363

 

 

5,968

 

 

4,573

 

 

1,360

 

 

5,933

 

Stock-based compensation expenses (1)

 

1,363

 

 

403

 

 

1,766

 

 

1,106

 

 

261

 

 

1,367

 

Acquisition expenses, net (4)

 

30

 

 

16

 

 

46

 

 

7

 

 

3

 

 

10

 

Restructuring expenses (4)

 

428

 

 

229

 

 

657

 

 

38

 

 

19

 

 

57

 

Non-GAAP estimated fully allocated gross profit

 

$

157,077

 

 

$

69,168

 

 

$

226,245

 

 

$

138,982

 

 

$

65,134

 

 

$

204,116

 

Non-GAAP estimated fully allocated gross margin

 

70.1

%

 

64.7

%

 

68.3

%

 

69.0

%

 

61.1

%

 

66.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

ESTIMATED RESEARCH AND DEVELOPMENT, NET

 

 

 

 

 

 

 

 

 

 

 

 

Segment expenses

 

$

25,134

 

 

$

22,818

 

 

$

47,952

 

 

$

24,189

 

 

$

18,891

 

 

$

43,080

 

Stock-based compensation expenses (2)

 

1,948

 

 

1,040

 

 

2,988

 

 

1,802

 

 

944

 

 

2,746

 

Shared support expenses allocation (3)

 

4,404

 

 

2,350

 

 

6,754

 

 

3,779

 

 

1,982

 

 

5,761

 

GAAP estimated fully allocated research and development, net

 

31,486

 

 

26,208

 

 

57,694

 

 

29,770

 

 

21,817

 

 

51,587

 

As a percentage of GAAP revenue

 

14.4

%

 

24.5

%

 

17.8

%

 

15.1

%

 

20.5

%

 

17.0

%

Stock-based compensation expenses (2)

 

(1,948

)

 

(1,040

)

 

(2,988

)

 

(1,802

)

 

(944

)

 

(2,746

)

Acquisition expenses, net (4)

 

(79

)

 

(42

)

 

(121

)

 

 

 

 

 

 

Restructuring expenses (4)

 

(204

)

 

(109

)

 

(313

)

 

(163

)

 

(85

)

 

(248

)

Non-GAAP estimated fully allocated research and development, net

 

$

29,255

 

 

$

25,017

 

 

$

54,272

 

 

$

27,805

 

 

$

20,788

 

 

$

48,593

 

As a percentage of non-GAAP revenue

 

13.1

%

 

23.4

%

 

16.4

%

 

13.8

%

 

19.5

%

 

15.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

ESTIMATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Segment expenses

 

$

44,155

 

 

$

20,484

 

 

$

64,639

 

 

$

38,338

 

 

$

18,694

 

 

$

57,032

 

Stock-based compensation expenses (2)

 

9,001

 

 

4,804

 

 

13,805

 

 

8,188

 

 

4,294

 

 

12,482

 

Shared support expenses allocation (3)

 

24,686

 

 

13,176

 

 

37,862

 

 

19,935

 

 

10,453

 

 

30,388

 

GAAP estimated fully allocated selling, general and administrative expenses

 

77,842

 

 

38,464

 

 

116,306

 

 

66,461

 

 

33,441

 

 

99,902

 

As a percentage of GAAP revenue

 

35.7

%

 

36.0

%

 

35.8

%

 

33.7

%

 

31.4

%

 

32.9

%

Stock-based compensation expenses (2)

 

(9,001

)

 

(4,804

)

 

(13,805

)

 

(8,188

)

 

(4,294

)

 

(12,482

)

Acquisition expenses, net (4)

 

(1,326

)

 

(707

)

 

(2,033

)

 

(1,233

)

 

(646

)

 

(1,879

)

Restructuring expenses (4)

 

(718

)

 

(383

)

 

(1,101

)

 

(470

)

 

(247

)

 

(717

)

Other adjustments (4)

 

(1,193

)

 

(637

)

 

(1,830

)

 

983

 

 

515

 

 

1,498

 

Non-GAAP estimated fully allocated selling, general and administrative expenses

 

$

65,604

 

 

$

31,933

 

 

$

97,537

 

 

$

57,553

 

 

$

28,769

 

 

$

86,322

 

As a percentage of non-GAAP revenue

 

29.3

%

 

29.9

%

 

29.5

%

 

28.6

%

 

27.0

%

 

28.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME, OPERATING MARGIN, AND ADJUSTED EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

GAAP estimated fully allocated operating income

 

$

26,459

 

 

$

3,358

 

 

$

29,817

 

 

$

25,590

 

 

$

8,080

 

 

$

33,670

 

GAAP estimated fully allocated operating margin

 

12.1

%

 

3.1

%

 

9.2

%

 

13.0

%

 

7.6

%

 

11.1

%

Revenue adjustments

 

6,213

 

 

 

 

6,213

 

 

3,981

 

 

24

 

 

4,005

 

Amortization of acquired technology

 

5,605

 

 

363

 

 

5,968

 

 

4,573

 

 

1,360

 

 

5,933

 

Amortization of other acquired intangible assets

 

