VRNT Verint Systems Inc

Verint® Systems Inc. (NASDAQ: VRNT), a global leader in Actionable Intelligence® solutions and value-added services, today announced its fourth quarter and full year results for the year ended January 31, 2011.

“We finished the year strong and are pleased with our fourth quarter results, which we believe reflect our leadership position in Actionable Intelligence. We believe that we are well positioned for continued success and growth in the workforce optimization and security intelligence markets,” said Dan Bodner, CEO and President of Verint Systems Inc.

Below is selected financial information for the three months and year ended January 31, 2011 and 2010 prepared in accordance with generally accepted accounting principles (“GAAP”) and not prepared in accordance with GAAP (“non-GAAP”).

            (Dollars in thousands, except per share data) Selected GAAP Information Three Months Ended January 31, Year Ended January 31, 2011 2010 2011 2010   Revenue $ 186,869 $ 172,736 $ 726,799 $ 703,633   Gross Profit 125,619 112,447 488,455 463,698 Gross Margin 67.2% 65.1% 67.2% 65.9%   Operating Income (Loss) 22,895 (7,774) 73,105 65,679 Operating Margin 12.3% (4.5%) 10.1% 9.3%   Diluted Net Income (Loss) per Common Share Attributable to Verint Systems Inc. $ 0.25 $ (0.68) $ 0.31 $ 0.06   Selected Non-GAAP Information Three Months Ended January 31, Year Ended January 31, 2011 2010 2011 2010   Revenue $ 186,869 $ 172,736 $ 726,799 $ 703,633   Gross Profit 128,910 116,155 503,755 477,573 Gross Margin 69.0% 67.2% 69.3% 67.9%   Operating Income 42,879 38,578 184,586 195,627 Operating Margin 22.9% 22.3% 25.4% 27.8%   Diluted Net Income per Common Share Attributable to Verint Systems Inc. $ 0.66 $ 0.47 $ 2.79 $ 3.09  

Outlook for the Year Ending January 31, 2012

• We expect revenue to increase between 7% and 8% compared to the year ended January 31, 2011.
• We are targeting a non-GAAP operating margin in the low 20%s.
• While we don’t provide quarterly guidance, there are some seasonal trends in the enterprise software industry. We expect Q1 to be down sequentially from our Q4 levels, potentially significantly, due to typical Q1 seasonality.

Conference Call Information

We will be conducting a conference call today at 4:30 p.m. to discuss our results for the fourth quarter and full year ended January 31, 2011, and 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 1-888-680-0878 (United States) and 1-617-213-4855 (international) and the passcode is 13794491. 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, 2012.

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 85 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: uncertainties regarding the impact of general economic conditions, particularly in information technology spending, on our business; risks due to aggressive competition in all of our markets, including with respect to maintaining margins and sufficient levels of investment in our business; risks associated with keeping pace with technological changes and evolving industry standards in our product offerings and with successfully introducing new, quality products which meet customer needs and 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 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 relating to our implementation and maintenance of adequate systems and internal controls for our current and future operations and reporting needs and related risks of financial statement omissions, misstatements, restatements, or filing delays; risks associated with being a consolidated, controlled subsidiary of Comverse Technology, Inc. (“Comverse”) and formerly part of Comverse’s consolidated tax group, including risks of any future impact on us resulting from Comverse’s extended filing delay or any other future issues; risks associated with Comverse controlling our board of directors and the outcome of all matters submitted for stockholder action, including the approval of significant corporate transactions, such as certain equity issuances or mergers and acquisitions, as well as speculation or announcements regarding Comverse’s strategic plans; risks that products may contain undetected defects which could expose us to substantial liability; risks associated with allocating limited financial and human resources to opportunities that may not come to fruition or produce satisfactory returns; 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; risks associated with mergers and acquisitions and with related system integrations and asset impairments; challenges in accurately forecasting revenue and expenses and maintaining profitability; 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 assets 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, including the ability to maintain security clearances for certain projects; 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 or original equipment manufacturers (“OEMs”) for certain components of our products; risks that we are unable to maintain and enhance relationships with key resellers, partners, and systems integrators; risks that contract terms may expose us to unlimited liability or other unfavorable positions and risks that we may experience losses that are not covered by insurance; 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; risks associated with significant leverage resulting from our current debt position; risks that we will be unable to comply with the leverage ratio covenant or financial statement delivery covenant under our credit facility; risks that our credit rating could be downgraded or placed on a credit watch; risks relating to timely implementation of new accounting pronouncements or new interpretations of existing accounting pronouncements and related risks of future restatements or filing delays; risks associated with future regulatory actions or private litigations relating to our extended filing delay and related circumstances; 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, 2011 when filed.

