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press release

Sept. 20, 2021, 7:30 a.m. EDT

Cognyte Announces Second Quarter Results

Double-Digit Revenue Growth with Significant Gross Margin ExpansionStrong Results Reflect Momentum from Security Analytics PlatformRaising Profitability Guidance for the Year

HERZLIYA, Israel, (BUSINESS WIRE) -- Cognyte Software Ltd. /zigman2/quotes/224096633/composite CGNT -1.61% (the “Company,” “Cognyte,” “we,” “us” and “our”), a global leader in security analytics software, today announced results for the three and six months ended July 31, 2021 (“Q2 FYE22” and “H1 FYE22”).

"We are pleased with our strong Q2 and first half results which came in ahead of our expectations. We are particularly pleased with our double-digit revenue growth and gross margin expansion driving more than 13% gross profit growth in Q2, which reflects the successful execution of our software strategy. Following a strong start to the year, we believe we are well positioned for a strong second half and are also pleased to be raising our annual outlook for profitability” said Elad Sharon, Cognyte’s Chief Executive Officer.

Q2 Highlights

  • Revenue: $116.0 million (GAAP, up 10.4% y-o-y) and $116.4 million (non-GAAP, up 9.5% y-o-y)

  • Gross Margin: 72.3% (GAAP, up 250 bps y-o-y) and 73.5% (non-GAAP, up 260 bps y-o-y)

  • Gross Profit: $83.9 million (GAAP, up 14.3% y-o-y) and $85.6 million (non-GAAP, up 13.5% y-o-y)

  • Diluted EPS: ($0.00) (GAAP) and $0.17 (non-GAAP)

H1 Highlights

  • Revenue: $230.7 million (GAAP, up 11.8% y-o-y) and $231.5 million (non-GAAP, up 10.9% y-o-y)

  • Gross Margin: 71.9% (GAAP, up 320 bps y-o-y) and 73.1% (non-GAAP, up 330 bps y-o-y)

  • Gross Profit: $165.8 million (GAAP, up 16.8% y-o-y) and $169.2 million (non-GAAP, up 16.1% y-o-y)

  • Diluted EPS: ($0.07) (GAAP) and $0.37 (non-GAAP)

“During the quarter, we received multiple seven and eight figure orders and we continue to see strong market demand for security analytics. Both our Q1 and Q2 results came in ahead of expectations, reflecting our successful transition to a software model. We have an improved annual outlook for gross margin and adjusted EBITDA and are pleased to be raising guidance for EPS,” said David Abadi, Cognyte’s Chief Financial Officer.

FYE22 Outlook

Our non-GAAP outlook for the year ending January 31, 2022 (“FYE22”) is as follows:

  • Revenue: Up ~10% to $490 million with a range of +/- 2%

  • Diluted EPS: $0.82 at the midpoint of our revenue outlook

Our non-GAAP outlook for the three months ending October 31, 2021, and FYE22 excludes the following GAAP measures which we are able to quantify with reasonable certainty, as described further below under "Supplemental Information About non-GAAP Financial Measures and Operating Metrics”:

  • Revenue adjustments are expected to be approximately $0.4 million and $1.6 million for the three months ending October 31, 2021, and FYE22, respectively.

  • Amortization of intangible assets of approximately $0.4 million and $1.8 million for the three months ending October 31, 2021, and FYE22, respectively.

Our non-GAAP outlook for the three months ending October 31, 2021, and FYE22 excludes the following GAAP measures for which we are able to provide a range of probable significance:

  • Costs to complete separation of Cognyte from Verint Systems Inc. (hereafter “Verint”) and establish Cognyte as an independent public company of between approximately $0.5 million and $1 million and between approximately $11 million and $12 million for the three months ending October 31, 2021, and FYE22, respectively.

  • Stock-based compensation is expected to be between approximately $8 million and $9 million and $33 million and $36 million, for the three months ending October 31, 2021, and FYE22, respectively, assuming market prices for our ordinary shares are generally 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 effort, 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 six months ended July 31, 2021, and 2020, respectively, for the GAAP measures excluded from our non-GAAP outlook appear in Table 4 of this press release.