7,651

 

 

127

 

 

7,778

 

 

7,456

 

 

129

 

 

7,585

 

Stock-based compensation expenses (2)

 

12,312

 

 

6,247

 

 

18,559

 

 

11,096

 

 

5,499

 

 

16,595

 

Acquisition expenses, net (4)

 

1,435

 

 

765

 

 

2,200

 

 

1,240

 

 

649

 

 

1,889

 

Restructuring expenses (4)

 

1,350

 

 

721

 

 

2,071

 

 

671

 

 

351

 

 

1,022

 

Other adjustments (4)

 

1,193

 

 

637

 

 

1,830

 

 

(983

)

 

(515

)

 

(1,498

)

Non-GAAP estimated fully allocated operating income

 

62,218

 

 

12,218

 

 

74,436

 

 

53,624

 

 

15,577

 

 

69,201

 

Depreciation and amortization (5)

 

5,655

 

 

3,019

 

 

8,674

 

 

4,660

 

 

2,444

 

 

7,104

 

Estimated fully allocated adjusted EBITDA

 

$

67,873

 

 

$

15,237

 

 

$

83,110

 

 

$

58,284

 

 

$

18,021

 

 

$

76,305

 

Non-GAAP estimated fully allocated operating margin

 

27.8

%

 

11.4

%

 

22.5

%

 

26.6

%

 

14.6

%

 

22.5

%

Estimated fully allocated adjusted EBITDA margin

 

30.3

%

 

14.2

%

 

25.1

%

 

28.9

%

 

16.9

%

 

24.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended October 31,

 

 

2019

 

2018

(in thousands)

 

Customer Engagement

 

Cyber Intelligence

 

Consolidated

 

Customer Engagement

 

Cyber Intelligence

 

Consolidated

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Total GAAP revenue

 

$

636,467

 

 

$

327,964

 

 

$

964,431

 

 

$

584,730

 

 

$

314,787

 

 

$

899,517

 

Revenue adjustments

 

21,973

 

 

151

 

 

22,124

 

 

8,826

 

 

93

 

 

8,919

 

Total non-GAAP revenue

 

$

658,440

 

 

$

328,115

 

 

$

986,555

 

 

$

593,556

 

 

$

314,880

 

 

$

908,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESTIMATED GROSS PROFIT AND GROSS MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

Segment products costs

 

$

25,745

 

 

$

56,597

 

 

$

82,342

 

 

$

26,454

 

 

$

71,297

 

 

$

97,751

 

Segment service expenses

 

172,178

 

 

54,126

 

 

226,304

 

 

156,229

 

 

51,936

 

 

208,165

 

Amortization of acquired technology

 

16,217

 

 

2,045

 

 

18,262

 

 

12,942

 

 

5,937

 

 

18,879

 

Stock-based compensation expenses (1)

 

4,017

 

 

1,187

 

 

5,204

 

 

3,364

 

 

794

 

 

4,158

 

Shared support expenses allocation (3)

 

7,687

 

 

4,102

 

 

11,789

 

 

6,353

 

 

3,332

 

 

9,685

 

Total GAAP estimated fully allocated cost of revenue

 

225,844

 

 

118,057

 

 

343,901

 

 

205,342

 

 

133,296

 

 

338,638

 

GAAP estimated fully allocated gross profit

 

$

410,623

 

 

$

209,907

 

 

$

620,530

 

 

$

379,388

 

 

$

181,491

 

 

$

560,879

 

GAAP estimated fully allocated gross margin

 

64.5

%

 

64.0

%

 

64.3

%

 

64.9

%

 

57.7

%

 

62.4

%

Revenue adjustments

 

21,973

 

 

151

 

 

22,124

 

 

8,826

 

 

93

 

 

8,919

 

Amortization of acquired technology

 

16,217

 

 

2,045

 

 

18,262

 

 

12,942

 

 

5,937

 

 

18,879

 

Stock-based compensation expenses (1)

 

4,017

 

 

1,187

 

 

5,204

 

 

3,364

 

 

794

 

 

4,158

 

Acquisition expenses, net (4)

 

43

 

 

23

 

 

66

 

 

(7

)

 

(4

)

 

(11

)

Restructuring expenses (4)

 

1,409

 

 

752

 

 

2,161

 

 

746

 

 

391

 

 

1,137

 

Non-GAAP estimated fully allocated gross profit

 

$

454,282

 

 

$

214,065

 

 

$

668,347

 

 

$

405,259

 

 

$

188,702

 

 

$

593,961

 

Non-GAAP estimated fully allocated gross margin

 

69.0

%

 

65.2

%

 

67.7

%

 

68.3

%

 

59.9

%

 

65.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

ESTIMATED RESEARCH AND DEVELOPMENT, NET

 

 

 

 

 

 

 

 

 

 

 

 

Segment expenses

 

$

78,454

 

 

$

67,156

 

 

$

145,610

 

 

$

70,886

 

 

$

59,808

 

 

$

130,694

 

Stock-based compensation expenses (2)

 

5,819

 

 

3,106

 

 

8,925

 

 

4,785

 

 

2,509

 

 

7,294

 

