Verint Announces Q1 FY2021 Results

Bookings Grew in Both Segments in February and March; Many On-Premises Deployments Delayed in April Due to COVID-19

Expect Improvement Sequentially in Q2 and Continuing in H2; Driven by On-Premises Deployments Coming Back and Cloud Growth

Targeting Separation Shortly After Fiscal Year-End; Completed Apax Investment and Term Loan Amendment

MELVILLE, N.Y.–(BUSINESS WIRE)–Verint^® Systems Inc. (NASDAQ: VRNT), a global Actionable Intelligence^® leader, today announced results for the three months ended April 30, 2020 (FY2021). Revenue for the three months ended April 30, 2020 was $287 million on a GAAP basis and $292 million on a non-GAAP basis. For the three months ended April 30, 2020, net loss per share was $(0.09) on a GAAP basis, and diluted EPS was $0.52 on a non-GAAP basis. The company generated $76 million of cash flow from operations in Q1 and currently has more than $800 million of cash, inclusive of the first tranche of the Apax investment which closed on May 7, 2020.

“Following a strong February and March, in April we saw many customers delaying planned projects, primarily involving on-premises deployments. Looking forward, as offices re-open and travel restrictions are lifted, we expect a sequential improvement in Q2 and continued improvement in the second half of the year,” said Dan Bodner, CEO.

Bodner continued, “We are pleased to report significant progress on our plan to create two independent public companies, targeted for shortly after fiscal year-end. We recently completed an investment from Apax Partners and amended our term loan agreement to facilitate the separation. Jason Wright, lead technology partner at Apax, joined Verint’s Board to help drive our separation strategy and growth opportunities.”

Bodner added, “Verint’s solutions are mission critical, and I am very proud of our employees and how we have supported our customers and partners. From the onset of COVID-19, we quickly took steps to help our customers address the challenges of this new environment and we are pleased to have received positive feedback for our innovation, customer-centricity and the speed with which our employees have responded.”

Customer Engagement Q1 Highlights

SaaS Bookings Growth: New SaaS ACV up 45% y-o-y
Revenue: Perpetual revenue down as customers delay on-premises deployments
Recurring Software Revenue Mix:Strong renewal rates and mix drive software revenue that is recurring to 82%, up ~900bps y-o-y
See Tables 2, 4 and 7 for additional Customer Engagement financial information

“In Customer Engagement, our solutions are driving workforce productivity, business analytics, compliance and fraud detection. The majority of our revenue is generated from our large existing customer base comprised primarily of financial services, healthcare, utilities, technology and government verticals, and our renewal rates remained strong during the quarter. Our cloud-first strategy is working well with new SaaS ACV growth and a steady increase in recurring software revenue mix. As organizations adjust to the new normal home-office work environment, Verint is well-positioned to help them evolve with new innovative solutions that we are launching,” said Bodner.

Cyber Intelligence Q1 Highlights

Large Orders: Including one for over $15 million, three for ~$5 million each and four for ~$3 million each
Revenue: Perpetual revenue down as customers delay on-premises deployments
Gross Margin Expansion: Estimated fully allocated gross margin up ~400bps y-o-y driven by software model
See Tables 2, 5 and 7 for additional Cyber Intelligence financial information

“In Cyber Intelligence, advanced data mining analytics is critical for organizations that are responsible for complex security investigations and generating actionable insights to fight crime and terror. Our solutions help maintain law and order both in times of peace and crisis and in Q1 we continued to win many large contracts with an increasing software mix. I am pleased to report that in Q1 our gross margin on an estimated and fully allocated basis increased ~400 bps year-over-year, following the steady improvement we delivered over the last couple of years. Our differentiated software model provides our customers with faster software refresh cycles that can quickly address changing security threats in the current environment. Our Cyber Intelligence business is well positioned to help our customers address these evolving threats, and to become a successful standalone company following the separation,” said Bodner.

Outlook

Doug Robinson, CFO, added, “We expect our business results to improve throughout the year as delayed on-premises deals come back. We expect our cloud-first strategy in Customer Engagement and our software model strategy in Cyber Intelligence to continue momentum this year. We are targeting the separation shortly after fiscal year-end and have now put the necessary capital structure in place, having completed the first tranche of the Apax investment and the term loan amendment.”

