VRNT Verint Systems Inc

Verint® Systems Inc. (NASDAQ: VRNT) a global leader in Actionable Intelligence® solutions and value-added services, today announced its second quarter results.

“We are pleased with our strong performance in the second quarter which we believe reflects our leadership position and growth in the actionable intelligence market as well as an improving economic environment. Our non-GAAP operating margin came in strong at 25.6%, ahead of our annual target, reflecting sustained focus on execution in the workforce optimization and security intelligence markets. We look forward to discussing our results and outlook during today’s conference call,” said Dan Bodner, CEO and President of Verint Systems Inc.

Below is selected financial information for the three and six months ended July 31, 2010 and 2009 prepared in accordance with generally accepted accounting principles (“GAAP”) and not prepared in accordance with GAAP (“Non-GAAP”).

(In thousands, except per share data)   Selected GAAP Information Three Months Ended July 31,   Six Months Ended July 31, 2010   2009 2010   2009   Revenue $ 180,676 $ 169,269 $ 353,289 $ 344,417   Gross Profit 120,330 110,202 235,136 228,281 Gross Margin 66.6% 65.1% 66.6% 66.3%   Operating Income 23,799 13,709 19,817 49,718 Operating Margin 13.2% 8.1% 5.6% 14.4%   Diluted Net Income (Loss) per Share Attributable to Verint Systems Inc. $ 0.23 $ (0.06) $ (0.35) $ 0.45   Selected Non-GAAP Information Three Months Ended July 31, Six Months Ended July 31, 2010 2009 2010 2009   Revenue $ 180,676 $ 169,269 $ 353,289 $ 344,417   Gross Profit 123,785 113,735 243,232 234,828 Gross Margin 68.5% 67.2% 68.8% 68.2%   Operating Income 46,323 44,639 88,602 101,808 Operating Margin 25.6% 26.4% 25.1% 29.6%   Diluted Net Income per Share Attributable to Verint Systems Inc. $ 0.69 $ 0.73 $ 1.25 $ 1.66

Outlook for the Year Ending January 31, 2011

• We are updating our revenue outlook from a range of $700 to $715 million to a range of $710 to $720 million.
• We are updating our target non-GAAP operating margin from a range of 20% to 23% to a range of 22% to 24%.

Conference Call Information

Verint will be conducting a conference call today at 8:30 a.m. to discuss its second quarter results and outlook for the year ending January 31, 2011. An on-line, real-time Web cast 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 1-888-277-1184 (United States) and 1-617-597-5360 (international) and the passcode is 18560023. 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 these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP, please see Table 2 as well as "Supplemental Information About Non-GAAP Measures" at the end of this press release. Because we do not predict special items that might occur in the future, and our outlook is developed at a level of detail different than that used to prepare GAAP financial measures, we are not providing a reconciliation to GAAP of our forward-looking financial measures for the year ending January 31, 2011.

About Verint Systems Inc.

Verint® Systems Inc. is a global leader in Actionable Intelligence® solutions and value-added services. Our solutions enable organizations of all sizes to make timely and effective decisions to improve enterprise performance and make the world a safer place. More than 10,000 organizations in over 150 countries—including over 80 percent of the Fortune 100—use Verint solutions to capture, distill, and analyze complex and underused information sources, such as voice, video, and unstructured text. Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of selling and support partners. Verint is listed on the NASDAQ Stock Market under the symbol “VRNT.” Visit us at our website www.verint.com.