Shared support expenses allocation (3)

 

12,396

 

 

6,617

 

 

19,013

 

 

11,811

 

 

6,194

 

 

18,005

 

GAAP estimated fully allocated research and development, net

 

96,669

 

 

76,879

 

 

173,548

 

 

87,482

 

 

68,511

 

 

155,993

 

As a percentage of GAAP revenue

 

15.2

%

 

23.4

%

 

18.0

%

 

15.0

%

 

21.8

%

 

17.3

%

Stock-based compensation expenses (2)

 

(5,819

)

 

(3,106

)

 

(8,925

)

 

(4,785

)

 

(2,509

)

 

(7,294

)

Acquisition expenses, net (4)

 

(344

)

 

(184

)

 

(528

)

 

(3

)

 

(2

)

 

(5

)

Restructuring expenses (4)

 

(583

)

 

(311

)

 

(894

)

 

(235

)

 

(123

)

 

(358

)

Non-GAAP estimated fully allocated research and development, net

 

$

89,923

 

 

$

73,278

 

 

$

163,201

 

 

$

82,459

 

 

$

65,877

 

 

$

148,336

 

As a percentage of non-GAAP revenue

 

13.7

%

 

22.3

%

 

16.5

%

 

13.9

%

 

20.9

%

 

16.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

ESTIMATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Segment expenses

 

$

138,429

 

 

$

66,450

 

 

$

204,879

 

 

$

117,335

 

 

$

58,185

 

 

$

175,520

 

Stock-based compensation expenses (2)

 

27,439

 

 

14,645

 

 

42,084

 

 

25,621

 

 

13,436

 

 

39,057

 

Shared support expenses allocation (3)

 

76,499

 

 

40,830

 

 

117,329

 

 

63,570

 

 

33,335

 

 

96,905

 

GAAP estimated fully allocated selling, general and administrative expenses

 

242,367

 

 

121,925

 

 

364,292

 

 

206,526

 

 

104,956

 

 

311,482

 

As a percentage of GAAP revenue

 

38.1

%

 

37.2

%

 

37.8

%

 

35.3

%

 

33.3

%

 

34.6

%

Stock-based compensation expenses (2)

 

(27,439

)

 

(14,645

)

 

(42,084

)

 

(25,621

)

 

(13,436

)

 

(39,057

)

Acquisition expenses, net (4)

 

(5,205

)

 

(2,778

)

 

(7,983

)

 

(2,809

)

 

(1,473

)

 

(4,282

)

Restructuring expenses (4)

 

(1,364

)

 

(728

)

 

(2,092

)

 

(1,000

)

 

(524

)

 

(1,524

)

Other adjustments (4)

 

(6,272

)

 

(3,348

)

 

(9,620

)

 

182

 

 

96

 

 

278

 

Non-GAAP estimated fully allocated selling, general and administrative expenses

 

$

202,087

 

 

$

100,426

 

 

$

302,513

 

 

$

177,278

 

 

$

89,619

 

 

$

266,897

 

As a percentage of non-GAAP revenue

 

30.7

%

 

30.6

%

 

30.7

%

 

29.9

%

 

28.5

%

 

29.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME, OPERATING MARGIN, AND ADJUSTED EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

GAAP estimated fully allocated operating income

 

$

48,839

 

 

$

10,721

 

 

$

59,560

 

 

$

63,101

 

 

$

7,582

 

 

$

70,683

 

GAAP estimated fully allocated operating margin

 

7.7

%

 

3.3

%

 

6.2

%

 

10.8

%

 

2.4

%

 

7.9

%

Revenue adjustments

 

21,973

 

 

151

 

 

22,124

 

 

8,826

 

 

93

 

 

8,919

 

Amortization of acquired technology

 

16,217

 

 

2,045

 

 

18,262

 

 

12,942

 

 

5,937

 

 

18,879

 

Amortization of other acquired intangible assets

 

22,748

 

 

382

 

 

23,130

 

 

22,279

 

 

442

 

 

22,721

 

Stock-based compensation expenses (2)

 

37,275

 

 

18,938

 

 

56,213

 

 

33,770

 

 

16,739

 

 

50,509

 

Acquisition expenses, net (4)

 

5,592

 

 

2,985

 

 

8,577

 

 

2,805

 

 

1,471

 

 

4,276

 

Restructuring expenses (4)

 

3,356

 

 

1,791

 

 

5,147

 

 

1,981

 

 

1,038

 

 

3,019

 

Other adjustments (4)

 

6,272

 

 

3,348

 

 

9,620

 

 

(182

)

 

(96

)

 

(278

)

Non-GAAP estimated fully allocated operating income

 

162,272

 

 

40,361

 

 

202,633

 

 

145,522

 

 

33,206

 

 

178,728

 

Depreciation and amortization (5)

 

15,934

 

 

8,505

 

 

24,439

 

 

14,847

 

 

7,786

 

 

22,633

 

Estimated fully allocated adjusted EBITDA

 

$

178,206

 

 

$

48,866

 

 

$

227,072

 

 

$

160,369

 

 

$

40,992

 

 

$

201,361

 

Non-GAAP estimated fully allocated operating margin

 

24.6

%

 

12.3

%

 

20.5

%

 

24.5

%

 

10.5

%

 

19.7

%

Estimated fully allocated adjusted EBITDA margin

 

27.1

%

 

14.9

%

 

23.0

%

 

27.0

%

 

13.0

%

 

22.2

%

(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 operations and service expense wages for each segment, 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 stock-based compensation expenses applicable to research and development, net and selling, general and administrative, 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 our shared support expenses (as disclosed in footnote 16 to our October 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.