Conference Call Information

We will conduct a conference call today at 8:30 a.m. ET to discuss our results for the three and six months ended July 31, 2021, outlook, and long-term targets. An online, real-time webcast of the conference call and webcast slides will be available on our website at www.Cognyte.com . The conference call can also be accessed live via telephone at (800) 708-4540 (United States and Canada) and (847) 619-6397 (International) and the passcode is 50218265. Please dial in 5-10 minutes prior to the scheduled start time. An archived webcast of the conference call will also be available in the “Investors” section of the company’s website.

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 Cognyte Software Ltd.

We are a global leader in security analytics software that empowers governments and enterprises with Actionable Intelligence for a Safer World™. Our open software fuses, analyzes and visualizes disparate data sets at scale to help security organizations find the needles in the haystacks. Over 1,000 government and enterprise customers in more than 100 countries rely on our solutions to accelerate security investigations and connect the dots to successfully identify, neutralize, and prevent national security, personal safety, business continuity and cyber threats. Our government customers consist of governments around the world, including national, regional, and local government agencies. Our enterprise customers consist of commercial customers and physical security customers.

Caution About Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Exchange Act of 1934. Forward-looking statements include statements regarding expectations, predictions, views, opportunities, plans, strategies, beliefs, and statements of similar effect relating to Cognyte. These forward-looking statements do not guarantee future performance, and 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 novel coronavirus (COVID-19) pandemic, as well as the resulting impact on information technology spending and government budgets in both developed countries and developing countries, on our business; risks that our customers may 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 budgets and 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; 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, and competitors with greater resources than we have; risks relating to the regulatory constraints to which we are subject, including our dependency on export and marketing licenses from the governments of Israel and other countries where we operate; risks relating to our ability to properly manage investments in our business and operations, execute on growth or strategic initiatives, such as our software model transition, 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 identify suitable targets for acquisition or investment or 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; challenges associated with selling sophisticated solutions, including with respect to longer sales cycles, more complex sales processes, and assisting customers in understanding and realizing the benefits of our solutions, as well as with developing, offering, implementing, and maintaining a broad solution portfolio; risks associated with larger orders and customer concentration, including risk of volatility of our operating results from period to period, and challenges associated with our ability to accurately forecast revenue and expenses; risks associated with a significant amount of our business coming from government customers around the world and associated procurement processes, and limitations on investor visibility due to classification or contractual restrictions; risks associated with political and reputational factors related to our business or operations, including with respect to the nature of our solutions or our Israeli identity, and our ability to maintain security clearances where required; 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 for certain components, products, or services, including companies that may compete with us or work with our competitors; 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 associated with our significant international operations, including due to our Israeli operations, fluctuations in foreign exchange rates, and exposure to regions subject to political or economic instability; risk of 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 original equipment manufacturers 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 the mishandling or perceived mishandling of sensitive, confidential or classified information, including personally identifiable information or other information that may belong to our customers or other third parties; risks associated with complex and changing regulatory environments relating to our operations, the products and services we offer, and/or the use of our solutions by our customers, including with respect to applicable classification and confidentiality restrictions, and data privacy and protection; risks associated with our failure to comply with anti-corruption, trade compliance, anti-money-laundering and economic sanctions laws and regulations; 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 associated with our credit facilities or 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 changing tax laws and regulations, tax rates, and the continuing availability of expected tax benefits in the countries in which we operate; risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, internal controls, and personnel for our current and future operations and reporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays; risks that the spin-off does not achieve the benefits anticipated, does not qualify as a tax-free transaction, or exposes us to unexpected claims or liabilities, or that it negatively impacts our operations or stock price, including as a result of management distraction from our business or costs associated with transitioning to a standalone public company; risks associated with the agreements with Verint entered into in connection with the spin-off, including our reliance on the transition services agreement and our indemnification obligations to Verint; risks associated with market volatility in the price of our shares based on our performance, third-party publications or speculation, future sales or dispositions of our shares by significant shareholders or officers and directors, or factors and risks associated with actions of activist shareholders; risks associated with different corporate governance requirements applicable to Israeli companies and risks associated with being a foreign private issuer and an emerging growth company; and other risks detailed from time to time in filings that we make with the Securities and Exchange Commission (the “SEC”). 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 20-F for the fiscal year ended January 31, 2021, and our other SEC filings. Any forward-looking statement made in this press release speaks only as of the date hereof. Except as otherwise required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason.