Cautions About Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, 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 risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Some of the factors that could cause actual future results or conditions to differ materially from current expectations include: risks relating to the filing of our SEC reports, including the occurrence of known contingencies or unforeseen events that could delay our future filings, management distractions, and significant expense; risks that our credit rating could be downgraded or placed on a credit watch based on, among other things, our financial results or delays in the filing of our periodic reports; risks associated with being a consolidated, controlled subsidiary of Comverse Technology, Inc. (“Comverse”) and formerly part of Comverse’s consolidated tax group, including risk of any future impact on us resulting from Comverse’s special committee investigation and restatement or related effects, and risks related to our dependence on Comverse to provide us with accurate financial information, including with respect to stock-based compensation expense and net operating loss carryforwards (“NOLs”), for our financial statements; uncertainties regarding the impact of general economic conditions, particularly in information technology spending, on our business; risks that our financial results will cause us not to be compliant with the leverage ratio covenant under our credit facility or that any delays in the filing of future SEC reports could cause us not to be compliant with the financial statement delivery covenant under our credit facility; risks that customers or partners delay or cancel orders or are unable to honor contractual commitments due to liquidity issues, challenges in their business, or otherwise; risks that we will experience liquidity or working capital issues and related risk that financing sources will be unavailable to us on reasonable terms or at all; uncertainties regarding the future impact on our business of our now concluded internal investigation, restatement, and extended filing delay, including customer, partner, employee, and investor concern, and potential customer and partner transaction deferrals or losses; risks relating to the remediation or inability to adequately remediate material weaknesses in our internal controls over financial reporting and relating to the proper application of highly complex accounting rules and pronouncements in order to produce accurate SEC reports on a timely basis; risks relating to our implementation and maintenance of adequate systems and internal controls for our current and future operations and reporting needs; risks of possible future restatements if the processes used to produce the financial statements contained in our SEC reports are inadequate; risks associated with future regulatory actions or private litigations relating to our internal investigation, restatement, or previous delays in filing required SEC reports; risk that we will be unable maintain our listing on the NASDAQ Global Market; risks associated with Comverse controlling our board of directors and a majority of our common stock (and therefore the results of any significant stockholder vote); risks associated with significant leverage resulting from our current debt position; risks due to aggressive competition in all of our markets, including with respect to maintaining margins and sufficient levels of investment in the business and with respect to introducing quality products which achieve market acceptance; risks created by continued consolidation of competitors or introduction of large competitors in our markets with greater resources than us; risks associated with significant foreign and international operations, including exposure to fluctuations in exchange rates; risks associated with complex and changing local and foreign regulatory environments; risks associated with our ability to recruit and retain qualified personnel in all geographies in which we operate; challenges in accurately forecasting revenue and expenses; risks associated with acquisitions and related system integrations; risks relating to our ability to improve our infrastructure to support growth; risks that our intellectual property rights may not be adequate to protect our business or that others may make claims on our intellectual property or claim infringement on their intellectual property rights; risks associated with a significant amount of our business coming from domestic and foreign government customers; risks that we improperly handle sensitive or confidential information or perception of such mishandling; risks associated with dependence on a limited number of suppliers for certain components of our products; risks that we are unable to maintain and enhance relationships with key resellers, partners, and systems integrators; and risks that use of our tax benefits may be restricted or eliminated in the future. 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, 2010.

VERINT, the VERINT logo, ACTIONABLE INTELLIGENCE, POWERING ACTIONABLE INTELLIGENCE, INTELLIGENCE IN ACTION, ACTIONABLE INTELLIGENCE FOR A SMARTER WORKFORCE, VERINT VERIFIED, WITNESS ACTIONABLE SOLUTIONS, STAR-GATE, RELIANT, VANTAGE, X-TRACT, NEXTIVA, EDGEVR, ULTRA, AUDIOLOG, WITNESS, the WITNESS logo, IMPACT 360, the IMPACT 360 logo, IMPROVE EVERYTHING, EQUALITY, CONTACTSTORE, and CLICK2STAFF 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 Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)             Three Months Ended July 31, Six Months Ended July 31, 2010 2009 2010 2009   Revenue: Product $ 93,103 $ 88,107 $ 185,173 $ 185,178 Service and support   87,573     81,162     168,116     159,239   Total revenue   180,676     169,269     353,289     344,417   Cost of revenue: Product 31,909 30,900 60,255 62,957 Service and support 26,217 26,190 53,445 49,103 Amortization of acquired technology and backlog   2,220     1,977     4,453     4,076   Total cost of revenue   60,346     59,067     118,153     116,136   Gross profit   120,330     110,202     235,136     228,281   Operating expenses: Research and development, net 22,049 20,638 48,481 39,539 Selling, general and administrative 69,144 70,258 156,161 127,484 Amortization of other acquired intangible assets 5,338 5,586 10,677 11,516 Restructuring   -     11     -     24   Total operating expenses   96,531     96,493     215,319     178,563   Operating income   23,799     13,709     19,817     49,718   Other income (expense), net Interest income 117 98 200 245 Interest expense (5,936 ) (6,369 ) (11,884 ) (12,722 ) Other expense, net   (2,448 )   (3,106 )   (6,146 )   (8,069 ) Total other expense, net   (8,267 )   (9,377 )   (17,830 )   (20,546 ) Income before provision for income taxes 15,532 4,332 1,987 29,172 Provision for income taxes   3,141     2,850     5,212     7,118   Net income (loss) 12,391 1,482 (3,225 ) 22,054 Net income (loss) attributable to noncontrolling interest   916     (116 )   1,508     822   Net income (loss) attributable to Verint Systems Inc. 11,475 1,598 (4,733 ) 21,232 Dividends on preferred stock   (3,554 )   (3,406 )   (6,957 )   (6,668 ) Net income (loss) attributable to Verint Systems Inc. common shares $ 7,921   $ (1,808 ) $ (11,690 ) $ 14,564     Net income (loss) per share attributable to Verint Systems Inc. Basic $ 0.24   $ (0.06 ) $ (0.35 ) $ 0.45   Diluted $ 0.23   $ (0.06 ) $ (0.35 ) $ 0.45     Weighted-average common shares outstanding Basic   33,272     32,465     32,972     32,462   Diluted   35,006     32,465     32,972     32,606       Table 2 Verint Systems Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Results (Unaudited) (In thousands, except per share data)         Three Months Ended July 31, Six Months Ended July 31, 2010 2009 2010 2009

