VRNT Verint Systems Inc

Conference Call to Discuss Selected Financial Information and Outlook to be Held Today at 4:30 p.m. ET

Verint® Systems Inc. (NASDAQ: VRNT), a global leader in Actionable Intelligence® solutions and value-added services, today announced results for the three and nine months ended October 31, 2017.

Financial Highlights

Below is selected unaudited financial information for the three and nine months ended October 31, 2017 prepared in accordance with generally accepted accounting principles (“GAAP”) and not in accordance with GAAP (“non-GAAP”).

Three Months Ended October 31, 2017 - GAAP             Three Months Ended October 31, 2017 - Non-GAAP   Revenue: $280.7 million(1)   Revenue: $283.8 million(1) Operating income: $17.8 million Operating income: $55.8 million Diluted net income per share: $0.04 Diluted net income per share: $0.66   Nine Months Ended October 31, 2017 - GAAP Nine Months Ended October 31, 2017 - Non-GAAP Revenue: $816.5 million(1) Revenue: $827.7 million(1) Operating income: $12.4 million Operating income: $144.1 million Net loss per share: $(0.38) Diluted net income per share: $1.75

(1) Please refer to Table 6 for constant currency revenue information, and "Supplemental Information about Non-GAAP Financial Measures" at the end of this press release for more information.

CEO Commentary

“We are pleased with our strong third quarter and year-to-date results. For Q3, we had sequential and year-over-year revenue growth in both of our segments and earnings increased faster than revenue driven by top line growth and expanding margins,” said Dan Bodner, Verint CEO and President.

Bodner continued, “In Customer Engagement, we are a market leader, offering one of the broadest portfolios of hybrid cloud solutions to simplify and modernize customer engagement. We expect our ongoing innovation, including the recent introduction of new automation and artificial intelligence capabilities, will contribute to sustained long-term growth.”

“In Cyber Intelligence, we are a market leader in security and intelligence data mining software and we are pleased with our double digit year-over-year revenue growth for the third consecutive quarter this year. Our results reflect the demand for solutions that can address terrorism, crime, cyber-attacks, and other threats that remain pervasive around the world. We believe our broad portfolio, domain expertise and on-going innovation will contribute to sustained long-term growth,” Bodner concluded.

Financial Outlook

Verint's non-GAAP outlook for the year ending January 31, 2018 is as follows:

• Segment Revenue Outlook:
  • In our Customer Engagement segment, we expect around 5% revenue growth.
  • In our Cyber Intelligence segment, we expect around 10% revenue growth.
• Total Revenue and EPS outlook: Based on the above, we expect total revenue of $1.14 billion with a narrower range of +/- 1% and diluted earnings per share of $2.75 at the midpoint.

Verint's preliminary non-GAAP outlook for the year ending January 31, 2019 is as follows:

• Segment Revenue Outlook:
  • In our Customer Engagement segment, we expect around 5% revenue growth.
  • In our Cyber Intelligence segment, we expect around 10% revenue growth.
• Total Revenue and EPS outlook: Based on the above, we expect total revenue of $1.215 billion with a range of +/- 2% and diluted earnings per share of $3.00 at the midpoint.

Our non-GAAP outlook for the year ending January 31, 2018 excludes the following GAAP measures which we are able to quantify with reasonable certainty:

• Amortization of intangible assets of approximately $71 million.
• Amortization of discount on convertible notes of approximately $11 million.

Our non-GAAP outlook for the year ending January 31, 2018 excludes the following GAAP measures for which we are able to provide a range of probable significance:

• Revenue adjustments related to completed acquisitions are expected to be between approximately $12 million and $14 million for the year ending January 31, 2018.
• Stock-based compensation is expected to be between approximately $65 million and $70 million for the year ending January 31, 2018, assuming market prices for our common stock approximately consistent with current levels.

Our preliminary non-GAAP outlook for the year ending January 31, 2019 excludes the following GAAP measures which we are able to quantify with reasonable certainty:

• Amortization of intangible assets of approximately $47 million.
• Amortization of discount on convertible notes of approximately $12 million.

Our preliminary non-GAAP outlook for the year ending January 31, 2019 excludes the following GAAP measures for which we are able to provide a range of probable significance:

• Revenue adjustments related to completed acquisitions are expected to be between approximately $4 million and $6 million for the year ending January 31, 2019.
• Stock-based compensation is expected to be between approximately $60 million and $70 million for the year ending January 31, 2019, assuming market prices for our common stock approximately consistent with current levels.

Our non-GAAP outlook does not include the potential impact of any in-process business acquisitions that may close after the date hereof, and, unless otherwise specified, reflects foreign currency exchange rates approximately consistent with current rates.

We are unable, without unreasonable efforts, to provide a reconciliation for other GAAP measures which are excluded from our non-GAAP outlook, including the impact of future business acquisitions or acquisition expenses, future restructuring expenses, and non-GAAP income tax adjustments due to the level of unpredictability and uncertainty associated with these items. For these same reasons, we are unable to assess the probable significance of these excluded items. While historical results may not be indicative of future results, actual amounts for the three and nine months ended October 31, 2017 and 2016 for the GAAP measures excluded from our non-GAAP outlook appear in Table 3 to this press release.

