NEW YORK, May 13, 2019 /PRNewswire/ -- Neuberger Berman
Investment Advisers LLC and certain of its affiliates ("Neuberger
Berman") that manage investment funds and client accounts that
collectively own approximately 1,743,123 shares, or 2.7%, of the
outstanding stock of Verint Systems, Inc. (NASDAQ: VRNT) ("Verint"
or the "Company") announced that it has delivered an open letter to
Verint stockholders today.
"We continue to be disappointed with the Company's response to
our engagement with them," said Benjamin Nahum, Senior Portfolio
Manager and Managing Director, Neuberger Berman. Mr. Nahum
continued, "Instead of agreeing to report industry-standard metrics
for its cloud business, financial targets for its capital
allocation plans, and upgrade the Board with critical software
expertise, Verint has announced plans to spend $6.5 million fighting us, one of its
longest-holding shareholders." Neuberger Berman has been a
shareholder for more than 10 years.
Neuberger Berman details three steps to maximize value for
Verint shareholders:
- Commit to transitioning to a modern cloud business
model, with identified medium- and long-range financial and
performance targets that give shareholders visibility into its
growth and revenue quality, and the ability to hold management
accountable;
- Clearly articulate the Company's capital allocation
priorities and present a compelling case for its current business
configuration, so shareholders know how their capital will be
used to create value and why the Board believes the current
conglomerate structure is optimal; and
- Upgrade the Board, by adding professionals with
substantial software, analytics, cloud and corporate governance
expertise to give shareholders confidence that the Board is
properly overseeing the Company's strategy and will hold management
accountable for performance.
The full text of the Neuberger Berman letter to Verint
follows:
May 13, 2019
To Our Fellow Verint Shareholders:
We are writing to you on behalf of Neuberger Berman Investment
Advisers LLC and certain of its affiliates ("Neuberger Berman")
with respect to your investment in Verint Systems, Inc. ("Verint"
or the "Company"). We are significant, long-term investors in
Verint and we are asking you to elect three new, highly-qualified
software executives to the Company's eight-person Board at the
upcoming annual meeting of shareholders.
About Neuberger Berman and Why We Are Asking for Your
Vote
Neuberger Berman was founded in 1939 to do one thing: deliver
compelling investment results for our clients over the long
term. That remains our singular purpose today, driven by a
culture rooted in deep fundamental research and facilitated by the
free exchange of ideas with the companies that we invest in.
Our Intrinsic Value Strategy has been invested in Verint since
2006 and currently owns 1,743,123 shares, or approximately 2.7%, of
Verint's outstanding stock.
We firmly believe that Verint has the opportunity to create
substantial value for its owners. However, for long-term investors
like us, it has been particularly frustrating to watch Verint
lag behind its peers, year after year, on many levels,
including organic sales growth, operating margin and, most
importantly, total shareholder return.
For the past 1, 3, 5 and 15 years, Verint has substantially
underperformed its peers and the broader market. Indeed, NICE Ltd.,
its close peer, has generated a return for its investors that is
approximately 8 times Verint's return over the last 15 years.
Smaller companies that lack Verint's impressive technology base and
extensive customer relationships have also created more value for
their shareholders, while growing faster.
Total Shareholder
Returns through Fiscal Year-End
|
January 31,
2019
|
|
|
|
|
|
|
1 Year
|
3 Years
|
5 Years
|
15 Years
|
Verint
|
15.9%
|
32.1%
|
6.5%
|
96.6%
|
NICE
Ltd.
|
20.7%
|
83.9%
|
189.5%
|
745.2%
|
S&P
500
|
-2.3%
|
48.2%
|
68.2%
|
225.7%
|
Despite Verint's claim that it has outperformed for
shareholders, its own performance graph demonstrates that Verint's
stock has woefully lagged relevant benchmarks. For example,
$100 invested on January 31, 2014 in Verint stock would have been
worth $106.45 on January 31, 2019. By contrast, $100 invested in the NASDAQ Computer & Data
Processing Index during that same period would have been worth
$227.03.
Source: Verint 10K for
fiscal year-end January 31, 2019
* $100 invested on 1/31/14 in stock or index, including reinvestment
of dividends
Over the past 20 years, the Intrinsic Value Strategy has made
more than 450 investments in out-of-favor companies, one quarter of
them in the technology sector. At Neuberger Berman, we
believe that patience can reward the long-term investor in
companies with excellent technology and great customers. But
not always. When patience alone isn't working, we try
to share with management our observations and urge management to
implement strategies and best practices that have succeeded
elsewhere.
