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.
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