Conference Call Information

We will conduct a conference call today at 4:30 p.m. ET to discuss our results for the three months ended April 30, 2020 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 4344207. 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 changes in macroeconomic and/or global conditions, including as a result of slowdowns, recessions, economic instability, political unrest, armed conflicts, natural disasters, or outbreaks of disease, such as the COVID-19 pandemic, as well as the resulting impact on information technology spending and government budgets, on our business; risks that our customers delay, cancel, or refrain from placing orders, refrain from renewing subscriptions or service contracts, or are unable to honor contractual commitments or payment obligations due to liquidity issues or other challenges in their business, due to the COVID-19 pandemic or otherwise; risks that continuing restrictions resulting from the COVID-19 pandemic or actions taken in response to the pandemic adversely impact our operations or our ability to fulfill orders, complete implementations, or recognize revenue; 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 revenue, 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; challenges associated with our Customer Engagement segment cloud transition and our Cyber Intelligence segment software model transition, and risk of 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 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 issuance of preferred stock to an affiliate of Apax Partners, including with respect to completion of the second tranche of the investment and Apax’s significant ownership position and potential that its interests will not be aligned with those of our common stockholders; and risks associated with the planned spin-off of our Cyber Intelligence Solutions business, including the possibility that the spin-off transaction may not be completed in the expected timeframe or at all, that it will not achieve the benefits anticipated, or that it may negatively impact our operations or stock price, including as a result of management distraction from our business. 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, 2020, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2020, when filed, and other filings we make with the SEC.

VERINT, ACTIONABLE INTELLIGENCE, THE CUSTOMER ENGAGEMENT COMPANY, CUSTOMER ENGAGEMENT SOLUTIONS and CYBER INTELLIGENCE SOLUTIONS are trademarks of Verint Systems Inc. or its subsidiaries. Verint and other parties may also have trademark rights in other terms used herein.

Table 1 VERINT SYSTEMS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited)

	Three Months Ended April 30,
(in thousands, except per share data)	2020		2019
Revenue:
Product	$	77,284	$	104,224
Service and support	210,011		211,035
Total revenue	287,295		315,259
Cost of revenue:
Product	21,318		28,120
Service and support	76,399		79,361
Amortization of acquired technology	4,609		6,707
Total cost of revenue	102,326		114,188
Gross profit	184,969		201,071
Operating expenses:
Research and development, net	59,079		57,169
Selling, general and administrative	111,651		121,721
Amortization of other acquired intangible assets	8,065		7,713
Total operating expenses	178,795		186,603
Operating income	6,174		14,468
Other income (expense), net:
Interest income	1,017		1,426
Interest expense	(10,698)		(9,934)
Other expense, net	(2,230)		(790)
Total other expense, net	(11,911)		(9,298)
(Loss) income before (benefit) provision for income taxes	(5,737)		5,170
(Benefit) provision for income taxes	(1,762)		1,409
Net (loss) income	(3,975)		3,761
Net income attributable to noncontrolling interests	2,039		2,185
Net (loss) income attributable to Verint Systems Inc.	$	(6,014)	$	1,576

Net (loss) income per common share attributable to Verint Systems Inc.:
Basic	$	(0.09)	$	0.02
Diluted	$	(0.09)	$	0.02

Weighted-average common shares outstanding:
Basic	64,376		65,438
Diluted	64,376		67,088

Table 2 VERINT SYSTEMS INC. AND SUBSIDIARIES Reconciliation of GAAP to Non-GAAP Measures by Segment (Unaudited)

	Three Months Ended April 30,
	2020									2019
(in thousands)	Customer Engagement			Cyber Intelligence			Consolidated			Customer Engagement			Cyber Intelligence			Consolidated
REVENUE
Total GAAP revenue	$	185,865		$	101,430		$	287,295		$	207,095		$	108,164		$	315,259
Revenue adjustments	3,262			1,092			4,354			8,772			127			8,899
Total non-GAAP revenue	$	189,127		$	102,522		$	291,649		$	215,867		$	108,291		$	324,158

ESTIMATED GROSS PROFIT AND GROSS MARGIN
Segment products costs	$	7,134		$	13,501		$	20,635		$	8,462		$	17,850		$	26,312
Segment service expenses	55,656			17,844			73,500			57,827			18,676			76,503
Amortization of acquired technology	4,356			253			4,609			5,388			1,319			6,707
Stock-based compensation expenses (1)	748			219			967			1,084			320			1,404
Shared support expenses allocation (3)	1,711			904			2,615			2,127			1,135			3,262
Total GAAP estimated fully allocated cost of revenue	69,605			32,721			102,326			74,888			39,300			114,188
GAAP estimated fully allocated gross profit	116,260			68,709			184,969			132,207			68,864			201,071
GAAP estimated fully allocated gross margin	62.6		%	67.7		%	64.4		%	63.8		%	63.7		%	63.8		%
Revenue adjustments	3,262			1,092			4,354			8,772			127			8,899
Amortization of acquired technology	4,356			253			4,609			5,388			1,319			6,707
Stock-based compensation expenses (1)	748			219			967			1,084			320			1,404
Acquisition expenses, net (4)	124			65			189			10			5			15
Restructuring expenses (4)	1,057			559			1,616			293			156			449
Non-GAAP estimated fully allocated gross profit	$	125,807		$	70,897		$	196,704		$	147,754		$	70,791		$	218,545
Non-GAAP estimated fully allocated gross margin	66.5		%	69.2		%	67.4		%	68.4		%	65.4		%	67.4		%