For the last two years, Neuberger Berman has attempted to do
this with Verint. Unfortunately, we faced a reluctant Board of
Directors and an insular management team. While we are pleased that
some of our recommendations – such as cloud revenue disclosure –
have recently been adopted, these changes (which we believe are
inadequate) only occurred after persistent pressure from us (and
other shareholders) and after we submitted to Verint our nomination
notice for the election of three new directors to the Board at the
2019 annual meeting. We're gratified that the stock market has
reacted positively to our suggestions and management's promise to
provide shareholders with improved disclosures. However,
those promises - even assuming that they are fulfilled - are not
enough.
In our view, Verint's reluctance to embrace a cloud business
model, inefficient conglomerate structure, elevated operating
expenses, poor capital allocation practices, and misaligned
executive compensation programs have all contributed to the
Company's persistent underperformance. Responsibility for Verint's
longstanding failure to move with urgency to improve its
performance and adopt clear business and financial performance
targets lies with the current Board of Directors. This Board
has simply been unwilling to make the changes that are necessary to
correct Verint's course.
This is why we have reached the conclusion that Verint will
benefit from additional perspectives in the boardroom provided by
independent, experienced, senior-level software business
leaders.
We believe Verint needs to do three things to maximize value for
its shareholders:
- Commit to transitioning to a modern cloud business
model, with identified medium- and long-range financial and
performance targets that give shareholders visibility into its
growth and revenue quality, and the ability to hold management
accountable;
- Clearly articulate the Company's capital allocation
priorities and present a compelling case for its current business
configuration, so shareholders know how their capital will be
used to create value and why the Board believes the current
conglomerate structure is optimal; and
- Upgrade the Board, by adding professionals with
substantial software, analytics, cloud and corporate governance
expertise to give shareholders confidence that the Board is
properly overseeing the Company's strategy and will hold management
accountable for performance.
We have spent a considerable amount of time with the Company
attempting to get it to commit to these simple, yet important,
changes and we have been largely ignored.
Verint Should Commit to Transitioning to a Modern Cloud
Model
We have specifically engaged with the Company about its lack of
a coherent cloud strategy and disclosure for over a year now. Only
on the Company's last earnings call did management begin to offer
shareholders a glimpse into the Company's cloud plans. As we
predicted, Verint's long-suffering shareholders cheered even this
modest clarification of the Company's strategy.
But we don't think the Company is doing enough.
Verint has been very slow to embrace the industry-wide migration
to a cloud-based business model. Verint's management continues to
plod along at a sluggish pace, suggesting that its customers may
not actually want to transition to the cloud. We don't believe
it. Not only is that counter to industry practice and the
perspective of sell-side analysts, we believe Verint's customers
will be receptive to the conversion. Furthermore, the cloud
model is a more profitable and predictable business model, which is
why other software companies have readily embraced the move.
"…Verint's revenue disclosures are
lacking...it does not provide inorganic revenue, maintenance
revenue, or cloud revenue, metrics we believe would help us better
judge the quality of revenue, the contribution to growth of
different revenue streams, and organic
growth."
Samad Samana,
Jefferies research analyst
Jefferies Research Report January 10,
2019
It wasn't easy, but we managed to at least get the Company to
talk with shareholders a bit more about its cloud business
model. Now, shareholders need clear guidance and objective
metrics both to know that the Company is truly committed to these
plans and to be able to hold management accountable for the
transition.
Absent guidance and ongoing disclosure, shareholders cannot
properly predict, model or value Verint's cloud business or the
Company. Verint should adopt the same set of metrics that
other comparable cloud-based software companies have already
implemented, including: cloud-only revenue and gross margins, the
number of customers above $1 million
in annual recurring revenue and cloud churn/expansion
rate.
These are the metrics that investors and analysts are looking
for and measurements other Boards use to hold management
accountable.
Verint Financial Reporting vs. Comparable
Software Companies
Verint Should Clearly Articulate its Capital Allocation
Priorities and Present a Compelling Case for its Current
Conglomerate Structure
Verint has invested heavily in R&D and technology
acquisitions over the past decade. However, this
investment spree has failed to deliver any meaningful return to
shareholders.
Verint spends more than 17% of its revenues on R&D, far
above what other low-growth software companies spend.
In the last 12 years, Verint has spent nearly
$2.1 billion on acquisitions and over
$1.9 billion on R&D and capital
expenditures, for a total of over $4.0
billion of investments, which is more than Verint's entire
market value today!