Conference Call Information

We will conduct a conference call today at 4:30 p.m. ET to discuss our results for the three and nine months ended October 31, 2017 and outlook. An online, 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 1-844-309-0615 (United States and Canada) and 1-661-378-9462 (international) and the passcode is 3286436. 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 non-GAAP financial measures presented for completed periods to the most directly comparable financial measures prepared in accordance with GAAP, please see Tables 2, 3, 6 and 7 as well as "Supplemental Information About Non-GAAP Financial Measures" at the end of this press release.

About Verint Systems Inc.

Verint® (Nasdaq: VRNT) is a global leader in Actionable Intelligence® solutions with a focus on customer engagement optimization, security intelligence, and fraud, risk and compliance. Today, over 10,000 organizations in more than 180 countries—including over 80 percent of the Fortune 100—count on intelligence from Verint solutions to make more informed, effective and timely decisions. Learn more about how we’re creating A Smarter World with Actionable Intelligence® at 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 known and unknown risks, uncertainties, assumptions, and other important factors, any of which could cause our actual results or conditions to differ materially from those expressed in or implied by the forward-looking statements. Some of the factors that could cause our actual results or conditions to differ materially from current expectations include, among others: uncertainties regarding the impact of general economic conditions in the United States and abroad, particularly in information technology spending and government budgets, on our business; risks associated with our ability to keep pace with technological changes, evolving industry standards, and customer challenges, such as the proliferation and strengthening of encryption, and the transition of portions of the software market to the cloud, to adapt to changing market potential from area to area within our markets, and to successfully develop, launch, and drive demand for new, innovative, high-quality products that meet or exceed customer needs, while simultaneously preserving our legacy businesses and migrating away from areas of commoditization; 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 created by the continued consolidation of our competitors or the introduction of large competitors in our markets with greater resources than we have; risks associated with our ability to successfully compete for, consummate, and implement mergers and acquisitions, including risks associated with valuations, capital constraints, costs and expenses, maintaining profitability levels, expansion into new areas, management distraction, post-acquisition integration activities, and potential asset impairments; risks relating to our ability to effectively and efficiently enhance our existing operations and execute on our growth strategy and profitability goals, including managing investments in our business and operations, managing our cloud transition and our revenue mix, and enhancing and securing our internal and external operations; risks associated with our ability to effectively and efficiently allocate limited financial and human resources to business, developmental, strategic, or other opportunities, and risk that such investments may not come to fruition or produce satisfactory returns; risks that we may be unable to establish and maintain relationships with key resellers, partners, and systems integrators; risks associated with our reliance on third-party suppliers, partners, or original equipment manufacturers (“OEMs”) for certain components, products, or services, including companies that may compete with us or work with our competitors; risks associated with the mishandling or perceived mishandling of sensitive or confidential information and with security vulnerabilities or lapses, including information technology system breaches, failures, or disruptions; risks that our products or services, or those of third-party suppliers, partners, or OEMs which we use in or with our offerings or otherwise rely on, may contain defects or may be vulnerable to cyber-attacks; risks associated with our significant international operations, including, among others, in Israel, Europe, and Asia, exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, and challenges associated with a significant portion of our cash being held overseas; risks associated with a significant amount of our business coming from domestic and foreign government customers, including the ability to maintain security clearances for applicable projects and reputational risks associated with our security solutions; risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we operate, including, among others, with respect to privacy, information security, trade compliance, anti-corruption, and regulations related to our security solutions; risks associated with our ability to retain and recruit qualified personnel in regions in which we operate, including in new markets and growth areas we may enter; challenges associated with selling sophisticated solutions, including with respect to educating our customers on the benefits of our solutions or assisting them in realizing such benefits; challenges associated with pursuing larger sales opportunities, including with respect to longer sales cycles, transaction reductions, deferrals, or cancellations during the sales cycle, risk of customer concentration, our ability to accurately forecast when a sales opportunity will convert to an order, or to forecast revenue and expenses, and increased volatility of our operating results from period to period; 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 that our 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 may experience liquidity or working capital issues and related risks that financing sources may be unavailable to us on reasonable terms or at all; risks associated with significant leverage resulting from our current debt position or our ability to incur additional debt, including with respect to liquidity considerations, covenant limitations and compliance, fluctuations in interest rates, dilution considerations (with respect to our convertible notes), and our ability to maintain our credit ratings; risks arising as a result of contingent or other obligations or liabilities assumed in our acquisition of our former parent company, Comverse Technology, Inc. (“CTI”), or associated with formerly being consolidated with, and part of a consolidated tax group with, CTI, or as a result of CTI's former subsidiary, Comverse, Inc. (now known as Mavenir, Inc.), being unwilling or unable to provide us with certain indemnities to which we are entitled; risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, and personnel and our ability to successfully implement and maintain enhancements to the foregoing and adequate systems and internal controls for our current and future operations and reporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays; and risks associated with changing accounting principles or standards, tax rates, tax laws and regulations, and the continuing availability of expected tax benefits. 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, 2017, our Quarterly Report on Form 10-Q for the quarter ended October 31, 2017, when filed, and other filings we make with the SEC.

