Verint Announces Q3 FY2020 Results

Verint® Systems Inc. (NASDAQ: VRNT), a global Actionable Intelligence® leader, today announced results for the three and nine months ended October 31, 2019 (FY2020). Revenue for the three months ended October 31, 2019 was $325 million on a GAAP basis and $331 million on a non-GAAP basis. Diluted EPS for the three months ended October 31, 2019 was $0.17 on a GAAP basis and $0.94 on a non-GAAP basis. Revenue for the nine months ended October 31, 2019 was $964 million on a GAAP basis and $987 million on a non-GAAP basis. Diluted EPS for the nine months ended October 31, 2019 was $0.35 on a GAAP basis and $2.48 on a non-GAAP basis.

“We are pleased with our third quarter performance and the successful execution of our strategic plan. In Customer Engagement, we experienced strong cloud momentum evidenced by strong cloud revenue growth and strong new SaaS bookings growth. In Cyber Intelligence, our transition to a software model is ahead of this year's plan with strong gross margin expansion. We believe our strong operational execution coupled with the strategic initiatives discussed below will position both businesses to continue to prosper and drive shareholder value long-term,” said Dan Bodner, CEO of Verint.

Strategic Initiatives

Today, we also announced a plan to separate Verint into two independent public companies shortly after the end of Verint’s next fiscal year ending January 31, 2021. In connection with the separation, we entered into a minority investment agreement with funds advised by Apax partners. In addition, we also announced a $300 million share buyback program over the period ending on February 1, 2021 (on or shortly before the planned business separation). For more information regarding these announcements please see Verint’s Press Release titled “Verint Announces Plan to Separate into Two Independent Publicly Traded Companies” also issued today.

New Directors with Cloud Experience

Verint is also announcing the appointment of two new members of our Board of Directors. First, Mr. Andrew Miller was elected to the Verint Board bringing over 20 years of software experience. Mr. Miller is also serving on Verint’s Audit Committee. Most recently, Mr. Miller was Executive Vice President and Chief Financial Officer of PTC Inc., where he successfully led PTC's transition from a perpetual license business model to a subscription business model. Prior to PTC, Mr. Miller was an executive with enterprise software companies, including Cadence and Autodesk.

Also joining the Board is Mr. Jason Wright, a partner at Apax Partners. Mr. Wright will join the Verint Board upon closing of the first tranche of the Apax investment (expected during our first quarter ending April 30, 2020). Mr. Wright leads Apax’s technology investment practice and has significant experience in carve-outs and cloud transitions. Apax has significant experience in the software sector, including through previous investments in TriZetto, Plex Systems, RealPage, Sophos, Epicor and Exact Software.

Customer Engagement Highlights

Bodner continued, “In the third quarter, we experienced more than a 60% increase in cloud revenue and more than a 100% increase in new SaaS ACV bookings, reflecting our Customer Engagement cloud leadership. Our cloud software is designed for both SMB and enterprise customers and our cloud deployment models are flexible and address the specific cloud journeys of our customers. We are seeing more and more large enterprises embrace cloud and had 23 cloud contracts with a TCV of more than $1 million year-to-date compared to eight cloud contracts in the same period in the prior year.”

Below is our non-GAAP outlook for our Customer Engagement segment:

• For fiscal 2020, we expect non-GAAP revenue of $900 million, reflecting 11% year-over-year growth.
• For fiscal 2021, in addition to initial non-GAAP revenue guidance, we are introducing a new operational metric - new perpetual license equivalent bookings - which management uses to measure the software growth of our business irrespective to customers’ choice of perpetual or SaaS in a given period. For fiscal 2021, we expect a 10% increase in new perpetual license equivalent bookings and a 7% increase in non-GAAP revenue. We believe both metrics are useful for investors to better understand the growth dynamics in our business.

Cyber Intelligence Segment

Bodner added, “In the third quarter, we continued to see a reduction in low margin hardware and services revenue resulting from our transition to a software model. We believe customers benefit from having our software, easier to implement and more rapidly refreshed. Verint benefits from further competitive differentiation and margin expansion.”

Below is our non-GAAP outlook for our Cyber Intelligence segment:

• For fiscal 2020, we now expect non-GAAP estimated fully allocated gross profit growth of more than 10% on non-GAAP revenue of $460 million.

• For fiscal 2021, our initial outlook is for another year of 10% non-GAAP estimated fully allocated gross profit growth and 7% non-GAAP revenue growth as we continue to execute our software model and we expect continued gross margin expansion.

Non-GAAP Outlook for FY2020 and FY2021

• Our non-GAAP outlook for revenue and EPS for the year ending January 31, 2020 is as follows:
  • Revenue: $1.360 billion with a range of +/- 2%
    • Reflects 9.2% year-over-year growth
  • EPS: $3.65 at the midpoint of our revenue guidance
    • Reflects 14% year-over-year growth
• Our initial non-GAAP outlook for revenue and EPS for the year ending January 31, 2021 is as follows:
  • Revenue Growth: Approximately 7%
  • EPS: Approximately $4.00
    • Reflects 10% year-over-year growth

Our non-GAAP outlook for the year ending January 31, 2020 excludes the following GAAP measures which we are able to quantify with reasonable certainty:

• Amortization of intangible assets of approximately $55 million, less than $3 million of which is included within cost of revenue for our Cyber Intelligence segment.
• Amortization of discount on convertible notes of approximately $12 million.

Our non-GAAP outlook for the year ending January 31, 2020 excludes the following GAAP measures for which we are able to provide a range of probable significance:

• Revenue adjustments are expected to be between approximately $26 million and $28 million, all but a negligible amount of which are included in our Customer Engagement segment.