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 Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)     Three Months Ended January 31, Year Ended January 31, 2011 2010 2011 2010   Revenue: Product $ 92,222 $ 90,627 $ 375,164 $ 374,272 Service and support   94,647     82,109     351,635     329,361   Total revenue   186,869     172,736     726,799     703,633   Cost of revenue: Product 28,656 30,486 111,989 122,961 Service and support 30,209 27,831 117,261 108,953 Amortization of acquired technology   2,385     1,972     9,094     8,021   Total cost of revenue   61,250     60,289     238,344     239,935   Gross profit   125,619     112,447     488,455     463,698   Operating expenses: Research and development, net 23,981 22,797 96,525 83,797 Selling, general and administrative 73,336 91,931 297,365 291,813 Amortization of other acquired intangible assets 5,407 5,376 21,460 22,268 Restructuring   -     117     -     141   Total operating expenses   102,724     120,221     415,350     398,019   Operating income (loss)   22,895     (7,774 )   73,105     65,679   Other income (expense), net Interest income 145 35 454 616 Interest expense (9,071 ) (6,064 ) (29,896 ) (24,964 ) Other income (expense), net   (1,151 )   (6,279 )   (5,138 )   (17,123 ) Total other expense, net   (10,077 )   (12,308 )   (34,580 )   (41,471 ) Income (loss) before provision for income taxes 12,818 (20,082 ) 38,525 24,208 Provision for (benefit from) income taxes   (604 )   (1,813 )   9,940     7,108   Net income (loss) 13,422 (18,269 ) 28,585 17,100 Net income attributable to noncontrolling interest   282     522     3,004     1,483   Net income (loss) attributable to Verint Systems Inc. 13,140 (18,791 ) 25,581 15,617 Dividends on preferred stock   (3,629 )   (3,480 )   (14,178 )   (13,591 ) Net income (loss) attributable to Verint Systems Inc. common shares $ 9,511   $ (22,271 ) $ 11,403   $ 2,026     Net income (loss) per common share attributable to Verint Systems Inc. Basic $ 0.26   $ (0.68 ) $ 0.33   $ 0.06   Diluted $ 0.25   $ (0.68 ) $ 0.31   $ 0.06     Weighted-average common shares outstanding Basic   36,788     32,517     34,544     32,478   Diluted   38,641     32,517     37,179     33,127     Table 2 Verint Systems Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Results (Unaudited) (In thousands, except per share data)           Three Months Ended January 31, Year Ended January 31, 2011 2010 2011 2010

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

  GAAP gross profit $ 125,619 $ 112,447 $ 488,455 $ 463,698 Amortization of acquired technology 2,385 1,972 9,094 8,021 Stock-based compensation expenses   906     1,736     6,206     5,854   Non-GAAP gross profit $ 128,910   $ 116,155   $ 503,755   $ 477,573    

Table of Reconciliation from GAAP Operating Income (Loss) to Non-GAAP Operating Income

  GAAP operating income (loss) $ 22,895 $ (7,774 ) $ 73,105 $ 65,679 Amortization of acquired technology 2,385 1,972 9,094 8,021 Amortization of other acquired intangible assets 5,407 5,376 21,460 22,268 Restructuring costs - 117 - 141 Stock-based compensation expenses 7,725 12,869 46,819 44,245 Other adjustments 2,642 762 5,188 762 Expenses related to our filing delay   1,825     25,256     28,920     54,511   Non-GAAP operating income $ 42,879   $ 38,578   $ 184,586   $ 195,627    