ESTIMATED RESEARCH AND DEVELOPMENT, NET
Segment expenses	$	23,901		$	25,671		$	49,572		$	26,449		$	21,920		$	48,369
Stock-based compensation expenses (2)	1,528			808			2,336			1,689			901			2,590
Shared support expenses allocation (3)	4,690			2,481			7,171			4,049			2,161			6,210
GAAP estimated fully allocated research and development, net	30,119			28,960			59,079			32,187			24,982			57,169
As a percentage of GAAP revenue	16.2		%	28.6		%	20.6		%	15.5		%	23.1		%	18.1		%
Stock-based compensation expenses (2)	(1,528)			(808)			(2,336)			(1,689)			(901)			(2,590)
Acquisition expenses, net (4)	(193)			(102)			(295)			(126)			(67)			(193)
Restructuring expenses (4)	(606)			(320)			(926)			(299)			(159)			(458)
Non-GAAP estimated fully allocated research and development, net	$	27,792		$	27,730		$	55,522		$	30,073		$	23,855		$	53,928
As a percentage of non-GAAP revenue	14.7		%	27.0		%	19.0		%	13.9		%	22.0		%	16.6		%

ESTIMATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Segment expenses	$	40,144		$	22,397		$	62,541		$	46,198		$	23,559		$	69,757
Stock-based compensation expenses (2)	7,116			3,765			10,881			8,547			4,562			13,109
Shared support expenses allocation (3)	25,002			13,227			38,229			25,333			13,522			38,855
GAAP estimated fully allocated selling, general and administrative expenses	72,262			39,389			111,651			80,078			41,643			121,721
As a percentage of GAAP revenue	38.9		%	38.8		%	38.9		%	38.7		%	38.5		%	38.6		%
Stock-based compensation expenses (2)	(7,116)			(3,765)			(10,881)			(8,547)			(4,562)			(13,109)
Acquisition expenses, net (4)	2,485			1,314			3,799			(2,386)			(1,274)			(3,660)
Restructuring expenses (4)	(1,922)			(1,017)			(2,939)			(346)			(184)			(530)
Separation expenses (4)	(5,085)			(2,690)			(7,775)			(2)			(1)			(3)
Other adjustments (4)	(61)			(32)			(93)			(1,341)			(715)			(2,056)
Non-GAAP estimated fully allocated selling, general and administrative expenses	$	60,563		$	33,199		$	93,762		$	67,456		$	34,907		$	102,363
As a percentage of non-GAAP revenue	32.0		%	32.4		%	32.1		%	31.2		%	32.2		%	31.6		%

OPERATING INCOME, OPERATING MARGIN, AND ADJUSTED EBITDA
GAAP estimated fully allocated operating income	$	6,115		$	59		$	6,174		$	12,354		$	2,114		$	14,468
GAAP estimated fully allocated operating margin	3.3		%	0.1		%	2.1		%	6.0		%	2.0		%	4.6		%
Revenue adjustments	3,262			1,092			4,354			8,772			127			8,899
Amortization of acquired technology	4,356			253			4,609			5,388			1,319			6,707
Amortization of other acquired intangible assets	7,764			301			8,065			7,588			125			7,713
Stock-based compensation expenses (2)	9,392			4,792			14,184			11,320			5,783			17,103
Acquisition expenses, net (4)	(2,168)			(1,147)			(3,315)			2,522			1,346			3,868
Restructuring expenses (4)	3,585			1,896			5,481			938			499			1,437
Separation expenses (4)	5,085			2,690			7,775			2			1			3
Other adjustments (4)	61			32			93			1,341			715			2,056
Non-GAAP estimated fully allocated operating income	37,452			9,968			47,420			50,225			12,029			62,254
Depreciation and amortization (5)	6,905			3,653			10,558			5,133			2,740			7,873
Estimated fully allocated adjusted EBITDA	$	44,357		$	13,621		$	57,978		$	55,358		$	14,769		$	70,127
Non-GAAP estimated fully allocated operating margin	19.8		%	9.7		%	16.3		%	23.3		%	11.1		%	19.2		%
Estimated fully allocated adjusted EBITDA margin	23.5		%	13.3		%	19.9		%	25.6		%	13.6		%	21.6		%

(1) Represents the stock-based compensation expenses applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2020 and 2019, 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.

Contacts

Investor Relations
Alan Roden

Verint Systems Inc.

(631) 962-9304

alan.roden@verint.com

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