Table 1
 
    Six Months Ended   Three Months Ended
    July 31,   July 31,
(in thousands except share and per share data)   2021     2020     2021       2020  
Revenue:                
Software   $ 99,628       $ 86,545       $ 47,964       $ 47,566    
Software service   104,690       91,843       53,923       44,683    
Professional service and other   26,407       28,071       14,104       12,780    
Total revenue   230,725       206,459       115,991       105,029    
Cost of revenue:                
Software   13,860       15,851       5,970       9,275    
Software service   25,312       22,128       13,359       10,083    
Professional service and other   25,424       26,074       12,632       12,084    
Amortization of acquired technology   341       492       170       239    
Total cost of revenue   64,937       64,545       32,131       31,681    
Gross profit   165,788       141,914       83,860       73,348    
Operating expenses:                
Research and development, net   69,542       60,256       36,130       29,068    
Selling, general and administrative   95,960       73,022       45,142       32,733    
Amortization of other acquired intangible assets   954       640       650       339    
Total operating expenses   166,456       133,918       81,922       62,140    
Operating (loss) income   (668 )     7,996       1,938       11,208    
Other income (expense), net:                
Interest income   65       953       42       417    
Interest expense   (10 )     (84 )     (6 )     (37 )  
Other (expenses) income, net   (417 )     135       (550 )     543    
Total other income (expense), net   (362 )     1,004       (514 )     923    
(Loss) income before provision for income taxes   (1,030 )     9,000       1,424       12,131    
Provision for income taxes   1,211       3,406       382       5,876    
Net (loss) income   (2,241 )     5,594       1,042       6,255    
Net income attributable to noncontrolling interest   2,433       3,565       1,327       1,766    
Net (loss) income attributable to Cognyte Software Ltd.   $ (4,674 )     $ 2,029       $ (285 )     $ 4,489    
                 
Net (loss) income per share attributable to Cognyte Software Ltd.:                
Basic   $ (0.07 )     $ 0.03       $ (0.00   )   $ 0.07    
Diluted   $ (0.07 )     $ 0.03       $ (0.00   )   $ 0.07    
                 
Weighted-average shares outstanding:                
Basic   66,128       65,773       66,405       65,773    
Diluted   66,128       65,773       66,405       65,773    
                 
Table 2
 
    July 31,   January 31,
    2021     2021  
(in thousands)   (Unaudited)   (Audited)
Assets        
Current assets:        
Cash and cash equivalents   $ 49,814       $ 78,570    
Restricted cash and cash equivalents, and restricted bank time deposits   10,815       27,042    
Short-term investments   18,458       4,713    
Accounts receivable, net of allowance for doubtful accounts of 3.8 million and 4.6 million, respectively   158,808       175,001    
Contract assets, net   20,527       20,317    
Inventories   16,091       14,542    
Prepaid expenses and other current assets   35,435       30,051    
Total current assets   309,948       350,236    
Property and equipment, net   30,937       37,595    
Operating lease right-of-use assets   28,819       32,126    
Goodwill   158,341       158,183    
Intangible assets, net   4,004       5,299    
Deferred income taxes   7,500       3,303    
Other assets   29,484       42,076    
Total assets   $ 569,033       $ 628,818    
         