VERINT, ACTIONABLE INTELLIGENCE, MAKE BIG DATA ACTIONABLE, CUSTOMER-INSPIRED EXCELLENCE, INTELLIGENCE IN ACTION, IMPACT 360, WITNESS, VERINT VERIFIED, KANA, LAGAN, VOVICI, GMT, VICTRIO, AUDIOLOG, CONTACT SOLUTIONS, OPINIONLAB, ADTECH, VERBA, CUSTOMER ENGAGEMENT SOLUTIONS, CYBER INTELLIGENCE SOLUTIONS, VOICE OF THE CUSTOMER ANALYTICS, NEXTIVA, EDGEVR, RELIANT, VANTAGE, STAR-GATE, ENGAGE, CYBERVISION, FOCALINFO, SUNTECH, and VIGIA are trademarks or registered trademarks of Verint Systems Inc. or its subsidiaries. Other trademarks mentioned are the property of their respective owners.

 

Table 1

VERINT SYSTEMS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

      Three Months EndedOctober 31,     Nine Months EndedOctober 31, (in thousands, except per share data) 2017     2016 2017     2016 Revenue: Product $ 94,827 $ 88,004 $ 279,056 $ 254,172 Service and support 185,899   170,898   537,442   512,075   Total revenue 280,726   258,902   816,498   766,247   Cost of revenue: Product 32,840 29,499 98,708 82,455 Service and support 69,383 64,007 205,928 195,892 Amortization of acquired technology 9,182   9,700   28,246   28,014   Total cost of revenue 111,405   103,206   332,882   306,361   Gross profit 169,321   155,696   483,616   459,886   Operating expenses: Research and development, net 47,157 41,028 141,911 128,847 Selling, general and administrative 97,304 98,899 302,605 300,080 Amortization of other acquired intangible assets 7,048   10,244   26,727   32,976   Total operating expenses 151,509   150,171   471,243   461,903   Operating income (loss) 17,812   5,525   12,373   (2,017 ) Other income (expense), net: Interest income 654 229 1,793 695 Interest expense (8,891 ) (8,708 ) (26,997 ) (25,976 ) Loss on early retirement of debt — — (1,934 ) — Other (expense) income, net (565 ) (1,121 ) 2,529   (2,660 ) Total other expense, net (8,802 ) (9,600 ) (24,609 ) (27,941 ) Income (loss) before provision for income taxes 9,010 (4,075 ) (12,236 ) (29,958 ) Provision for income taxes 5,944   3,359   9,504   4,747   Net income (loss) 3,066 (7,434 ) (21,740 ) (34,705 ) Net income attributable to noncontrolling interests 577   803   1,984   2,693   Net income (loss) attributable to Verint Systems Inc. $ 2,489   $ (8,237 ) $ (23,724 ) $ (37,398 )  

Net income (loss) per common share attributable to Verint Systems

Inc.:

Basic $ 0.04   $ (0.13 ) $ (0.38 ) $ (0.60 ) Diluted $ 0.04   $ (0.13 ) $ (0.38 ) $ (0.60 )   Weighted-average common shares outstanding: Basic 63,759   62,895   63,152   62,602   Diluted 64,588   62,895   63,152   62,602      

Table 2

VERINT SYSTEMS INC. AND SUBSIDIARIES

Segment Revenue

(Unaudited)

               

   Three Months Ended   

   October 31,   

   

   Nine Months Ended   

   October 31,   

(in thousands) 2017     2016   2017     2016 GAAP Revenue By Segment: Customer Engagement $ 181,590 $ 172,757 $ 531,643 $ 519,010 Cyber Intelligence 99,136   86,145   284,855   247,237 GAAP Total Revenue $ 280,726   $ 258,902   $ 816,498   $ 766,247   Revenue Adjustments Related to Acquisitions: Customer Engagement $ 2,916 $ 1,103 $ 11,065 $ 6,610 Cyber Intelligence 118   24   169   300 Total Revenue Adjustments Related to Acquisitions $ 3,034   $ 1,127   $ 11,234   $ 6,910   Non-GAAP Revenue By Segment: Customer Engagement $ 184,506 $ 173,860 $ 542,708 $ 525,620 Cyber Intelligence 99,254   86,169   285,024   247,537 Non-GAAP Total Revenue $ 283,760   $ 260,029   $ 827,732   $ 773,157    

Table 3

VERINT SYSTEMS INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Results

(Unaudited)

     

Three Months Ended

October 31,

   

Nine Months Ended

October 31,

(in thousands, except per share data) 2017     2016 2017     2016  

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

  GAAP gross profit $ 169,321   $ 155,696   $ 483,616   $ 459,886   GAAP gross margin 60.3 % 60.1 % 59.2 % 60.0 % Revenue adjustments related to acquisitions 3,034 1,127 11,234 6,910 Amortization of acquired technology 9,182 9,700 28,246 28,014 Stock-based compensation expenses 2,197 1,807 5,868 5,573 Acquisition expenses, net 23 — 91 2 Restructuring expenses 919   787   1,937   1,829   Non-GAAP gross profit $ 184,676   $ 169,117   $ 530,992   $ 502,214   Non-GAAP gross margin 65.1 % 65.0 % 64.2 % 65.0 %  