Over the past five years alone, Verint's R&D expense has
increased at a rate of 10.5% per year. During that same
period, the Company has spent nearly $1.0
billion on acquisitions. Despite this, revenue growth
(including revenue obtained through acquisitions) was only
6.2% per year on average.
Examine the table below that compares the amount Verint and its
peers have invested in R&D, CapEx and acquisitions over the
past five years and the resulting increase in market cap
value. Through January 31,
2019, Verint has invested a total of $2.2 billion, resulting in a mere $728 million increase in market cap value.
On the other hand, ServiceNow has invested a total of $2.9 billion, resulting in a market cap value
increase of $31 billion!
This doesn't make any sense to us. Verint has been unable
to adequately explain to shareholders why it spends so much on
R&D and acquisitions without generating a reasonable return on
its investment.
Verint vs.
Comparable Software Companies
|
5-Year Cumulative
Market Cap Gain Compared to 5-Year Cumulative
Investments
|
|
|
5-Year Change
in Market Cap
Value*
|
5-Year
Cumulative
Investments**
(R&D + CapEx +
Acquisitions)
|
Market Cap Gain as
a
Multiple of Cumulative
Investments
|
Five9
|
$2,644
|
$160
|
16.5x
|
ServiceNow
|
$30,914
|
$2,867
|
10.8x
|
Zendesk
|
$6,196
|
$856
|
7.2x
|
Pegasystems
|
$2,705
|
$955
|
2.8x
|
NICE,
Ltd.***
|
$4,407
|
$2,422
|
1.8x
|
Verint
|
$728
|
$2,161
|
0.3x
|
|
*January 31, 2014
through January 31, 2019 except Five9 and Zendesk calculations use
a start date of May 31, 2014, as they were not publicly traded on
January 31, 2014. ** All calculations use past five
fiscal years. *** Converted to $USD
|
The Verint Board is responsible for overseeing the Company's
R&D investments and acquisition strategy and ensuring that the
Company's capital allocation practices focus on opportunities that
generate appropriate shareholder returns. To this end, we
believe it is imperative that the Board fully disclose to Verint
shareholders a comprehensive and complete capital allocation
plan.
While management has spent heavily on R&D + CapEx +
Acquisitions, Verint's Board of Directors has allowed the
share count to more than double over the last 12 years –
growing from 31 million to almost 66 million shares outstanding
today! We believe that, for a low-growth software company
such as Verint, a robust share repurchase program should be an
important component of its capital allocation strategy and that the
Board should resist share dilution.
We also believe that shareholders do not understand why Verint
has decided to maintain its ownership of both its Customer
Engagement Solutions ("CES") and Cyber Intelligence Solutions
("CIS") divisions. We believe that these divisions serve
different markets, have disparate products and service offerings,
and do not share operational synergies.
Owning these two businesses makes it harder for the Company to
receive a fair valuation from the public markets. In addition
to the analytical complexity associated with shareholders trying to
understand how the Company will allocate its limited capital,
analyze different end-markets with different growth rates, and
assess the optimal capital structure for two very different
businesses, having two disparate businesses in a mid-size company
undoubtedly taxes management's limited time and resources.
We believe Verint should honor its 2015 commitment to provide
segment-level financials for CES and CIS. Instead, the
Company only provides a one-line segment "contribution" figure and
does not allocate shared corporate expenses (which represents more
than 75% of segment contribution), SG&A and R&D expenses
between the two segments. That opaque reporting
prevents investors from appropriately valuing each business unit
and its contribution to Verint as a whole.
If management and the Board believe it is optimal to have
both CIS and CES under one corporate umbrella, they need to present
a compelling case for this conglomerate strategy. We believe it
is incumbent upon them to explain why this inefficient company
configuration is good for shareholders.
Verint Should Upgrade its Board with Software, Analytics,
Cloud, and Governance Expertise
Verint's Board today has only one independent director with any
senior-level operating software experience. We think this is
inadequate given the accelerating changes in the software
landscape, the complexity of transitioning from enterprise software
to a cloud-based model and the history of underperformance at
Verint.
We believe the Company would benefit from fresh perspectives on
the Board, especially from professionals that have built, executed
and overseen cloud-based software businesses.
Over the past year, we have proposed seven different
potential board members with a broad set of impressive
technology, software, cloud, security, and governance credentials
that we believe would benefit the Company and its shareholders.