Liabilities and stockholders' equity        
Current liabilities:        
Accounts payable   $ 37,582       $ 41,552    
Accrued expenses and other current liabilities   85,882       91,692    
Contract liabilities   96,675       127,012    
Current notes payable         38,772    
Total current liabilities   220,139       299,028    
Long-term contract liabilities   17,367       22,037    
Deferred income taxes   3,283       4,049    
Operating lease liabilities   20,722       24,135    
Other liabilities   10,007       9,198    
Total liabilities   271,518       358,447    
Commitments and Contingencies        
Stockholders' equity:        
Common stock - $0 par value; authorized 300,000,000 shares. Issued 66,794,280 and 65,773,335 at July            
Additional paid-in capital   302,288          
Treasury stock, at cost 7,509 and 0 at July 31, 2021 and January 31, 2021, respectively   (181 )        
Accumulated deficit   (4,674 )        
Former net parent investment         273,006    
Accumulated other comprehensive loss   (14,977 )     (15,505 )  
Total Cognyte Software Ltd. stockholders' equity   282,456       257,501    
Noncontrolling interest   15,059       12,870    
Total stockholders’ equity   297,515       270,371    
Total liabilities and stockholders’ equity   $ 569,033       $ 628,818    
Table 3
 
    Six Months Ended
July 31,
(in thousands)   2021     2020  
Cash flows from operating activities:        
Net (loss) income   $ (2,241 )     $ 5,594    
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization   11,966       9,735    
Provision for doubtful accounts   373       795    
Stock-based compensation, excluding cash-settled awards   18,642       13,092    
Non-cash gains on derivative financial instruments, net   (169 )     (413 )  
Other non-cash items, net   (119 )     424    
Changes in operating assets and liabilities, net of effects of business combinations:        
Accounts receivable   15,605       12,332    
Contract assets   (392 )     (1,649 )  
Inventories   (2,068 )     589    
Prepaid expenses and other assets   1,912       2,719    
Accounts payable and accrued expenses   (9,814 )     (5,900 )  
Contract liabilities   (35,212 )     (23,362 )  
Other liabilities   938       1,738    
Other, net   957       (351 )  
Net cash provided by operating activities   $ 378       $ 15,343    
         
Cash flows from investing activities:        
Purchases of property and equipment   (4,767 )     (8,651 )  
Purchases of short-term investments   (32,995 )     (33,064 )  
Maturities and sales of short-term investments   18,930       21,791    
Settlements of derivative financial instruments not designated as hedges   (340 )     374    
Cash paid for capitalized software development costs   (3,491 )     (1,650 )  
Change in restricted bank time deposits, including long-term portion   5,616       15,503    
Other investing activities   512          
Net cash used in investing activities   $ (16,535 )     $ (5,697 )  
         
Cash flows from financing activities:        
Net transfers to former parent         (18,146 )  
Dividend paid to former parent   (35,000 )        
Payments of contingent consideration for business combinations (financing portion)   (949 )     (3,382 )  
Other financing activities   (181 )     (316 )  
Net cash used in financing activities   $ (36,130 )     $ (21,844 )  
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents   273       (1,433 )  
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents   (52,014 )     (13,631 )  
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period   114,657       233,409    
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period   $ 62,643       $ 219,778    
         
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period:        
Cash and cash equivalents   $ 49,814       $ 188,065    
Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits   10,585       22,890    
Restricted cash and cash equivalents included in other assets   2,244       8,823    
Total cash, cash equivalents, restricted cash, and restricted cash equivalents   $ 62,643       $ 219,778    
Table 4
 
    Six Months Ended
July 31,
  Three Months Ended
July 31,
(in thousands, except per share data)   2021   2020   2021   2020
Revenue
Total GAAP revenue   230,725     206,459     115,991     105,029  
Revenue adjustments   820     2,329     387     1,237  
Total non-GAAP revenue   $ 231,545     $ 208,788     $ 116,378     $ 106,266  
                 
Gross profit and gross margin                
GAAP gross profit   165,788     141,914     83,860     73,348  
GAAP gross margin   71.9 %   68.7 %   72.3 %   69.8 %
Revenue adjustments   820     2,329     387     1,237  
Amortization of acquired technology   341     492     170     239  
Stock-based compensation expenses (1)   2,211     1,059     1,175     613  
Restructuring expenses (benefit) (2)   1     (3 )   1      
Separation expenses (benefit), net (2)   30         (1 )    
Non-GAAP gross profit   $ 169,191     $ 145,791     $ 85,592     $ 75,437  
Non-GAAP gross margin   73.1 %   69.8 %   73.5 %   71.0 %
                 