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

  GAAP gross profit $ 120,330 $ 110,202 $ 235,136 $ 228,281 Amortization of acquired technology and backlog 2,220 1,977 4,453 4,076 Stock-based compensation expenses   1,235     1,556     3,643     2,471   Non-GAAP gross profit $ 123,785   $ 113,735   $ 243,232   $ 234,828    

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

  GAAP operating income $ 23,799 $ 13,709 $ 19,817 $ 49,718 Amortization of acquired technology and backlog 2,220 1,977 4,453 4,076 Amortization of other acquired intangible assets 5,338 5,586 10,677 11,516 Restructuring costs - 9 - 22 Stock-based compensation expenses 8,035 13,138 26,004 19,694 Other adjustments 864 - 1,371 - Expenses related to our filing delay   6,067     10,220     26,280     16,782   Non-GAAP operating income $ 46,323   $ 44,639   $ 88,602   $ 101,808    

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

  GAAP other expense, net $ (8,267 ) $ (9,377 ) $ (17,830 ) $ (20,546 ) Unrealized gains on derivatives, net   (3,796 )   (1,381 )   (7,763 )   (3,843 ) Non-GAAP other expense, net $ (12,063 ) $ (10,758 ) $ (25,593 ) $ (24,389 )  

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

  GAAP provision for income taxes $ 3,141 $ 2,850 $ 5,212 $ 7,118 Non-cash tax adjustments   (948 )   (146 )   143     (940 ) Non-GAAP provision for income taxes $ 2,193   $ 2,704   $ 5,355   $ 6,178    

Table of Reconciliation from GAAP Net Income (Loss) Attributable to Verint Systems Inc. Common Shares to Non-GAAP Net Income Attributable to Verint Systems Inc. Common Shares

  GAAP net income (loss) attributable to Verint Systems Inc. common shares $ 7,921 $ (1,808 ) $ (11,690 ) $ 14,564 Amortization of acquired technology and backlog 2,220 1,977 4,453 4,076 Amortization of other acquired intangible assets 5,338 5,586 10,677 11,516 Restructuring costs - 9 - 22 Stock-based compensation expenses 8,035 13,138 26,004 19,694 Other adjustments 864 - 1,371 - Expenses related to our filing delay 6,067 10,220 26,280 16,782 Unrealized gains on derivatives, net (3,796 ) (1,381 ) (7,763 ) (3,843 ) Non-cash tax adjustments   948     146     (143 )   940   Non-GAAP net income attributable to Verint Systems Inc. common shares $ 27,597   $ 27,887   $ 49,189   $ 63,751    