(4) 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.

(5) 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.

 

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

 

 

 

Three Months Ended October 31,

 

Nine Months Ended October 31,

(in thousands, except per share data)

 

2019

 

2018

 

2019

 

2018

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

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP other expense, net

 

$

(7,616

)

 

$

(7,856

)

 

$

(24,425

)

 

$

(26,618

)

Unrealized losses on derivatives, net

 

167

 

 

366

 

 

1,485

 

 

239

 

Amortization of convertible note discount

 

3,143

 

 

2,981

 

 

9,306

 

 

8,829

 

Acquisition expenses, net

 

(11

)

 

(15

)

 

(68

)

 

316

 

Non-GAAP other expense, net(1)

 

$

(4,317

)

 

$

(4,524

)

 

$

(13,702

)

 

$

(17,234

)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP provision for income taxes

 

$

9,218

 

 

$

5,601

 

 

$

6,120

 

 

$

2,153

 

GAAP effective income tax rate

 

41.5

%

 

21.7

%

 

17.4

%

 

4.9

%

Non-GAAP tax adjustments

 

(3,467

)

 

1,415

 

 

9,996

 

 

15,134

 

Non-GAAP provision for income taxes

 

$

5,751

 

 

$

7,016

 

 

$

16,116

 

 

$

17,287

 

Non-GAAP effective income tax rate

 

8.2

%

 

10.8

%

 

8.5

%

 

10.7

%

 

 

 

 

 

 

 

 

 

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.

 

$

11,681

 

 

$

18,920

 

 

$

23,815

 

 

$

38,685

 

Revenue adjustments

 

6,213

 

 

4,005

 

 

22,124

 

 

8,919

 

Amortization of acquired technology

 

5,968

 

 

5,933

 

 

18,262

 

 

18,879

 

Amortization of other acquired intangible assets

 

7,778

 

 

7,585

 

 

23,130

 

 

22,721

 

Stock-based compensation expenses

 

18,559

 

 

16,595

 

 

56,213

 

 

50,509

 

Unrealized losses on derivatives, net

 

167

 

 

366

 

 

1,485

 

 

239

 

Amortization of convertible note discount

 

3,143

 

 

2,981

 

 

9,306

 

 

8,829

 

Acquisition expenses, net

 

2,188

 

 

1,874

 

 

8,507

 

 

4,592

 

Restructuring expenses

 

2,074

 

 

1,022

 

 

5,150

 

 

3,019

 

Other adjustments

 

1,829

 

 

(1,498

)

 

9,620

 

 

(278

)

Non-GAAP tax adjustments

 

3,467

 

 

(1,415

)

 

(9,996

)

 

(15,134

)

Total GAAP net income adjustments

 

51,386

 

 

37,448

 

 

143,801

 

 

102,295

 

Non-GAAP net income attributable to Verint Systems Inc.

 

$

63,067

 

 

$

56,368

 

 

$

167,616

 

 

$

140,980

 

 

 

 

 

 

 

 

 

 

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.

 

$

0.17

 

 

$

0.29

 

 

$

0.35

 

 

$

0.59

 

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

 

$

0.94

 

 

$

0.85

 

 

$

2.48

 

 

$

2.14

 

 

 

 

 

 

 

 

 

 

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

 

67,442

 

 

66,200

 

 

67,452

 

 

65,885

 

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.

 

67,442

 

 

66,200

 

 

67,452

 

 

65,885

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income attributable to Verint Systems Inc.

 

$

11,681

 

 

$

18,920

 

 

$

23,815

 

 

$

38,685

 

As a percentage of GAAP revenue

 

3.6

%

 

6.2

%

 

2.5

%

 

4.3

%

Net income attributable to noncontrolling interest

 

1,302

 

 

1,293

 

 

5,200

 

 

3,227

 

Provision for income taxes

 

9,218

 

 

5,601

 

 

6,120

 

 

2,153

 

Other expense, net

 

7,616

 

 

7,856

 

 

24,425

 

 

26,618

 

Depreciation and amortization(2)

 

22,422

 

 

20,623

 

 

65,832

 

 

64,235

 

Revenue adjustments

 

6,213

 

 

4,005

 

 

22,124

 

 

8,919

 

Stock-based compensation expenses

 

18,559

 

 

16,595

 

 

56,213

 

 

50,509

 

Acquisition expenses, net

 

2,201

 

 

1,889

 

 

8,577

 

 

4,276

 

Restructuring expenses

 

2,069

 

 

1,021

 

 

5,146

 

 

3,017

 

Other adjustments

 

1,829

 

 

(1,498

)

 

9,620

 