Unfortunately, Verint has rejected every single one of our proposed
accomplished professionals.
We have, therefore, taken the extraordinary step of nominating
three new directors to the Board and are asking our fellow
shareholders to support their election at the upcoming annual
meeting.
Our nominees are:
Ms. Beatriz Infante. Ms.
Infante is a software industry veteran and a four-time CEO
with a track record of successfully leading multiple international
technology businesses to extremely high levels of growth,
profitability and shareholder return. As one of the first employees
of Oracle, Ms. Infante reported directly to Larry Ellison, and has since led both early
stage and Fortune 100 organizations through $2B in revenues across a variety of technology
sectors, including SaaS/Cloud, cybersecurity, enterprise software,
big data & analytics, digital transformation, communications,
mobile, and hardware.
Dr. Mark Greene. Dr.
Greene is a senior financial software and analytics executive
with 35+ years of global executive experience leading and growing
complex global businesses. Over the course of his career, Dr.
Greene managed several large enterprise software businesses,
including as CEO of OpenLink, a high-growth, private equity-backed
global software and services business, CEO of Fair Isaac
Corporation (FICO), a pioneer in credit risk scoring and
analytics for the financial services industry, and as a General
Manager at IBM, where he was ultimately responsible for IBM's
security business.
Mr. Oded Weiss. Mr. Weiss
has 25+ years of experience in building value and creating
high-performing leadership teams in fast growing global
businesses. Mr. Weiss is the former President and currently a
strategic advisor to Temenos, AG, a $12
billion market cap developer of a cloud-native front office,
core banking, payments, fund management and wealth management
software products for banks worldwide. Mr. Weiss also served
as CEO and a Managing Director and a
member of the Board of Directors of IGEFI
Group s.a r.l. (doing business as Multifonds), an
award-winning investment software company providing fund
accounting, portfolio accounting and investor servicing and
transfer agency on a single platform. Previous to this, Mr. Weiss
was a Partner at McKinsey & Co. and led their technology
practice in New York.
If elected, these nominees are committed to working with the
other Directors to establish new financial measurements and a
capital allocation framework while holding management accountable
for performance.
In stark contrast, the Company has re-nominated last year's
slate of eight candidates, including Mr. Howard Safir, who has been on Verint's Board for
17 years, who has never held a senior management role at a public
company and whose primary experience is in law enforcement; Dr.
Richard Nottenburg, who has been on
Verint's Board for a total of 11 years, including the time he spent
on the Board of Verint's former parent company, Comverse
Technology, and who has had more than enough time to make a
positive impact on the Company's financial performance; and Mr.
John Egan, whose last executive role
was 21 years ago, has been a Director and Chairman of the Corporate
Governance & Nominating Committee since August 2012 and Verint's Lead Independent
Director since August 2017, and who,
in our view, has been an ineffective independent steward for Verint
shareholders. And so, we are proposing to replace these
long-tenured underperforming directors with our
industry-experienced nominees.
The addition of Ms. Infante, Dr. Green and Mr. Weiss will ensure
the board provides rigorous oversight of the Company's cloud
strategy and capital allocation and business
configuration.
Neuberger Berman's Nominees vs. Verint's
Long-Tenured Directors
We encourage you to support our comprehensive approach for value
creation at Verint by voting on the GOLD proxy card for our
candidates.
Finally, we think it's important to let you know that we were
astonished to learn that Verint intends to spend $6.5 million to run a proxy contest to defend the
status quo. We tried to avoid this proxy contest and made
multiple proposals to Verint to reach an acceptable compromise. In
addition to rejecting all seven of our candidates, Verint has
refused to commit publicly to sensible business measurements and
financial targets that would enable shareholders to clearly
understand Verint's strategy, measure its performance against that
strategy and evaluate the Board's capital allocation choices. We
are deeply troubled that Verint would spend so much of its
shareholders' money to defend the record of the current
Board. This underscores the need for immediate change at
Verint and we look forward to your support.
On behalf of Neuberger Berman, we appreciate your time and
attention to our shared investment.
If you have any questions about how to vote, our proxy
solicitor, Okapi Partners, can be reached at info@okapipartners.com
or (855) 305-0857.
Please sign, date and mail the GOLD proxy card, voting for
Ms. Infante, Dr. Greene and Mr. Weiss.