Research and development, net                
GAAP research and development, net   69,542     60,256     36,130     29,068  
As a percentage of GAAP revenue   30.1 %   29.2 %   31.1 %   27.7 %
Stock-based compensation expenses (1)   (3,982 )   (2,636 )   (1,933 )   (1,473 )
Acquisition expenses, net (2)       (193 )       (99 )
Restructuring expenses (2)   (189 )   (103 )   (189 )   (103 )
Separation expenses, net (2)   (67 )            
Other adjustments   40     (69 )   11     (70 )
Non-GAAP research and development, net   $ 65,344     $ 57,255     $ 34,019     $ 27,323  
As a percentage of non-GAAP revenue   28.2 %   27.4 %   29.2 %   25.7 %
                 
Selling, general and administrative expenses                
GAAP selling, general and administrative expenses   95,960     73,022     45,142     32,733  
As a percentage of GAAP revenue   41.6 %   35.4 %   38.9 %   31.2 %
Stock-based compensation expenses (1)   (12,449 )   (9,404 )   (6,314 )   (4,722 )
Acquisition (expenses) benefit, net (2)   (560 )   758     96     702  
Restructuring (expenses) benefit, net (2)   (344 )   (1,079 )   111     (158 )
Separation expenses (2)   (10,768 )   (5,389 )   (2,155 )   (2,475 )
Other adjustments   (35 )   400     (29 )   392  
Non-GAAP selling, general and administrative expenses   $ 71,804     $ 58,308     $ 36,851     $ 26,472  
As a percentage of non-GAAP revenue   31.0 %   27.9 %   31.7 %   24.9 %
                 
Operating (loss) income, operating margin and adjusted EBITDA                                
GAAP operating (loss) income   (668 )   7,996     1,938     11,208  
GAAP operating margin   (0.3 )%   3.9 %   1.7 %   10.7 %
Revenue adjustments   820     2,329     387     1,237  
Amortization of acquired technology   341     492     170     239  
Amortization of other acquired intangible assets   954     640     650     339  
Stock-based compensation expenses (1)   18,642     13,099     9,422     6,808  
Acquisition expenses (benefit), net (2)   560     (565 )   (96 )   (603 )
Restructuring expenses (2)   534     1,179     79     261  
Separation expenses (2)   10,865     5,389     2,154     2,475  
Other adjustments   (5 )   (331 )   18     (322 )
Non-GAAP operating income   $ 32,043     $ 30,228     $ 14,722     $ 21,642  
Depreciation and amortization (3)   7,593     8,277     3,802     4,127  
Adjusted EBITDA   $ 39,636     $ 38,505     $ 18,524     $ 25,769  
Non-GAAP operating margin   13.8 %   14.5 %   12.7 %   20.4 %
Adjusted EBITDA margin   17.1 %   18.4 %   15.9 %   24.2 %
                 
Other income (expense) reconciliation
GAAP other income (expense), net   (362 )   1,004     (514 )   923  
Change in fair value of equity investment   (729 )            
Non-GAAP other income (expense), net   $ (1,091 )   $ 1,004     $ (514 )   $ 923  
                 
Tax provision reconciliation
GAAP provision for income taxes   1,211     3,406     382     5,876  
Effective income tax rate   (117.6 )%   37.8 %   26.9 %   48.4 %
Non-GAAP tax adjustments   2,565     (955 )   1,351     (4,105 )
Non-GAAP provision for income taxes   $ 3,776     $ 2,451     $ 1,733     $ 1,771  
Non-GAAP effective income tax rate   12.2 %   7.8 %   12.2 %   7.8 %
                 