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

  GAAP operating income (loss) $ 17,812   $ 5,525   $ 12,373   $ (2,017 ) As a percentage of GAAP revenue 6.3 % 2.1 % 1.5 % (0.3 )% Revenue adjustments related to acquisitions 3,034 1,127 11,234 6,910 Amortization of acquired technology 9,182 9,700 28,246 28,014 Amortization of other acquired intangible assets 7,048 10,244 26,727 32,976 Stock-based compensation expenses 15,966 13,954 50,453 45,682 Acquisition expenses, net (4,063 ) 3,480 2,455 8,063 Restructuring expenses 6,309 4,955 11,557 12,220 Other adjustments 490   58   1,091   401   Non-GAAP operating income $ 55,778   $ 49,043   $ 144,136   $ 132,249   As a percentage of non-GAAP revenue 19.7 % 18.9 % 17.4 % 17.1 %  

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

  GAAP other expense, net $ (8,802 ) $ (9,600 ) $ (24,609 ) $ (27,941 ) Unrealized (gains) losses on derivatives, net (890 ) 87 (1,877 ) 479 Amortization of convertible note discount 2,829 2,684 8,377 7,948 Loss on early retirement of debt — — 1,934 — Acquisition expenses, net (10 ) (30 ) 710 56 Restructuring expenses 1 (144 ) 139 219 Impairment charges —   —   —   2,400   Non-GAAP other expense, net(1) $ (6,872 ) $ (7,003 ) $ (15,326 ) $ (16,839 )  

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

  GAAP provision for income taxes $ 5,944   $ 3,359   $ 9,504   $ 4,747   GAAP effective income tax rate 66.0 % (82.4 )% (77.7 )% (15.8 )% Non-GAAP tax adjustments (91 ) 665   5,082   5,895   Non-GAAP provision for income taxes $ 5,853   $ 4,024   $ 14,586   $ 10,642   Non-GAAP effective income tax rate 12.0 % 9.6 % 11.3 % 9.2 %  

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. $ 2,489   $ (8,237 ) $ (23,724 ) $ (37,398 ) Revenue adjustments related to acquisitions 3,034 1,127 11,234 6,910 Amortization of acquired technology 9,182 9,700 28,246 28,014 Amortization of other acquired intangible assets 7,048 10,244 26,727 32,976 Stock-based compensation expenses 15,966 13,954 50,453 45,682 Unrealized (gains) losses on derivatives, net (890 ) 87 (1,877 ) 479 Amortization of convertible note discount 2,829 2,684 8,377 7,948 Loss on early retirement of debt — — 1,934 — Acquisition expenses, net (4,073 ) 3,450 3,165 8,119 Restructuring expenses 6,310 4,811 11,696 12,439 Impairment charges — — — 2,400 Other adjustments 490 58 1,091 401 Non-GAAP tax adjustments 91   (665 ) (5,082 ) (5,895 ) Total GAAP net income (loss) adjustments 39,987   45,450   135,964   139,473   Non-GAAP net income attributable to Verint Systems Inc. $ 42,476   $ 37,213   $ 112,240   $ 102,075    

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 toVerint Systems Inc.

$ 0.04   $ (0.13 ) $ (0.38 ) $ (0.60 )

Non-GAAP diluted net income per common share attributable toVerint Systems Inc.

$ 0.66   $ 0.59   $ 1.75   $ 1.62    

GAAP weighted-average shares used in computing diluted net income (loss) per common share attributable to Verint Systems Inc.

64,588 62,895 63,152 62,602

Additional weighted-average shares applicable to non-GAAPdiluted net income per common share attributable to VerintSystems Inc.

—   355   912   385  

Non-GAAP diluted weighted-average shares used in computing net income per common share attributable to Verint Systems Inc.

64,588   63,250   64,064   62,987    

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

  GAAP net income (loss) attributable to Verint Systems Inc. $ 2,489   $ (8,237 )   $ (23,724 ) $ (37,398 ) As a percentage of GAAP revenue 0.9 % (3.2 )% (2.9 )% (4.9 )% Net income attributable to noncontrolling interest 577 803 1,984 2,693 Provision for income taxes 5,944 3,359 9,504 4,747 Other expense, net 8,802 9,600 24,609 27,941 Depreciation and amortization(2) 23,798 27,566 77,652 83,007 Revenue adjustments related to acquisitions 3,034 1,127 11,234 6,910 Stock-based compensation expenses 15,966 13,954 50,453 45,682 Acquisition expenses, net (4,063 ) 3,480 2,455 8,063 Restructuring expenses 6,309 4,289 11,553 11,550 Other adjustments 490   58   1,091   401   Adjusted EBITDA $ 63,346   $ 55,999   $ 166,811   $ 153,596   As a percentage of non-GAAP revenue 22.3 % 21.5 % 20.2 % 19.9 %  

