VRNT Verint Systems Inc

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

“We are pleased with our strong performance in the third 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 28.5%, 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 nine months ended October 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 October 31,   Nine Months Ended October 31,   2010       2009     2010       2009     Revenue $ 186,641 $ 186,480 $ 539,930 $ 530,897   Gross Profit 127,700 122,970 362,836 351,251 Gross Margin 68.4 % 65.9 % 67.2 % 66.2 %   Operating Income 30,393 23,735 50,210 73,453 Operating Margin 16.3 % 12.7 % 9.3 % 13.8 %   Diluted Net Income per Share Attributable to Verint Systems Inc. $ 0.36 $ 0.29 $ 0.05 $ 0.74   Selected Non-GAAP Information Three Months Ended October 31, Nine Months Ended October 31,   2010     2009     2010     2009     Revenue $ 186,641 $ 186,480 $ 539,930 $ 530,897   Gross Profit 131,613 126,590 374,845 361,418 Gross Margin 70.5 % 67.9 % 69.4 % 68.1 %   Operating Income 53,105 55,240 141,707 157,048 Operating Margin 28.5 % 29.6 % 26.2 % 29.6 %   Diluted Net Income per Share Attributable to Verint Systems Inc. $ 0.92 $ 0.98 $ 2.14 $ 2.64  

Outlook for the Year Ending January 31, 2011

• We are updating our revenue outlook from a range of $710 to $720 million to a range of $715 to $720 million.
• We are updating our target non-GAAP operating margin from a range of 22% to 24% to approximately 25%.

Conference Call Information

We will be conducting a conference call today at 4:30 p.m. to discuss our third quarter results, outlook for the year ending January 31, 2011 and preliminary outlook for the year ending January 31, 2012. An on-line, 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 1-800-295-4740 (United States) and 1-617-614-3925 (international), and the passcode is 80492863. 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 Financial 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 Actionable Intelligence 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. Visit us at our website 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 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 risks 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 concerns, 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; risks that we will be unable to 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 we have; 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 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 our 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 and our Quarterly Reports on Form 10-Q for the quarterly periods ended thereafter.

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, EYRETEL, BLUE PUMPKIN SOFTWARE, BLUE PUMPKIN, the BLUE PUMPKIN logo, EXAMETRIC and the EXAMETRIC logo, CLICK2STAFF, STAFFSMART, AMAE SOFTWARE and the AMAE logo are trademarks and registered trademarks of Verint Systems Inc. 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 October 31, Nine Months Ended October 31,   2010     2009     2010     2009     Revenue: Product $ 97,769 $ 98,467 $ 282,942 $ 283,645 Service and support   88,872     88,013     256,988     247,252   Total revenue   186,641     186,480     539,930     530,897   Cost of revenue: Product 28,156 35,718 88,411 98,675 Service and support 28,529 25,819 81,974 74,922 Amortization of acquired technology   2,256     1,973     6,709     6,049   Total cost of revenue   58,941     63,510     177,094     179,646   Gross profit   127,700     122,970     362,836     351,251   Operating expenses: Research and development, net 24,063 21,461 72,544 61,000 Selling, general and administrative 67,868 72,398 224,029 199,882 Amortization of other acquired intangible assets 5,376 5,376 16,053 16,892 Restructuring   -     -     -     24   Total operating expenses   97,307     99,235     312,626     277,798   Operating income   30,393     23,735     50,210     73,453   Other income (expense), net Interest income 109 336 309 581 Interest expense (8,941 ) (6,178 ) (20,825 ) (18,900 ) Other income (expense), net   2,159     (2,775 )   (3,987 )   (10,844 ) Total other expense, net   (6,673 )   (8,617 )   (24,503 )   (29,163 ) Income before provision for income taxes 23,720 15,118 25,707 44,290 Provision for income taxes   5,332     1,803     10,544     8,921   Net income 18,388 13,315 15,163 35,369 Net income attributable to noncontrolling interest   1,214     139     2,722     961   Net income attributable to Verint Systems Inc. 17,174 13,176 12,441 34,408 Dividends on preferred stock   (3,592 )   (3,443 )   (10,549 )   (10,111 ) Net income attributable to Verint Systems Inc. common shares $ 13,582   $ 9,733   $ 1,892   $ 24,297     Net income per share attributable to Verint Systems Inc. Basic $ 0.38   $ 0.30   $ 0.06   $ 0.75   Diluted $ 0.36   $ 0.29   $ 0.05   $ 0.74     Weighted-average common shares outstanding Basic   35,368     32,471     33,785     32,465   Diluted   47,679     33,330     36,525     32,879     Table 2 Verint Systems Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Results (Unaudited) (In thousands, except per share data)   Three Months Ended October 31,   Nine Months Ended October 31,   2010       2009     2010       2009  