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

  GAAP other expense, net $ (10,077 ) $ (12,308 ) $ (34,580 ) $ (41,471 ) Unrealized (gains) losses on derivatives, net   855     (3,572 )   (5,986 )   (8,049 ) Non-GAAP other expense, net $ (9,222 ) $ (15,880 ) $ (40,566 ) $ (49,520 )  

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

  GAAP provision (benefit) for income taxes $ (604 ) $ (1,813 ) $ 9,940 $ 7,108 Non-cash tax adjustments   1,407     3,626     (1,412 )   4,553   Non-GAAP provision for income taxes $ 803   $ 1,813   $ 8,528   $ 11,661    

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

  GAAP net income (loss) attributable to Verint Systems Inc. $ 13,140 $ (18,791 ) $ 25,581 $ 15,617 Amortization of acquired technology 2,385 1,972 9,094 8,021 Amortization of other acquired intangible assets 5,407 5,376 21,460 22,268 Restructuring costs - 117 - 141 Stock-based compensation expenses 7,725 12,869 46,819 44,245 Other adjustments 2,642 762 5,188 762 Expenses related to our filing delay 1,825 25,256 28,920 54,511 Unrealized (gains) losses on derivatives, net 855 (3,572 ) (5,986 ) (8,049 ) Non-cash tax adjustments   (1,407 )   (3,626 )   1,412     (4,553 ) Total GAAP net income (loss) adjustments   19,432     39,154     106,907     117,346   Non-GAAP net income attributable to Verint Systems Inc. $ 32,572   $ 20,363   $ 132,488   $ 132,963    

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 $ 9,511 $ (22,271 ) $ 11,403 $ 2,026 Total GAAP net income (loss) adjustments   19,432     39,154     106,907     117,346   Non-GAAP net income attributable to Verint Systems Inc. common shares $ 28,943   $ 16,883   $ 118,310   $ 119,372    

Table Comparing GAAP Diluted Net Income (Loss) 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 (loss) per common share attributable to Verint Systems Inc. $ 0.25   $ (0.68 ) $ 0.31   $ 0.06     Non-GAAP diluted net income per common share attributable to Verint Systems Inc. $ 0.66   $ 0.47   $ 2.79   $ 3.09     Shares used in computing GAAP diluted net income per common share (in thousands)   38,641     32,517     37,179     33,127     Shares used in computing non-GAAP diluted net income per common share (in thousands)   49,012     43,551     47,402     42,963       Table 3 Verint Systems Inc. and Subsidiaries Segment Revenue (Unaudited) (In thousands)             Three Months Ended January 31, Year Ended January 31, 2011 2010 2011 2010   Revenue By Segment Workforce Optimization Segment $ 112,381 $ 95,777 $ 410,529 $ 374,778   Video Intelligence Segment 34,796 28,422 134,012 144,970 Communications Intelligence Segment   39,692   48,537   182,258   183,885 Total Video and Communications Intelligence 74,488 76,959 316,270 328,855         Total Revenue $ 186,869 $ 172,736 $ 726,799 $ 703,633     Table 4 Verint Systems Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share data)     January 31, 2011 2010   Assets Current Assets: Cash and cash equivalents $ 169,906 $ 184,335 Restricted cash and bank time deposits 13,639 5,206 Accounts receivable, net of allowance for doubtful accounts of $5.4 million and $4.7 million, respectively. 150,769 127,826 Inventories 16,987 14,373 Deferred cost of revenue 6,269 11,232 Deferred income taxes 13,179 21,140 Prepaid expenses and other current assets   31,195     43,414   Total current assets   401,944     407,526   Property and equipment, net 23,176 24,453 Goodwill 738,674 724,670 Intangible assets, net 157,071 173,833 Capitalized software development costs, net 6,787 8,530 Long-term deferred cost of revenue 21,715 33,019 Long-term deferred income taxes 6,700 7,469 Other assets   20,060     16,837   Total assets $ 1,376,127   $ 1,396,337     Liabilities, Preferred Stock, and Stockholders' Equity (Deficit) Current Liabilities: Accounts payable $ 36,861 $ 46,570 Accrued expenses and other current liabilities 162,650 154,935 Current maturities of long-term debt - 22,678 Deferred revenue 142,465 183,719 Deferred income taxes 379 487 Liabilities to affiliates   1,847     1,709   Total current liabilities   344,202     410,098   Long-term debt 583,234 598,234 Long-term deferred revenue 40,424 51,412 Long-term deferred income taxes 13,226 21,425 Other liabilities   31,812     44,193   Total liabilities   1,012,898     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 $338,717 at January 31, 2011.   285,542     285,542   Commitments and Contingencies Stockholders' Equity (Deficit): Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 37,349,000 and 32,687,000 shares, respectively; outstanding 37,089,000 and 32,584,000 shares, as of January 31, 2011 and January 31, 2010, respectively. 38 33 Additional paid-in capital 519,834 451,166 Treasury stock, at cost - 260,000 and 103,000 shares as of January 31, 2011 and January 31, 2010, respectively. (6,639 ) (2,493 ) Accumulated deficit (394,757 ) (420,338 ) Accumulated other comprehensive loss   (42,069 )   (43,134 ) Total Verint Systems Inc. stockholders' equity (deficit) 76,407 (14,766 ) Noncontrolling interest   1,280     199   Total liabilities stockholders' equity (deficit)   77,687     (14,567 ) Total liabilities, preferred stock, and stockholders' equity (deficit) $ 1,376,127   $ 1,396,337       Table 5 Verint Systems Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (In thousands)       Year Ended January 31, 2011 2010     Cash flows from operating activities: Net income $ 28,585 $ 17,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 48,951 49,290 Provision for doubtful accounts 1,863 849