Table of Reconciliation from Gross Debt to Net Debt

October 31,

2017

January 31,

2017

  Current maturities of long-term debt $ 4,552 $ 4,611 Long-term debt 766,006 744,260 Unamortized debt discounts and issuance costs 53,681   60,571   Gross debt 824,239   809,442   Less: Cash and cash equivalents 312,666 307,363 Restricted cash and bank time deposits 63,326 9,198 Short-term investments 6,411   3,184   Net debt, excluding long-term restricted cash 441,836   489,697   Long-term restricted cash 31,637   54,566   Net debt, including long-term restricted cash $ 410,199   $ 435,131  

(1) For the three months ended October 31, 2017, non-GAAP other expense, net of $6.9 million was comprised of $5.4 million of interest and other expense, and $1.5 million of foreign exchange charges primarily related to balance sheet translations.

(2) Adjusted for financing fee amortization.

 

Table 4

VERINT SYSTEMS INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

      October 31,     January 31, (in thousands, except share and per share data) 2017 2017 Assets Current Assets: Cash and cash equivalents $ 312,666 $ 307,363 Restricted cash and bank time deposits 63,326 9,198 Short-term investments 6,411 3,184

Accounts receivable, net of allowance for doubtful accounts of $2.2 million and $1.8 million,   respectively

284,050 266,590 Inventories 19,522 17,537 Deferred cost of revenue 4,271 3,621 Prepaid expenses and other current assets 81,436   64,561   Total current assets 771,682   672,054   Property and equipment, net 85,248 77,551 Goodwill 1,304,971 1,264,818 Intangible assets, net 199,545 235,259 Capitalized software development costs, net 7,881 9,509 Long-term deferred cost of revenue 3,402 5,463 Other assets 70,224   98,130   Total assets $ 2,442,953   $ 2,362,784     Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 73,820 $ 62,049 Accrued expenses and other current liabilities 220,772 217,835 Deferred revenue 166,945   182,515   Total current liabilities 461,537   462,399   Long-term debt 766,006 744,260 Long-term deferred revenue 24,095 20,912 Other liabilities 117,948   120,173   Total liabilities 1,369,586   1,347,744   Commitments and Contingencies Stockholders' Equity:

Preferred stock - $0.001 par value; authorized 2,207,000 shares at October 31, 2017 and January 31,   2017, respectively; none issued.

— —

Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 65,442,000 and   64,073,000 shares; outstanding 63,781,000 and 62,419,000 shares at October 31, 2017 and January   31, 2017, respectively.

65 64 Additional paid-in capital 1,505,492 1,449,335

Treasury stock, at cost - 1,661,000 and 1,654,000 shares at October 31, 2017 and January 31, 2017,   respectively.

(57,425 ) (57,147 ) Accumulated deficit (255,409 ) (230,816 ) Accumulated other comprehensive loss (132,363 ) (154,856 ) Total Verint Systems Inc. stockholders' equity 1,060,360 1,006,580 Noncontrolling interests 13,007   8,460   Total stockholders' equity 1,073,367   1,015,040   Total liabilities and stockholders' equity $ 2,442,953   $ 2,362,784    

 

Table 5

VERINT SYSTEMS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

     

Nine Months EndedOctober 31,

(in thousands) 2017     2016 Cash flows from operating activities: Net loss $ (21,740 ) $ (34,705 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 79,879 85,411 Stock-based compensation, excluding cash-settled awards 50,397 45,547 Amortization of discount on convertible notes 8,377 7,948 Non-cash (gains) losses on derivative financial instruments, net (292 ) 693 Loss on early retirement of debt 1,934 — Other non-cash items, net 307 8,767 Changes in operating assets and liabilities, net of effects of business combinations: Accounts receivable (15,824 ) 3,708 Inventories (2,232 ) (2,823 ) Deferred cost of revenue 1,503 1,349 Prepaid expenses and other assets (12,947 ) (6,066 ) Accounts payable and accrued expenses 13,145 (21,305 ) Deferred revenue (14,129 ) (21,749 ) Other, net 7,796   4,914   Net cash provided by operating activities 96,174   71,689     Cash flows from investing activities: Cash paid for business combinations, including adjustments, net of cash acquired (28,071 ) (72,269 ) Purchases of property and equipment (26,445 ) (20,611 ) Purchases of investments (8,305 ) (34,215 ) Maturities and sales of investments 5,244 79,930 Cash paid for capitalized software development costs (909 ) (1,730 )

Change in restricted cash and bank time deposits, including long-term portion, and other investingactivities, net