 

(278

)

Adjusted EBITDA

 

$

83,110

 

 

$

76,305

 

 

$

227,072

 

 

$

201,361

 

As a percentage of non-GAAP revenue

 

25.1

%

 

24.8

%

 

23.0

%

 

22.2

%

 

 

 

 

 

 

 

 

 

Table of Reconciliation from Gross Debt to Net Debt

 

 

 

 

October 31, 2019

 

January 31, 2019

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

 

 

 

$

4,250

 

 

$

4,343

 

Long-term debt

 

 

 

 

 

785,170

 

 

777,785

 

Unamortized debt discounts and issuance costs

 

 

 

 

 

26,018

 

 

36,589

 

Gross debt

 

 

 

 

 

815,438

 

 

818,717

 

Less:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

412,838

 

 

369,975

 

Restricted cash and cash equivalents, and restricted bank time deposits

 

 

 

 

 

24,185

 

 

42,262

 

Short-term investments

 

 

 

 

 

13,973

 

 

32,329

 

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

 

 

 

 

 

364,442

 

 

374,151

 

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

 

 

 

 

 

28,413

 

 

23,193

 

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

 

 

 

 

 

$

336,029

 

 

$

350,958

 

 

 

 

 

 

 

 

 

 

(1) For the three months ended October 31, 2019, non-GAAP other expense, net of $4.3 million was comprised of $5.7 million of interest and other expense, net of $1.4 million of foreign exchange gains primarily related to balance sheet translations.

(2) Adjusted for financing fee amortization.

 

Table 4 VERINT SYSTEMS INC. AND SUBSIDIARIES GAAP to Non-GAAP Customer Engagement Revenue and Cloud Metrics (Unaudited)

 

 

 

Three Months Ended October 31,

 

Nine Months Ended October 31,

(in thousands)

 

2019

 

2018

 

2019

 

2018

Table of Reconciliation from GAAP Software (includes cloud and support) and Professional Services Revenue to Non-GAAP Software (includes cloud and support) and Professional Services Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Software (includes cloud and support) revenue – GAAP

 

$

185,105

 

 

$

161,401

 

 

$

533,424

 

 

$

481,260

 

Perpetual revenue – GAAP

 

43,727

 

 

44,458

 

 

139,356

 

 

138,728

 

Cloud revenue – GAAP

 

61,429

 

 

37,656

 

 

156,327

 

 

107,119

 

Support revenue – GAAP

 

79,949

 

 

79,287

 

 

237,741

 

 

235,413

 

Professional services revenue – GAAP

 

$

32,831

 

 

$

36,066

 

 

$

103,043

 

 

$

103,470

 

Total revenue – GAAP

 

$

217,936

 

 

$

197,467

 

 

$

636,467

 

 

$

584,730

 

 

 

 

 

 

 

 

 

 

Estimated software (includes cloud and support) revenue adjustments

 

6,213

 

 

3,981

 

 

21,973

 

 

8,826

 

Estimated perpetual revenue adjustments

 

 

 

 

 

 

 

 

Estimated cloud revenue adjustments

 

6,147

 

 

3,972

 

 

21,709

 

 

8,545

 

Estimated support revenue adjustments

 

66

 

 

9

 

 

264

 

 

281

 

Estimated professional services revenue adjustments

 

 

 

 

 

 

 

 

Total estimated revenue adjustments

 

6,213

 

 

3,981

 

 

21,973

 

 

8,826

 

 

 

 

 

 

 

 

 

 

Software (includes cloud and support) revenue – non-GAAP

 

$

191,318

 

 

$

165,382

 

 

$

555,397

 

 

$

490,086

 

Perpetual revenue – non-GAAP

 

43,727

 

 

44,458

 

 

139,356

 

 

138,728

 

Cloud revenue – non-GAAP

 

67,576

 

 

41,628

 

 

178,036

 

 

115,664

 

Support revenue – non-GAAP

 

80,015

 

 

79,296

 

 

238,005

 

 

235,694

 

Professional services revenue – non-GAAP

 

$

32,831

 

 

$

36,066

 

 

$

103,043

 

 

$

103,470

 

Total revenue – non-GAAP

 

$

224,149

 

 

$

201,448

 

 

$

658,440

 

 

$

593,556

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SaaS revenue – GAAP

 

$

47,207

 

 

$

27,549

 

 

$

114,312

 

 

$

78,351

 

Bundled SaaS revenue – GAAP

 

30,106

 

 

19,799

 

 

84,519

 

 

61,347

 

Unbundled SaaS revenue – GAAP

 

17,101

 

 

7,750

 

 

29,793

 

 

17,004

 

Optional managed services revenue – GAAP

 

14,222

 

 

10,107

 

 

42,015

 

 

28,768

 

Cloud revenue – GAAP

 

$

61,429

 

 

$

37,656

 

 

$

156,327

 

 

$

107,119

 

 

 

 

 

 

 

 

 

 

Estimated SaaS revenue adjustments

 

5,701

 

 

3,421

 

 

20,197

 

 

6,886

 

Estimated bundled SaaS revenue adjustments

 

5,659

 

 

2,796

 