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

  GAAP gross profit $ 127,700 $ 122,970 $ 362,836 $ 351,251 Amortization of acquired technology 2,256 1,973 6,709 6,049 Stock-based compensation expenses   1,657     1,647     5,300     4,118   Non-GAAP gross profit $ 131,613   $ 126,590   $ 374,845   $ 361,418    

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

  GAAP operating income $ 30,393 $ 23,735 $ 50,210 $ 73,453 Amortization of acquired technology 2,256 1,973 6,709 6,049 Amortization of other acquired intangible assets 5,376 5,376 16,053 16,892 Restructuring - - - 24 Stock-based compensation expenses 13,090 11,682 39,095 31,376 Other adjustments 1,175 - 2,546 - Expenses related to our filing delay   815     12,474     27,094     29,254   Non-GAAP operating income $ 53,105   $ 55,240   $ 141,707   $ 157,048    

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

  GAAP other expense, net $ (6,673 ) $ (8,617 ) $ (24,503 ) $ (29,163 ) Unrealized (gains) losses on derivatives, net   922     (634 )   (6,840 )   (4,477 ) Non-GAAP other expense, net $ (5,751 ) $ (9,251 ) $ (31,343 ) $ (33,640 )  

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

  GAAP provision for income taxes $ 5,332 $ 1,803 $ 10,544 $ 8,921 Non-cash tax adjustments   (2,962 )   1,867     (2,819 )   927   Non-GAAP provision for income taxes $ 2,370   $ 3,670   $ 7,725   $ 9,848    

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

  GAAP net income attributable to Verint Systems Inc. common shares $ 13,582 $ 9,733 $ 1,892 $ 24,297 Amortization of acquired technology 2,256 1,973 6,709 6,049 Amortization of other acquired intangible assets 5,376 5,376 16,053 16,892 Restructuring - - - 24 Stock-based compensation expenses 13,090 11,682 39,095 31,376 Other adjustments 1,175 - 2,546 - Expenses related to our filing delay 815 12,474 27,094 29,254 Unrealized (gains) losses on derivatives, net 922 (634 ) (6,840 ) (4,477 ) Non-cash tax adjustments   2,962     (1,867 )   2,819     (927 ) Non-GAAP net income attributable to Verint Systems Inc. common shares $ 40,178   $ 38,737   $ 89,368   $ 102,488    

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

  GAAP diluted net income per share $ 0.36   $ 0.29   $ 0.05   $ 0.74     Non-GAAP diluted net income per share $ 0.92   $ 0.98   $ 2.14   $ 2.64     Shares used in computing GAAP diluted net income per share (in thousands)   47,679     33,330     36,525     32,879     Shares used in computing non-GAAP diluted net income per share (in thousands)   47,679     43,213     46,722     42,667     Table 3 Verint Systems Inc. and Subsidiaries Segment Revenue (Unaudited) (In thousands)           Three Months Ended October 31, Nine Months Ended October 31, 2010 2009 2010 2009   Revenue By Segment Workforce Optimization Segment $ 106,473 $ 105,398 $ 298,148 $ 279,001   Video Intelligence Segment 30,611 33,985 99,216 116,548 Communications Intelligence Segment   49,557   47,097   142,566   135,348 Total Video and Communications Intelligence 80,168 81,082 241,782 251,896         Total Revenue $ 186,641 $ 186,480 $ 539,930 $ 530,897   Table 4 Verint Systems Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share data)     October 31,

2010

January 31,

2010

  Assets Current Assets: Cash and cash equivalents $ 134,006 $ 184,335 Restricted cash and bank time deposits 18,367 5,206 Accounts receivable, net 137,330 127,826 Inventories 17,495 14,373 Deferred cost of revenue 7,555 11,232 Prepaid expenses and other current assets   60,480     64,554   Total current assets   375,233     407,526   Property and equipment, net 23,204 24,453 Goodwill 738,161 724,670 Intangible assets, net 158,228 173,833 Capitalized software development costs, net 6,756 8,530 Long-term deferred cost of revenue

23,385

33,019 Other assets  

28,085

    24,306   Total assets $ 1,353,052   $ 1,396,337     Liabilities, Preferred Stock, and Stockholders' Equity (Deficit) Current Liabilities: Accounts payable $ 39,177 $ 46,570 Accrued expenses and other current liabilities 142,304 155,422 Current maturities of long-term debt - 22,678 Deferred revenue 135,433 183,719 Liabilities to affiliates   1,806     1,709   Total current liabilities   318,720     410,098   Long-term debt 598,234 598,234 Long-term deferred revenue 44,278 51,412 Other liabilities   54,405     65,618   Total liabilities   1,015,637     1,125,362  

Preferred Stock - $0.001 par value; authorized 2,500,000 shares. Series

A convertible preferred stock; 293,000 shares issued and outstanding;

aggregate liquidation preference and redemption value of $335,441 at

October 31, 2010.