• Stock-based compensation is expected to be between approximately $74 million and $77 million, assuming market prices for our common stock approximately consistent with current levels, less than 5% of which is included within cost of revenue for our Cyber Intelligence segment.

Our initial non-GAAP outlook for the year ending January 31, 2021 excludes the following GAAP measures which we are able to quantify with reasonable certainty:

• Amortization of intangible assets of approximately $49 million, less than $1 million of which is included within cost of revenue for our Cyber Intelligence segment.
• Amortization of discount on convertible notes of approximately $13 million.

Our initial non-GAAP outlook for the year ending January 31, 2021 excludes the following GAAP measures for which we are able to provide a range of probable significance:

• Revenue adjustments are expected to be between approximately $9 million and $11 million, all of which are included in our Customer Engagement segment.
• Stock-based compensation is expected to be between approximately $78 million and $82 million, assuming market prices for our common stock approximately consistent with current levels, less than 5% of which is included within cost of revenue for our Cyber Intelligence segment.

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, expenses to separate Verint into two independent public companies (as discussed above), 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, 2019 and 2018 for the GAAP measures excluded from our non-GAAP outlook appear in Tables 2 and 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, 2019 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 5793728. 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 the tables below as well as "Supplemental Information About Non-GAAP Financial Measures and Operating Metrics" 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 and cyber intelligence. Today, over 10,000 organizations in more than 180 countries—including over 85 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 advances and challenges and evolving industry standards; 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 revenues, margins, and sufficient levels of investment in our business and operations; 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, reputational considerations, 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 properly manage investments in our business and operations, execute on growth initiatives, and enhance our existing operations and infrastructure, including the proper prioritization and allocation of limited financial and other resources; risks associated with our ability to retain, recruit, and train qualified personnel in regions in which we operate, including in new markets and growth areas we may enter; risks that we may be unable to establish and maintain relationships with key resellers, partners, and systems integrators and 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, including information that may belong to our customers or other third parties, and with security vulnerabilities or lapses, including cyber-attacks, 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, including third-party hosting platforms, may contain defects, develop operational problems, or 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 political factors related to our business or operations, including reputational risks associated with our security solutions and our ability to maintain security clearances where required, as well as risks associated with a significant amount of our business coming from domestic and foreign government customers; risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we operate, including, among others, with respect to trade compliance, anti-corruption, information security, data privacy and protection, tax, labor, government contracts, relating to our own operations as well as to the use of our solutions by our customers; challenges associated with selling sophisticated solutions, including with respect to assisting customers in understanding and realizing the benefits of our solutions, and developing, offering, implementing, and maintaining a broad and sophisticated solution portfolio; 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; challenges associated with our ability to accurately forecast when a sales opportunity will convert to an order, or to accurately forecast revenue and expenses, including as a result of our Customer Engagement segment cloud transition and our Cyber Intelligence segment software model transition, 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, claim infringement on their intellectual property rights, or claim a violation of their license rights, including relative to free or open source components we may use; risks that our customers 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 the successor to CTI's business operations, 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, internal controls, and personnel, and our ability to successfully implement and maintain enhancements to the foregoing, for our current and future operations and reporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays; risks associated with changing accounting principles or standards, tax laws and regulations, tax rates, and the continuing availability of expected tax benefits; risks associated with market volatility in the prices of our common stock and convertible notes based on our performance, third-party publications or speculation, or other factors and risks associated with actions of activist stockholders; risks associated with the planned issuance of preferred stock to Apax Partners, including with respect to Apax's significant ownership position and potential that their interests will not be aligned with those of our common stockholders; and risks associated with the planned spin-off of our Cyber Intelligence business, including the possibility that the spin-off transaction may not be completed in the expected timeframe or at all, that it does not achieve the benefits anticipated, or that it negatively impacts our operations or stock price. 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, 2019, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2019, our Quarterly Report on Form 10-Q for the quarter ended October 31, 2019, when filed, and other filings we make with the SEC.

VERINT, ACTIONABLE INTELLIGENCE, THE CUSTOMER ENGAGEMENT COMPANY, CUSTOMER ENGAGEMENT SOLUTIONS, CYBER INTELLIGENCE SOLUTIONS, GI2, FIRSTMILE, OMNIX, WEBINT, LUMINAR, RELIANT, VANTAGE, STAR-GATE, TERROGENCE, SENSECY, and VIGIA are trademarks or registered trademarks of Verint Systems Inc. or its subsidiaries. Verint and other parties may also have trademark rights in other terms used herein.

(1) Represents the stock-based compensation expenses applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual operations and service expense wages for each segment, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

(2) Represents the stock-based compensation expenses applicable to research and development, net and selling, general and administrative, allocated proportionally based upon our non-GAAP segment revenue for the year ended January 31, 2019 and 2018, respectively, which we believe provides a reasonable approximation for purposes of understanding the relative non-GAAP operating margins of our two businesses.

(3) Represents our shared support expenses (as disclosed in footnote 16 to our October 31, 2019 Form 10-Q, when filed), allocated proportionally based upon our non-GAAP segment revenue for the year ended January 31, 2019 and 2018, respectively, which we believe provides a reasonable approximation for purposes of understanding the relative non-GAAP operating margins of our two businesses.

(4) Represents the portion of our acquisition expenses, net and restructuring expenses applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual non-GAAP segment revenue, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

(5) Represents certain depreciation and amortization expenses, which are otherwise included in our non-GAAP operating income, allocated proportionally based upon our non-GAAP segment revenue for the year ended January 31, 2019 and 2018, respectively, which we believe provides a reasonable approximation for purposes of understanding the relative adjusted EBITDA of our two businesses.