 

19,275

 

 

4,576

 

Estimated unbundled SaaS revenue adjustments

 

42

 

 

625

 

 

922

 

 

2,310

 

Estimated optional managed services revenue adjustments

 

446

 

 

551

 

 

1,512

 

 

1,659

 

Estimated cloud revenue adjustments

 

6,147

 

 

3,972

 

 

21,709

 

 

8,545

 

 

 

 

 

 

 

 

 

 

SaaS revenue – non-GAAP

 

52,908

 

 

30,970

 

 

134,509

 

 

85,237

 

Bundled SaaS revenue – non-GAAP

 

35,765

 

 

22,595

 

 

103,794

 

 

65,923

 

Unbundled SaaS revenue – non-GAAP

 

17,143

 

 

8,375

 

 

30,715

 

 

19,314

 

Optional managed services revenue – non-GAAP

 

14,668

 

 

10,658

 

 

43,527

 

 

30,427

 

Cloud revenue – non-GAAP

 

$

67,576

 

 

$

41,628

 

 

$

178,036

 

 

$

115,664

 

 

 

 

 

 

 

 

 

 

Table of New SaaS ACV

 

 

 

 

 

 

New SaaS ACV

 

$

15,605

 

 

$

6,755

 

 

$

33,925

 

 

$

17,411

 

New SaaS ACV Growth YoY

 

131.0

%

 

n/a

 

94.8

%

 

n/a

 

 

 

 

 

 

 

 

 

Table of New Perpetual License Equivalent Bookings

 

 

 

 

 

 

New perpetual license equivalent

 

$

69,856

 

 

$

58,632

 

 

$

199,235

 

 

$

175,133

 

New perpetual license equivalent growth YoY

 

19.1

%

 

n/a

 

13.8

%

 

n/a

 

Table 5 VERINT SYSTEMS INC. AND SUBSIDIARIES GAAP to Non-GAAP Cyber Intelligence Revenue Metrics (Unaudited)

 

 

 

Three Months Ended October 31,

 

Nine Months Ended October 31,

(in thousands)

 

2019

 

2018

 

2019

 

2018

Recurring revenue – GAAP

 

$

47,498

 

 

$

40,349

 

 

$

140,486

 

 

$

119,238

 

Nonrecurring revenue – GAAP

 

59,433

 

 

66,167

 

 

187,478

 

 

195,549

 

Total revenue – GAAP

 

$

106,931

 

 

$

106,516

 

 

$

327,964

 

 

$

314,787

 

 

 

 

 

 

 

 

 

 

Estimated recurring revenue adjustments

 

 

 

24

 

 

151

 

 

93

 

Estimated nonrecurring revenue adjustments

 

 

 

 

 

 

 

 

Total estimated revenue adjustments

 

 

 

24

 

 

151

 

 

93

 

 

 

 

 

 

 

 

 

 

Recurring revenue – non-GAAP

 

47,498

 

 

40,373

 

 

140,637

 

 

119,331

 

Nonrecurring revenue – non-GAAP

 

59,433

 

 

66,167

 

 

187,478

 

 

195,549

 

Total revenue – non-GAAP

 

$

106,931

 

 

$

106,540

 

 

$

328,115

 

 

$

314,880

 

 

 

 

 

 

 

 

 

 

Table 6 VERINT SYSTEMS INC. AND SUBSIDIARIES GAAP to Non-GAAP Segment and Shared Support Metrics (Unaudited)

 

 

 

Three Months Ended October 31,

 

Nine Months Ended October 31,

(in thousands)

 

2019

 

2018

 

2019

 

2018

Segment expenses – GAAP (1)

 

$

238,218

 

 

$

222,328

 

 

$

732,028

 

 

$

682,181

 

Shared support expenses – GAAP (2)

 

56,832

 

 

47,985

 

 

172,843

 

 

146,653

 

Total expenses – GAAP

 

295,050

 

 

270,313

 

 

904,871

 

 

828,834

 

 

 

 

 

 

 

 

 

 

Estimated segment expense adjustments

 

(26,926

)

 

(23,126

)

 

(81,728

)

 

(73,863

)

Estimated shared support expense adjustments

 

(11,482

)

 

(8,400

)

 

(39,223

)

 

(25,263

)

Total estimated expense adjustments

 

(38,408

)

 

(31,526

)

 

(120,951

)

 

(99,126

)

 

 

 

 

 

 

 

 

 

Segment expenses – non-GAAP (1)

 

211,292

 

 

199,202

 

 

650,300

 

 

608,318

 

Shared support expenses – non-GAAP (2)

 

45,350

 

 

39,585

 

 

133,620

 

 

121,390

 

Total expenses – non-GAAP

 

$

256,642

 

 

$

238,787

 

 

$

783,920

 

 

$

729,708

 

(1) Segment expenses include expenses incurred directly by our two segments.

(2) Shared support expenses include certain operating expenses that are provided by shared resources or are otherwise generally not controlled by segment management. The majority of which are for administrative support functions, such as information technology, human resources, finance, legal, and other general corporate support, and for occupancy expenses.