Sincerely,
Benjamin H. Nahum
Senior Portfolio Manager and Managing Director
Neuberger Berman Investment Advisers LLC
Amit Solomon
Portfolio
Manager and Managing Director
Neuberger Berman Investment Advisers LLC
IMPORTANT INFORMATION
On May 13, 2019, Neuberger Berman
Investment Advisers LLC, Neuberger Berman Investment Advisers
Holdings LLC, Neuberger Berman Group LLC, NBSH Acquisition LLC,
Neuberger Berman Breton Hill ULC, NB Acquisitionco ULC, Neuberger
Berman Canada Holdings LLC, Ms. Infante, Dr. Greene and Mr. Weiss
(each of Ms. Infante, Dr. Greene and Mr. Weiss are referred to
herein as a "Neuberger Berman Nominee" and, collectively with
Neuberger Berman, as the "Neuberger Berman Participants", "our",
"us" or "we"). Benjamin Nahum, Scott
Hoina, Amit Solomon, Ph.D., Beatriz V. Infante, Dr. Mark Greene, and Oded
Weiss (collectively, the "Participants") filed a definitive
proxy statement on Schedule 14A (the "Neuberger Berman Proxy
Statement") with the Securities and Exchange Commission ("SEC"),
along with an accompanying GOLD proxy card, to be used in
connection with the Participants' solicitation of proxies from the
stockholders of Verint Systems Inc. (the "Company") for use at the
Company's 2019 Annual Meeting of Stockholders (the "Proxy
Solicitation"). All stockholders of the Company are advised to
read the Neuberger Berman Proxy Statement and the accompanying GOLD
proxy card because they contain important information. The
Neuberger Berman Proxy Statement and the accompanying GOLD proxy
card will be furnished to some or all of the Company's stockholders
and are, along with other relevant soliciting material of the
Participants, available at no charge at the SEC's website at
www.sec.gov, from the Participants' proxy solicitor, Okapi Partners
LLC (Call Toll-Free: (855) 305-0857). To the extent that
independent researchers or financial analysts are quoted in this
document, it is the policy of the Participants to use reasonable
efforts to verify the source and accuracy of the quote. The
Participants have not, however, sought or obtained the consent of
the quoted source to the use of such quote as soliciting material.
This document may contain expressions of opinion and belief. Except
as otherwise expressly attributed to another individual or entity,
these opinions and beliefs are the opinions and beliefs of the
Participants.
CONTACTS:
Verint Stockholders:
Pat McHugh/Bruce Goldfarb/Lisa
Patel
Okapi Partners
(212) 297-0720
info@okapipartners.com
Media:
Alexander Samuelson
Neuberger Berman
(212) 476-5392
Alexander.Samuelson@NB.com
About Neuberger Berman
Neuberger Berman, founded in 1939, is a private, independent,
employee-owned investment manager. The firm manages a range of
strategies—including equity, fixed income, quantitative and
multi-asset class, private equity and hedge funds—on behalf of
institutions, advisors and individual investors globally. With
offices in 23 countries, Neuberger Berman's team is more than 2,100
professionals. For five consecutive years, the company has been
named first or second in Pensions & Investments Best Places to
Work in Money Management survey (among those with 1,000 employees
or more). Tenured, stable and long-term in focus, the firm has
built a diverse team of individuals united in their commitment to
delivering compelling investment results for our clients over the
long term. That commitment includes active consideration of
environmental, social and governance factors. The firm manages
$323 billion in client assets as of
March 31, 2019. For more information,
please visit our website at www.nb.com.
Certain statements in this press release, such as those related
to changes in a portfolio management team, constitute
forward-looking statements, which involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
levels of activity, performance or achievements of the strategy, or
industry results, to be materially different from any future
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or implied by such forward-looking statements. Among other
risks and uncertainties are the possibility of differences in the
timing or nature of any portfolio manager changes, the adverse
effect from a decline in the securities markets or a decline in the
strategy's performance, a general downturn in the economy,
competition from other closed end investment companies, changes in
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investment adviser to attract or retain key employees, inability of
the strategy to implement its investment strategy, inability of the
strategy to manage rapid expansion and unforeseen costs and other
effects related to legal proceedings or investigations of
governmental and self-regulatory organizations. As a result,
no assurance can be given as to future results, levels of activity,
performance or achievements, and neither the strategy nor any other
person assumes responsibility for the accuracy.
All information is as of March 31,
2019 unless otherwise indicated and is subject to change
without notice. Firm data, including employee and assets under
management figures, reflects collective data for the various
affiliated investment advisers that are subsidiaries of Neuberger
Berman Group LLC. Firm history/timeline includes the history of all
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