(30,207 ) (31,737 ) Net cash used in investing activities (88,693 ) (80,632 )   Cash flows from financing activities: Proceeds from borrowings, net of original issuance discount 424,469 — Repayments of borrowings and other financing obligations (410,536 ) (1,987 ) Payments of debt-related costs (7,107 ) (249 ) Proceeds from exercises of stock options — 1 Purchases of treasury stock — (35,896 ) Dividends paid to noncontrolling interest (716 ) — Payments of contingent consideration for business combinations (financing portion) (7,210 ) (3,231 ) Other financing activities, net (320 ) (827 ) Net cash used in financing activities (1,420 ) (42,189 ) Effect of foreign currency exchange rate changes on cash and cash equivalents (758 ) (5,144 ) Net increase (decrease) in cash and cash equivalents 5,303 (56,276 ) Cash and cash equivalents, beginning of period 307,363   352,105   Cash and cash equivalents, end of period $ 312,666   $ 295,829      

Table 6

VERINT SYSTEMS INC. AND SUBSIDIARIES

Calculation of Change in Revenue on a Constant Currency Basis

(Unaudited)

     

GAAP Revenue

   

Non-GAAP Revenue

(in thousands, except percentages)

Three Months

Ended

   

Nine Months

Ended

Three Months

Ended

   

Nine Months

Ended

  Total Revenue Revenue for the three and nine months ended October 31, 2016 $ 258,902 $ 766,247 $ 260,029 $ 773,157 Revenue for the three and nine months ended October 31, 2017 $ 280,726 $ 816,498 $ 283,760 $ 827,732

Revenue for the three and nine months ended October 31, 2017 atconstant currency(1)

$ 278,000 $ 818,000 $ 281,000 $ 829,000 Reported period-over-period revenue growth 8.4 % 6.6 % 9.1 % 7.1 % % impact from change in foreign currency exchange rates (1.0 )% 0.2 % (1.0 )% 0.1 % Constant currency period-over-period revenue growth 7.4 % 6.8 % 8.1 % 7.2 %   Customer Engagement Revenue for the three and nine months ended October 31, 2016 $ 172,757 $ 519,010 $ 173,860 $ 525,620 Revenue for the three and nine months ended October 31, 2017 $ 181,590 $ 531,643 $ 184,506 $ 542,708

Revenue for the three and nine months ended October 31, 2017 atconstant currency(1)

$ 180,000 $ 534,000 $ 183,000 $ 545,000 Reported period-over-period revenue growth 5.1 % 2.4 % 6.1 % 3.3 % % impact from change in foreign currency exchange rates (0.9 )% 0.5 % (0.8 )% 0.4 % Constant currency period-over-period revenue growth 4.2 % 2.9 % 5.3 % 3.7 %   Cyber Intelligence Revenue for the three and nine months ended October 31, 2016 $ 86,145 $ 247,237 $ 86,169 $ 247,537 Revenue for the three and nine months ended October 31, 2017 $ 99,136 $ 284,855 $ 99,254 $ 285,024

Revenue for the three and nine months ended October 31, 2017 atconstant currency(1)

$ 98,000 $ 284,000 $ 98,000 $ 284,000 Reported period-over-period revenue growth 15.1 % 15.2 % 15.2 % 15.1 % % impact from change in foreign currency exchange rates (1.3 )% (0.3 )% (1.5 )% (0.4 )% Constant currency period-over-period revenue growth 13.8 % 14.9 % 13.7 % 14.7 %

(1) Revenue for the three and nine months ended October 31, 2017 at constant currency is calculated by translating current-period foreign currency revenue into U.S. dollars using average foreign currency exchange rates for the three and nine months ended October 31, 2016 rather than actual current-period foreign currency exchange rates.

For further information see "Supplemental Information About Constant Currency" at the end of this press release.

 

Table 7

VERINT SYSTEMS INC. AND SUBSIDIARIES

Estimated Non-GAAP Fully Allocated Operating Margins

(Unaudited)

     

Three Months Ended

October 31,

2017     2016 (in thousands)

Customer Engagement

   

Cyber Intelligence

    Consolidated

Customer Engagement

   

Cyber Intelligence

    Consolidated   Non-GAAP segment revenue $ 184,506   $ 99,254   $ 283,760   $ 173,860   $ 86,169   $ 260,029     Segment contribution (1) 70,768 23,160 93,928 65,085 20,575 85,660

Estimated allocation of shared supportexpenses (2)

25,484   12,666   38,150   24,460   12,157   36,617  

Estimated non-GAAP operatingincome

$ 45,284   $ 10,494   $ 55,778   $ 40,625   $ 8,418   $ 49,043    

Estimated non-GAAP fully allocatedoperating margin

24.5 % 10.6 % 19.7 % 23.4 % 9.8 % 18.9 %    

Nine Months Ended

October 31,

2017 2016 (in thousands)

Customer Engagement

Cyber Intelligence

Consolidated

Customer Engagement

Cyber Intelligence

Consolidated   Non-GAAP segment revenue $ 542,708   $ 285,024   $ 827,732   $ 525,620   $ 247,537   $ 773,157     Segment contribution (1) 195,756 62,402 258,158 188,800 55,506 244,306

Estimated allocation of shared supportexpenses (2)

76,167   37,855   114,022   74,854   37,203   112,057  

Estimated non-GAAP operatingincome

$ 119,589   $ 24,547   $ 144,136   $ 113,946   $ 18,303   $ 132,249    

Estimated non-GAAP fully allocatedoperating margin

22.0 % 8.6 % 17.4 % 21.7 % 7.4 % 17.1 %

(1) See footnote 14 to our Form 10-Q for the three and nine months ended October 31, 2017, when filed.