 

Table 7 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

Nine Months Ended

 

Three Months Ended

Nine Months Ended

Total Revenue

 

 

 

 

 

 

Revenue for the three and nine months ended October 31, 2018

 

$

303,983

 

$

899,517

 

 

$

307,988

 

$

908,436

 

Revenue for the three and nine months ended October 31, 2019

 

$

324,867

 

$

964,431

 

 

$

331,080

 

$

986,555

 

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

 

$

328,000

 

$

977,000

 

 

$

334,000

 

$

998,000

 

Reported period-over-period revenue growth

 

6.9

%

7.2

%

 

7.5

%

8.6

%

% impact from change in foreign currency exchange rates

 

1.0

%

1.4

%

 

0.9

%

1.3

%

Constant currency period-over-period revenue growth

 

7.9

%

8.6

%

 

8.4

%

9.9

%

 

 

 

 

 

 

 

Customer Engagement

 

 

 

 

 

 

Revenue for the three and nine months ended October 31, 2018

 

$

197,467

 

$

584,730

 

 

$

201,448

 

$

593,556

 

Revenue for the three and nine months ended October 31, 2019

 

$

217,936

 

$

636,467

 

 

$

224,149

 

$

658,440

 

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

 

$

220,000

 

$

645,000

 

 

$

226,000

 

$

666,000

 

Reported period-over-period revenue growth

 

10.4

%

8.8

%

 

11.3

%

10.9

%

% impact from change in foreign currency exchange rates

 

1.0

%

1.5

%

 

0.9

%

1.3

%

Constant currency period-over-period revenue growth

 

11.4

%

10.3

%

 

12.2

%

12.2

%

 

 

 

 

 

 

 

Cyber Intelligence

 

 

 

 

 

 

Revenue for the three and nine months ended October 31, 2018

 

$

106,516

 

$

314,787

 

 

$

106,540

 

$

314,880

 

Revenue for the three and nine months ended October 31, 2019

 

$

106,931

 

$

327,964

 

 

$

106,931

 

$

328,115

 

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

 

$

108,000

 

$

332,000

 

 

$

108,000

 

$

332,000

 

Reported period-over-period revenue growth

 

0.4

%

4.2

%

 

0.4

%

4.2

%

% impact from change in foreign currency exchange rates

 

1.0

%

1.3

%

 

1.0

%

1.2

%

Constant currency period-over-period revenue growth

 

1.4

%

5.5

%

 

1.4

%

5.4

%

(1) Revenue for the three and nine months ended October 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 nine months ended October 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 8 VERINT SYSTEMS INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

October 31,

 

January 31,

(in thousands, except share and per share data)

 

2019

 

2019

Assets

 

 

 

 

Current Assets:

 

 

 

 

Cash and cash equivalents

 

$

412,838

 

 

$

369,975

 

Restricted cash and cash equivalents, and restricted bank time deposits

 

24,185

 

 

42,262

 

Short-term investments

 

13,973

 

 

32,329

 

Accounts receivable, net of allowance for doubtful accounts of $5.7 million and $3.8 million, respectively

 

346,741

 

 

375,663

 

Contract assets

 

65,611

 

 

63,389

 

Inventories

 

24,001

 

 

24,952

 

Prepaid expenses and other current assets

 

96,732

 

 

97,776

 

Total current assets

 

984,081

 

 

1,006,346

 

Property and equipment, net

 

109,698

 

 

100,134

 

Operating lease right-of-use assets

 

105,367

 

 

 

Goodwill

 

1,448,726

 

 

1,417,481

 

Intangible assets, net

 

205,307

 

 

225,183

 

Other assets

 

129,268

 

 

117,883

 

Total assets

 

$

2,982,447

 

 

$

2,867,027

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

Current Liabilities:

 

 

 

 

Accounts payable

 

$

66,144

 

 

$

71,621

 

Accrued expenses and other current liabilities

 

223,329

 

 

212,824

 

Contract liabilities

 

339,232

 

 

377,376

 

Total current liabilities

 

628,705

 

 

661,821

 

Long-term debt

 

785,170

 

 

777,785

 

Long-term contract liabilities

 

40,445

 

 

30,094

 

Operating lease liabilities

 

94,163

 

 

 

Other liabilities

 

99,374

 

 

136,523

 

Total liabilities

 

1,647,857

 

 

1,606,223

 

Commitments and Contingencies

 

 

 

 

Stockholders’ Equity:

 

 

 

 

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

 

 

 

 

Common stock – $0.001 par value; authorized 120,000,000 shares. Issued 68,497,000 and 66,998,000 shares; outstanding 66,824,000 and 65,333,000 shares at October 31, 2019 and January 31, 2019, respectively.