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

  GAAP diluted net income (loss) per share $ 0.23   $ (0.06 ) $ (0.35 ) $ 0.45     Non-GAAP diluted net income per share $ 0.69   $ 0.73   $ 1.25   $ 1.66     Shares used in computing GAAP diluted net income (loss) per share (in thousands)   35,006     32,465     32,972     32,606     Shares used in computing non-GAAP diluted net income per share (in thousands)   45,178     42,682     45,071     42,346       Table 3 Verint Systems Inc. and Subsidiaries Segment Revenue (Unaudited) (In thousands)               Three Months Ended July 31, Six Months Ended July 31, 2010 2009 2010 2009   Revenue By Segment Workforce Optimization Segment $ 94,795 $ 88,289 $ 191,675 $ 173,603   Video Intelligence Segment 37,060 40,885 68,605 82,563 Communications Intelligence Segment   48,821   40,095   93,009   88,251 Total Video and Communications Intelligence 85,881 80,980 161,614 170,814         Total Revenue $ 180,676 $ 169,269 $ 353,289 $ 344,417     Table 4 Verint Systems Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share data)      

July 31,2010

 

January 31,2010

  Assets Current Assets: Cash and cash equivalents $ 128,199 $ 184,335 Restricted cash and bank time deposits 14,893 5,206 Accounts receivable, net 132,553 127,826 Inventories 16,271 14,373 Deferred cost of revenue 8,536 11,232 Prepaid expenses and other current assets   59,263     64,554   Total current assets   359,715     407,526   Property and equipment, net 22,683 24,453 Goodwill 733,046 724,670 Intangible assets, net 164,716 173,833 Capitalized software development costs, net 7,148 8,530 Deferred cost of revenue 25,702 33,019 Other assets   29,134     24,306   Total assets $ 1,342,144   $ 1,396,337     Liabilities, Preferred Stock, and Stockholders' Equity (Deficit) Current Liabilities: Accounts payable $ 45,923 $ 46,570 Accrued expenses and other liabilities 153,311 155,422 Current maturities of long-term debt - 22,678 Deferred revenue 153,203 183,719 Liabilities to affiliates   1,751     1,709   Total current liabilities   354,188     410,098   Long-term debt 598,234 598,234 Deferred revenue 44,724 51,412 Other liabilities   57,814     65,618   Total liabilities   1,054,960     1,125,362  

Preferred Stock - $0.001 par value; authorized 2,500,000 shares. Series Aconvertible preferred stock; 293,000 shares issued and outstanding;aggregate liquidation preference and redemption value of $332,196 at July31, 2010.

  285,542     285,542   Commitments and Contingencies Stockholders' Equity (Deficit):

Common stock - $0.001 par value; authorized 120,000,000 shares. Issued34,911,000 and 32,687,000 shares, respectively; outstanding 34,651,000and 32,584,000 shares, as of July 31, 2010 and January 31, 2010,respectively.

35 33 Additional paid-in capital 478,031 451,166

Treasury stock, at cost - 260,000 and 103,000 shares as of July 31, 2010and January 31, 2010, respectively.

(6,639 ) (2,493 ) Accumulated deficit (425,071 ) (420,338 ) Accumulated other comprehensive loss   (46,432 )   (43,134 ) Total Verint Systems Inc. stockholders' deficit (76 ) (14,766 ) Noncontrolling interest   1,718     199   Total liabilities stockholders' equity (deficit)   1,642     (14,567 ) Total liabilities, preferred stock, and stockholders' equity (deficit) $ 1,342,144   $ 1,396,337       Table 5 Verint Systems Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)       Six Months Ended July 31, 2010 2009     Cash flows from operating activities: Net income (loss) $ (3,225 ) $ 22,054

Adjustments to reconcile net income (loss) to net cash provided by operatingactivities:

Depreciation and amortization 23,952 25,507 Stock-based compensation 15,636 15,532 Non-cash losses on derivative financial instruments, net 3,347 7,035 Other non-cash items, net 867 (1,816 ) Changes in operating assets and liabilities, net of effects of business combinations: Accounts receivable (5,447 ) (2,513 ) Inventories (2,124 ) 3,430 Deferred cost of revenue 9,273 6,165 Accounts payable and accrued expenses (3,798 ) (11,321 ) Deferred revenue (33,273 ) (518 ) Prepaid expenses and other assets 2,936 (8,759 ) Other, net   (2,632 )   (2,616 ) Net cash provided by operating activities   5,512     52,180     Cash flows from investing activities:

Cash paid for business combination, net of cash acquired, and payments of contingentconsideration associated with business combinations in prior periods