(2) Represents our shared support expenses (as disclosed in footnote 14 to our Form 10-Q for the three and nine months ended October 31, 2017, when filed), allocated proportionally to our year ended January 31, 2017 annual non-GAAP segment revenue, which we believe provides a reasonable approximation for purposes of understanding the relative non-GAAP operating margins of our two businesses.

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

This press release contains non-GAAP financial measures, consisting of non-GAAP revenue, non-GAAP gross profit and gross margin, non-GAAP operating income and operating margin, non-GAAP other income (expense), net, non-GAAP provision (benefit) for income taxes and non-GAAP effective income tax rate, non-GAAP net income attributable to Verint Systems Inc., non-GAAP net income per common share attributable to Verint Systems Inc., adjusted EBITDA, net debt, constant currency measures and estimated non-GAAP fully allocated operating margins. Tables 2 and 3 include a reconciliation of each non-GAAP financial measure for completed periods presented in this press release to the most directly comparable GAAP financial measure.

We believe these non-GAAP financial measures, used in conjunction with the corresponding GAAP measures, provide investors with useful supplemental information about the financial performance of our business by:

• facilitating the comparison of our financial results and business trends between periods, including by excluding certain items that either can vary significantly in amount and frequency, are based upon subjective assumptions, or in certain cases are unplanned for or difficult to forecast,
• facilitating the comparison of our financial results and business trends with other technology companies who publish similar non-GAAP measures, and
• allowing investors to see and understand key supplementary metrics used by our management to run our business, including for budgeting and forecasting, resource allocation, and compensation matters.

We also make these non-GAAP financial measures available because a number of our investors have informed us that they find this supplemental information useful.

Non-GAAP financial measures should not be considered in isolation as substitutes for, or superior to, 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. Other companies may calculate similar non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

Our non-GAAP financial measures are calculated by making the following adjustments to our GAAP financial measures:

Revenue adjustments related to acquisitions. We exclude from our non-GAAP revenue the impact of fair value adjustments required under GAAP relating to acquired customer support contracts, which would have otherwise been recognized on a stand-alone basis. We believe that it is useful for investors to understand the total amount of revenue that we and the acquired company would have recognized on a stand-alone basis under GAAP, absent the accounting adjustment associated with the business acquisition. Our non-GAAP revenue also reflects certain adjustments from aligning an acquired company’s revenue recognition policies to our policies. We believe that our non-GAAP revenue measure helps management and investors understand our revenue trends and serves as a useful measure of ongoing business performance.

Amortization of acquired technology and other acquired intangible assets. When we acquire an entity, we are required under GAAP to record the fair values of the intangible assets of the acquired entity and amortize those assets over their useful lives. We exclude the amortization of acquired intangible assets, including acquired technology, from our non-GAAP financial measures because they are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. We also exclude these amounts to provide easier comparability of pre- and post-acquisition operating results.

Stock-based compensation expenses. We exclude stock-based compensation expenses related to restricted stock awards, stock bonus programs, bonus share programs, and other stock-based awards from our non-GAAP financial measures. We evaluate our performance both with and without these measures because stock-based compensation is typically a non-cash expense and can vary significantly over time based on the timing, size and nature of awards granted, and is influenced in part by certain factors which are generally beyond our control, such as the volatility of the price of our common stock. In addition, measurement of stock-based compensation is subject to varying valuation methodologies and subjective assumptions, and therefore we believe that excluding stock-based compensation from our non-GAAP financial measures allows for meaningful comparisons of our current operating results to our historical operating results and to other companies in our industry.

Unrealized gains and losses on certain derivatives, net. We exclude from our non-GAAP financial measures unrealized gains and losses on certain foreign currency derivatives which are not designated as hedges under accounting guidance. We exclude unrealized gains and losses on foreign currency derivatives that serve as economic hedges against variability in the cash flows of recognized assets or liabilities, or of forecasted transactions. These contracts, if designated as hedges under accounting guidance, would be considered “cash flow” hedges. These unrealized gains and losses are excluded from our non-GAAP financial measures because they are non-cash transactions which are highly variable from period to period. Upon settlement of these foreign currency derivatives, any realized gain or loss is included in our non-GAAP financial measures.

Amortization of convertible note discount. Our non-GAAP financial measures exclude the amortization of the imputed discount on our convertible notes. Under GAAP, certain convertible debt instruments that may be settled in cash upon conversion are required to be bifurcated into separate liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s assumed non-convertible debt borrowing rate. For GAAP purposes, we are required to recognize imputed interest expense on the difference between our assumed non-convertible debt borrowing rate and the coupon rate on our $400.0 million of 1.50% convertible notes. This difference is excluded from our non-GAAP financial measures because we believe that this expense is based upon subjective assumptions and does not reflect the cash cost of our convertible debt.

Loss on early retirement of debt. We exclude from our non-GAAP financial measures losses on early retirements of debt attributable to refinancing or repaying our debt because we believe they are not reflective of our ongoing operations.