 

68

 

 

67

 

Additional paid-in capital

 

1,645,279

 

 

1,586,266

 

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

 

(58,072

)

 

(57,598

)

Accumulated deficit

 

(110,459

)

 

(134,274

)

Accumulated other comprehensive loss

 

(158,002

)

 

(145,225

)

Total Verint Systems Inc. stockholders’ equity

 

1,318,814

 

 

1,249,236

 

Noncontrolling interests

 

15,776

 

 

11,568

 

Total stockholders’ equity

 

1,334,590

 

 

1,260,804

 

Total liabilities and stockholders’ equity

 

$

2,982,447

 

 

$

2,867,027

 

 

Table 9 VERINT SYSTEMS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Nine Months Ended October 31,

(in thousands)

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

Net income

 

$

29,015

 

 

$

41,912

 

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

 

 

 

 

Depreciation and amortization

 

67,880

 

 

66,231

 

Stock-based compensation, excluding cash-settled awards

 

56,164

 

 

50,509

 

Amortization of discount on convertible notes

 

9,306

 

 

8,829

 

Non-cash gains on derivative financial instruments, net

 

(460

)

 

(3,760

)

Other non-cash items, net

 

3,894

 

 

(1,972

)

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

 

 

 

 

Accounts receivable

 

26,791

 

 

35,879

 

Contract assets

 

(2,175

)

 

(999

)

Inventories

 

(605

)

 

(4,404

)

Prepaid expenses and other assets

 

(109

)

 

(6,259

)

Accounts payable and accrued expenses

 

(10,161

)

 

(17,841

)

Contract liabilities

 

(29,598

)

 

(29,940

)

Other, net

 

(13,472

)

 

(6,535

)

Net cash provided by operating activities

 

136,470

 

 

131,650

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

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

 

(51,481

)

 

(27,370

)

Purchases of property and equipment

 

(28,388

)

 

(22,933

)

Purchases of investments

 

(31,760

)

 

(53,868

)

Maturities and sales of investments

 

49,994

 

 

10,620

 

Cash paid for capitalized software development costs

 

(12,431

)

 

(4,767

)

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

 

4,755

 

 

(21,128

)

Net cash used in investing activities

 

(69,311

)

 

(119,446

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Repayments of borrowings and other financing obligations

 

(4,671

)

 

(4,317

)

Payments of debt-related costs

 

(212

)

 

(206

)

Purchases of treasury stock

 

(474

)

 

(173

)

Dividends or distributions paid to noncontrolling interests

 

(949

)

 

(760

)

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

 

(27,975

)

 

(10,681

)

Other financing activities, net

 

 

 

(429

)

Net cash used in financing activities

 

(34,281

)

 

(16,566

)

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

 

(1,251

)

 

(3,864

)

Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents

 

31,627

 

 

(8,226

)

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

 

$

444,326

 

 

$

389,984

 

 

 

 

 

 

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

 

$

412,838

 

 

$

353,422

 

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

 

23,778

 

 

32,212

 

Restricted cash and cash equivalents included in other assets

 

7,710

 

 

4,350

 

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

 

$

444,326

 

 

$

389,984

 

 

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

This press release contains non-GAAP financial measures, consisting of non-GAAP revenue, non-GAAP software (includes cloud and support), non-GAAP professional services, non-GAAP recurring revenue, non-GAAP nonrecurring revenue, non-GAAP cloud revenue, non-GAAP SaaS revenue, non-GAAP optional managed services revenue, estimated fully allocated cost of revenue, estimated GAAP and non-GAAP fully allocated gross profit and gross margins, estimated GAAP and non-GAAP fully allocated research and development, net, estimated GAAP and non-GAAP fully allocated selling, general and administrative expenses, estimated GAAP and non-GAAP fully allocated operating income and operating margins, 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., estimated fully allocated adjusted EBITDA and adjusted EBITDA margins, net debt, non-GAAP segment expenses, non-GAAP shared support expenses and constant currency measures. 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 companys 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 issuers 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 $7.8 million of fees and expenses related to a shareholder proxy contest that was settled during three months ended July 31, 2019, 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 Revenue Metrics and Operating Metrics

Software (includes cloud and support) includes, software licenses, appliances, SaaS and optional managed services.

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.

Optional Managed Services is recurring services that are intended to improve our customers operations and reduce expenses.

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 incremental value of usage contracts over a rolling four quarters.

New Perpetual License Equivalent Bookings are used to normalize between perpetual and SaaS bookings and measure overall software growth. We calculate new perpetual license equivalent bookings by multiplying New SaaS ACV bookings (excluding bookings from maintenance conversions) by a conversion factor of 2.0 and adding that amount to perpetual license bookings. The conversion factor of 2.0 is an estimate that is derived from an analysis of our historical bookings and may change over time. Management uses perpetual license equivalent bookings to understand our performance, including our software growth and SaaS/perpetual license mix. This metric should not be viewed in isolation from other operating metrics that we make available to investors.

Cyber Intelligence Recurring and Nonrecurring Revenue Metrics

Recurring revenue, on both a GAAP and non-GAAP basis, primarily consists of initial and renewal support, subscription software licenses, and SaaS in certain limited transactions.

Nonrecurring revenue, on both a GAAP and non-GAAP basis, primarily consists of our perpetual licenses, long-term projects including software customizations that are recognized over time using a percentage of completion (POC) method, consulting, implementation and installation services, training, and hardware.

We believe that recurring and nonrecurring 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.

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 entitys 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.

Investor Relations

Alan Roden

Verint Systems Inc.

(631) 962-9304

[email protected]