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

Common stock - $0.001 par value; authorized 120,000,000 shares. Issued

36,875,000 and 32,687,000 shares, respectively; outstanding 36,615,000

and 32,584,000 shares, as of October 31, 2010 respectively; outstanding 36,615,000 and January 31, 2010,

respectively.

36 33 Additional paid-in capital 504,449 451,166

Treasury stock, at cost - 260,000 and 103,000 shares as of October 31,

2010 and January 31, 2010, respectively.

(6,639 ) (2,493 ) Accumulated deficit (407,897 ) (420,338 ) Accumulated other comprehensive loss   (41,267 )   (43,134 ) Total Verint Systems Inc. stockholders' equity (deficit) 48,682 (14,766 ) Noncontrolling interest   3,191     199   Total liabilities stockholders' equity (deficit)   51,873     (14,567 ) Total liabilities, preferred stock, and stockholders' equity (deficit) $ 1,353,052   $ 1,396,337     Table 5 Verint Systems Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)       Nine Months Ended October 31,   2010       2009       Cash flows from operating activities: Net income $ 15,163 $ 35,369 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 36,100 37,424 Equity-based compensation 22,856 23,170 Non-cash losses on derivative financial instruments, net 4,271 11,745 Other non-cash items, net 1,626 (957 )

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

Accounts receivable (9,719 ) (15,692 ) Inventories (3,369 ) 4,511 Deferred cost of revenue 12,957 10,448 Accounts payable and accrued expenses (1,585 ) (1,408 ) Deferred revenue (56,177 ) (22,821 )

Prepaid expenses and other assets

(405 ) (13,675 ) Other, net   (3,252 )   (2,623 ) Net cash provided by operating activities   18,466     65,491     Cash flows from investing activities:

Cash paid for business combination, net of cash acquired, and payments of contingent

consideration associated with business combinations in prior periods

(15,292 ) (96

)

Purchases of property and equipment (5,845 ) (3,346 ) Settlements of derivative financial instruments not designated as hedges (32,640 ) (13,140 ) Cash paid for capitalized software development costs (1,604 ) (1,897 ) Change in restricted cash and bank time deposits   (12,878 )   2,094   Net cash used in investing activities   (68,259 )   (16,385 )   Cash flows from financing activities: Repayments of borrowings and other financing obligations (22,960 ) (6,088 ) Proceeds from exercises of stock 30,572 - Dividends paid to noncontrolling interest - (2,142 ) Purchases of treasury stock (4,146 ) - Other financing activities   (4,039 )   (202 ) Net cash used in financing activities   (573 )   (8,432 ) Effect of exchange rate changes on cash and cash equivalents   37     4,582   Net increase (decrease) in cash and cash equivalents (50,329 ) 45,256 Cash and cash equivalents, beginning of period   184,335     115,928   Cash and cash equivalents, end of period $ 134,006   $ 161,184     Supplemental disclosures of cash flow information: Cash paid for interest $ 13,014   $ 18,839   Cash paid for income taxes $ 5,533   $ 9,688   Non-cash investing and financing transactions: Accrued but unpaid purchases of property and equipment $ 929   $ 520   Inventory transfers to property and equipment $ 372   $ 480   Stock options exercised, proceeds received subsequent to period end $ 340   $ -   Purchases under supplier financing arrangements $ 1,858   $ -      

Verint Systems Inc. and Subsidiaries

Supplemental Information About Non-GAAP Financial 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 Financial Measures

Amortization of acquired intangible assets, including acquired technology. 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, 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 expenses associated with the restructuring of our operations due to internal or external 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 of common stock 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, in both cases, whether or not consummated. 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)losses on derivatives, net. We exclude from our non-GAAP financial measures unrealized gains and losses on interest rate swaps and foreign currency derivatives. These gains and losses are excluded from our non-GAAP financial measures because they are non-cash transactions.

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.