Acquisition Expenses, net. In connection with acquisition activity (including with respect to acquisitions that are not consummated), we incur expenses, including legal, accounting, and other professional fees, integration costs, changes in the fair value of contingent consideration obligations, and other costs. Integration costs may consist of information technology expenses as systems are integrated across the combined entity, consulting expenses, marketing expenses, and professional fees, as well as non-cash charges to write-off or impair the value of redundant assets. We exclude these expenses from our non-GAAP financial measures because they are unpredictable, can vary based on the size and complexity of each transaction, and are unrelated to our continuing operations or to the continuing operations of the acquired businesses.

Restructuring Expenses. We exclude restructuring expenses from our non-GAAP financial measures, which include employee termination costs, facility exit costs, certain professional fees, asset impairment charges, and other costs directly associated with resource realignments incurred in reaction to changing strategies or business conditions. All of these costs can vary significantly in amount and frequency based on the nature of the actions as well as the changing needs of our business and we believe that excluding them provides easier comparability of pre- and post-restructuring operating results.

Impairment Charges and Other Adjustments. We exclude from our non-GAAP financial measures asset impairment charges other than those associated with restructuring or acquisition activity, rent expense for redundant facilities, and gains or losses on sales of property, all of which are unusual in nature and can vary significantly in amount and frequency.

Non-GAAP income tax adjustments. We exclude our GAAP provision (benefit) for income taxes from our non-GAAP measures of net income attributable to Verint Systems Inc., and instead include a non-GAAP provision for income taxes, determined by applying a non-GAAP effective income tax rate to our income before provision for income taxes, as adjusted for the non-GAAP items described above. The non-GAAP effective income tax rate is generally based upon the income taxes we expect to pay in the reporting year. We adjust our non-GAAP effective income tax rate to exclude current-year tax payments or refunds associated with prior-year income tax returns and related amendments which were significantly delayed as a result of our previous extended filing delay. Our GAAP effective income tax rate can vary significantly from year to year as a result of tax law changes, settlements with tax authorities, changes in the geographic mix of earnings including acquisition activity, changes in the projected realizability of deferred tax assets, and other unusual or period-specific events, all of which can vary in size and frequency. We believe that our non-GAAP effective income tax rate removes much of this variability and facilitates meaningful comparisons of operating results across periods. Our non-GAAP effective income tax rate for the year ending January 31, 2018 is currently approximately 11%, and was 8.8% for the year ended January 31, 2017. We evaluate our non-GAAP effective income tax rate on an ongoing basis and it can change from time to time. Our non-GAAP income tax rate can differ materially from our GAAP effective income tax rate.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before interest expense, interest income, income taxes, depreciation expense, amortization expense, revenue adjustments related to acquisitions, restructuring expenses, acquisition expenses, and other expenses excluded from our non-GAAP financial measures as described above. We believe that adjusted EBITDA is also commonly used by investors to evaluate operating performance between competitors because it helps reduce variability caused by differences in capital structures, income taxes, stock-based compensation accounting policies, and depreciation and amortization policies. Adjusted EBITDA is also used by credit rating agencies, lenders, and other parties to evaluate our creditworthiness.

Net Debt

Net Debt is a non-GAAP measure defined as the sum of long-term and short-term debt on our consolidated balance sheet, excluding unamortized discounts and issuance costs, less the sum of cash and cash equivalents, restricted cash and bank time deposits, and short-term investments. We use this non-GAAP financial measure to help evaluate our capital structure, financial leverage, and our ability to reduce debt and to fund investing and financing activities, and believe that it provides useful information to investors.

Supplemental Information About Constant Currency

Because we operate on a global basis and transact business in many currencies, fluctuations in foreign currency exchange rates can affect our consolidated U.S. dollar operating results. To facilitate the assessment of our performance excluding the effect of foreign currency exchange rate fluctuations, we calculate our GAAP and non-GAAP revenue, cost of revenue, and operating expenses on both an as-reported basis and a constant currency basis, allowing for comparison of results between periods as if foreign currency exchange rates had remained constant. We perform our constant currency calculations by translating current-period foreign currency results into U.S. dollars using prior-period average foreign currency exchange rates or hedge rates, as applicable, rather than current period exchange rates. We believe that constant currency measures, which exclude the impact of changes in foreign currency exchange rates, facilitate the assessment of underlying business trends.

Unless otherwise indicated, our financial outlook for revenue, operating margin, and diluted earnings per share, which is provided on a non-GAAP basis, reflects foreign currency exchange rates approximately consistent with rates in effect when the outlook is provided.

We also incur foreign exchange gains and losses resulting from the revaluation and settlement of monetary assets and liabilities that are denominated in currencies other than the entity’s functional currency. We periodically report our historical non-GAAP diluted net income per share both inclusive and exclusive of these net foreign exchange gains or losses. Our financial outlook for diluted earnings per share includes net foreign exchange gains or losses incurred to date, if any, but does not include potential future gains or losses.

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Investor RelationsVerint Systems Inc.Alan Roden, 631-962-9304alan.roden@verint.com