(15,292 ) (96 ) Purchases of property and equipment (3,550 ) (2,019 ) Settlements of derivative financial instruments not designated as hedges (11,997 ) (8,261 ) Cash paid for capitalized software development costs (858 ) (1,258 ) Other investing activities   (9,720 )   223   Net cash used in investing activities   (41,417 )   (11,411 )   Cash flows from financing activities: Repayments of borrowings and other financing obligations (22,679 ) (5,988 ) Proceeds from exercises of stock 11,650 - Dividends paid to noncontrolling interest - (2,142 ) Purchases of treasury stock (4,146 ) - Other financing activities   (3,688 )   (202 ) Net cash used in financing activities   (18,863 )   (8,332 ) Effect of exchange rate changes on cash and cash equivalents   (1,368 )   5,349   Net increase (decrease) in cash and cash equivalents (56,136 ) 37,786 Cash and cash equivalents, beginning of period   184,335     115,928   Cash and cash equivalents, end of period $ 128,199   $ 153,714     Supplemental disclosures of cash flow information: Cash paid for interest $ 10,236   $ 13,184   Cash paid for income taxes $ 3,244   $ 4,991   Non-cash investing and financing transactions: Accrued but unpaid purchases of property and equipment $ 936   $ 329   Inventory transfers to property and equipment $ 87   $ 347   Stock options exercised, proceeds received subsequent to period end $ 285   $ -   Accrued but unpaid debt fees $ 310   $ -   Supplier financing arrangements $ 1,480   $ -      

Verint Systems Inc. and SubsidiariesSupplemental Information About Non-GAAP Measures

This press release contains non-GAAP financial measures. Table 2 includes a reconciliation of each non-GAAP financial measure presented in this press release to the most directly comparable GAAP financial measure. Non-GAAP financial measures should not be considered in isolation or as a substitute for 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 the adjustments made in these non-GAAP financial measures.

We believe that the non-GAAP financial measures we present provide meaningful supplemental information regarding our operating results primarily because they exclude certain non-cash charges or items that we do not believe are reflective of our ongoing operating results when budgeting, planning and forecasting, determining compensation, and when assessing the performance of our business with our individual operating segments or our senior management. We believe that these non-GAAP financial measures also facilitate the comparison by management and investors of results between periods and among our peer companies. However, those companies may calculate similar non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

Adjustments to Non-GAAP Measures

Amortization of acquired intangible assets, including acquired technology and backlog. When we acquire an entity, we are required under GAAP to record the fair value of the intangible assets of the acquired entity and amortize them over their useful lives. We exclude the amortization of acquired intangible assets, including acquired technology and backlog, from our non-GAAP financial measures. These expenses are excluded from our non-GAAP financial measures because they are non-cash charges. In addition, these amounts are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. Thus, we also exclude these amounts to provide better comparability of pre- and post-acquisition operating results.

Restructuring costs. We exclude from our non-GAAP financial measures expense associated with the restructuring of our operations due to internal or external market factors. These expenses are excluded from our non-GAAP financial measures because we believe that they are not reflective of our ongoing operations.

Stock-based compensation expenses. We exclude stock-based compensation expenses related to stock options, restricted stock awards, and units and phantom stock from our non-GAAP financial measures. These expenses are excluded from our non-GAAP financial measures because they are primarily non-cash charges. In recent periods we also incurred significant cash-settled stock compensation due to our extended filing delay and restrictions on our ability to issue new shares to our employees.

Other adjustments. We exclude from our non-GAAP financial measures legal and other professional fees associated with acquisitions and certain extraordinary transactions. These expenses are excluded from our non-GAAP financial measures because we believe that they are not reflective of our ongoing operations.

Expenses related to our filing delay. We exclude from our non-GAAP financial measures expenses associated with our restatement of previously filed financial statements and our extended filing delay. These expenses included professional fees and related expenses as well as expenses associated with a special cash retention program. These expenses are excluded from our non-GAAP financial measures because we believe that they are not reflective of our ongoing operations.

Unrealized gains on derivatives, net. We exclude from our non-GAAP financial measures unrealized gains on interest rate swaps and foreign currency derivatives. These gains are excluded from our non-GAAP financial measures because they are non-cash gains.

Non-cash tax adjustments. Non-cash tax adjustments represent the difference between the amount of taxes we actually paid and our GAAP tax provision on an annual basis. On a quarterly basis, this adjustment reflects our expected annual effective tax rate on a cash basis.