Stock-based compensation

28,784 31,195 Benefit for deferred income taxes (1,092 ) (62 ) Excess tax benefits from stock award plans (815 ) - Non-cash losses on derivative financial instruments, net 5,863 14,709 Other non-cash items, net 1,139 1,443   Changes in operating assets and liabilities, net of effects of business combinations: Accounts receivable (24,574 ) (13,910 ) Inventories (3,471 ) 5,686 Deferred cost of revenue 16,616 14,082 Prepaid expenses and other assets 9,924 (11,542 ) Accounts payable and accrued expenses 15,839 12,912 Deferred revenue (51,226 ) (21,143 ) Other liabilities (5,933 ) 471 Other, net   67     (243 ) Net cash provided by operating activities   70,520     100,837     Cash flows from investing activities: Cash paid for business combinations, net of cash acquired, and payments of contingent consideration associated with business combinations consummated in prior periods (23,485 ) (96 ) Purchases of property and equipment (8,536 ) (4,965 ) Settlements of derivative financial instruments not designated as hedges (34,783 ) (19,414 ) Cash paid for capitalized software development costs (2,527 ) (2,715 ) Change in restricted cash and bank time deposits   (8,502 )   2,591   Net cash used in investing activities   (77,833 )   (24,599 )   Cash flows from financing activities: Repayments of borrowings and other financing obligations (38,163 ) (6,088 )

Proceeds from exercises of stock options

40,787 - Payment of debt issuance and other debt-related costs (4,039 ) (152 ) Dividends paid to noncontrolling interest (2,191 ) (4,145 ) Purchases of treasury stock (4,146 ) - Excess tax benefits from stock award plans 815 Other financing activities   -     (106 ) Net cash used in financing activities   (6,937 )   (10,491 ) Effect of exchange rate changes on cash and cash equivalents   (179 )   2,660   Net increase (decrease) in cash and cash equivalents (14,429 ) 68,407 Cash and cash equivalents, beginning of period   184,335     115,928   Cash and cash equivalents, end of period $ 169,906   $ 184,335     Supplemental disclosures of cash flow information: Cash paid for interest $ 21,053   $ 24,705  

Cash paid for income taxes, net of refunds received

$ 8,528   $ 11,661   Non-cash investing and financing transactions: Accrued but unpaid purchases of property and equipment $ 1,047   $ 642   Inventory transfers to property and equipment $ 874   $ 621  

Stock options exercised, proceeds received subsequent to year end

$ 65   $ -   Purchases under supplier financing arrangements $ 1,859   $ -    

Verint Systems Inc. and SubsidiariesSupplemental 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 or in addition 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 it 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, other professional fees and certain other expenses 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 related to 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.