Form 8-K VERINT SYSTEMS INC For: Dec 06

December 6, 2017 4:15 PM


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 8-K
 
 
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 6, 2017
 
 
Verint Systems Inc.
(Exact name of registrant as specified in its charter)
 
 
001-34807
(Commission File Number)
 
 
 
 
Delaware
 
11-3200514
(State or other jurisdiction
of incorporation)
 
(I.R.S. Employer
Identification No.)
 
 
 
175 Broadhollow Road, Melville, New York
 
11747
(Address of principal executive offices)
 
(Zip code)
(631) 962-9600
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company    ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨





Item 2.02 Results of Operations and Financial Condition.
 
On December 6, 2017, Verint Systems Inc. (the "Company") issued a press release providing selected financial information for the three and nine months ended October 31, 2017, and its outlook. A copy of the press release is attached as Exhibit 99.1 hereto and is incorporated by reference into this Item 2.02 in its entirety.

 
Item 9.01 Financial Statements and Exhibits.
 
(d) Exhibits.
 
Exhibit
 
 
Number
 
Description
 
 
 
99.1
 
Press Release of Verint Systems Inc., dated December 6, 2017
 
 
 









SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
VERINT SYSTEMS INC. 
 
 
 
 
Date:
December 6, 2017
 
 
 
 
 
 
 
 
By:
  /s/ Douglas E. Robinson
 
 
 
Name:
Douglas E. Robinson
 
 
 
Title:
Chief Financial Officer









EXHIBIT INDEX
 
Exhibit
 
 
Number
 
Description
 
 
 
 



Exhibit 99.1

verintlogobluehighres.jpg
Press Release


Contacts:
Investor Relations
Alan Roden
Verint Systems Inc.
(631) 962-9304
alan.roden@verint.com

Verint Reports Third Quarter Results

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


MELVILLE, N.Y., December 6, 2017 - 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 Ended
October 31,
 
Nine Months Ended
October 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 to Verint Systems Inc.
 
$
0.04

 
$
(0.13
)
 
$
(0.38
)
 
$
(0.60
)
Non-GAAP diluted net income per common share attributable to Verint 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-GAAP diluted net income per common share attributable to Verint Systems 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 Ended
October 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 investing activities, 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 at constant 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 at constant 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 at constant 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 support expenses (2)
 
25,484

 
12,666

 
38,150

 
24,460

 
12,157

 
36,617

Estimated non-GAAP operating income
 
$
45,284

 
$
10,494

 
$
55,778

 
$
40,625

 
$
8,418

 
$
49,043

 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated non-GAAP fully allocated operating 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 support expenses (2)
 
76,167

 
37,855

 
114,022

 
74,854

 
37,203

 
112,057

Estimated non-GAAP operating income
 
$
119,589

 
$
24,547

 
$
144,136

 
$
113,946

 
$
18,303

 
$
132,249

 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated non-GAAP fully allocated operating 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 Subsidiaries
Supplemental 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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