Net (loss) income attributable to Cognyte software Ltd. reconciliation                                
GAAP net (loss) income attributable to Cognyte Software Ltd.   $ (4,674 )   $ 2,029     $ (285 )   $ 4,489  
Revenue adjustments   820     2,329     387     1,237  
Amortization of acquired technology   341     492     170     239  
Amortization of other acquired intangible assets   954     640     650     339  
Stock-based compensation expenses (1)   18,642     13,099     9,422     6,808  
Acquisition expenses (benefit), net (2)   560     (565 )   (96 )   (603 )
Restructuring expenses (2)   534     1,179     79     261  
Separation expenses (2)   10,865     5,389     2,154     2,475  
Other adjustments   (5 )   (331 )   18     (322 )
Change in fair value of equity investment   (729 )            
Non-GAAP tax adjustments   (2,565 )   955     (1,351 )   4,105  
Total adjustments   29,417     23,187     11,433     14,539  
Non-GAAP net income attributable to Cognyte Software Ltd.   $ 24,743     $ 25,216     $ 11,148     $ 19,028  
                 
Table comparing GAAP diluted net loss per share attributable to Cognyte Software Ltd. to Non-GAAP diluted net income per share attributable to Cognyte Software Ltd.
GAAP diluted net (loss) income per share attributable to Cognyte Software Ltd.   $ (0.07 )   $ 0.03     $ (0.00 )   $ 0.07  
Non-GAAP diluted net income per share attributable to Cognyte Software Ltd.   $ 0.37     $ 0.38     $ 0.17     $ 0.29  
                 
GAAP weighted-average shares used in computing diluted net (loss) income per share attributable to Cognyte Software Ltd.   66,128     65,773     66,405     65,773  
Additional weighted-average shares applicable to non-GAAP diluted net income per share attributable to Cognyte Software Ltd.   805         646      
Non-GAAP diluted weighted-average shares used in computing net income per share attributable to Cognyte Software Ltd.   66,933     65,773     67,051     65,773  
                 
Table of reconciliation from GAAP net loss attributable to Cognyte Software Ltd. to adjusted EBITDA
GAAP net (loss) income attributable to Cognyte Software Ltd.   (4,674 )   2,029     (285 )   4,489  
As a percentage of GAAP revenue   (2.0 )%   1.0 %   (0.2 )%   4.3 %
Net income attributable to noncontrolling interest   2,433     3,565     1,327     1,766  
GAAP provision for income taxes   1,211     3,406     382     5,876  
GAAP other expense (income), net   362     (1,004 )   514     (923 )
Amortization of acquired technology   341     492     170     239  
Amortization of other acquired intangible assets   954     640     650     339  
Depreciation and amortization   7,593     8,277     3,802     4,127  
Revenue adjustments   820     2,329     387     1,237  
Stock-based compensation expenses (1)   18,642     13,099     9,422     6,808  
Acquisition expenses (benefit), net (2)   560     (565 )   (96 )   (603 )
Restructuring expenses (2)   534     1,179     79     261  
Separation expenses (2)   10,865     5,389     2,154     2,475  
Other adjustments   (5 )   (331 )   18     (322 )
Adjusted EBITDA   $ 39,636     $ 38,505     $ 18,524     $ 25,769  
As a percentage of non-GAAP revenue   17.1 %   18.4 %   15.9 %   24.2 %
Table 5
 
    GAAP Revenue   Non-GAAP Revenue
(in thousands)   Three Months Six Month   Three Months Six Month
Revenue for the three and six months ended July 31, 2020   $ 105,029   $ 206,459     $ 106,266   $ 208,788  
Revenue for the three and six months ended July 31, 2021   $ 115,991   $ 230,725     $ 116,378   $ 231,545  
Revenue for the three and six months ended July 31, 2021 at constant currency(4)   $ 113,000   $ 226,000     $ 113,000   $ 226,000  
Reported period-over-period revenue change   10.4 % 11.8 %   9.5 % 10.9 %
% impact from change in foreign currency exchange rates   (2.8 )% (2.3 )%   (3.2 )% (2.7 )%
Constant currency period-over-period revenue change   7.6 % 9.5 %   6.3 % 8.2 %

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

Footnotes

(1) The figures for the periods prior to the three and six months ended July 31, 2021 represent the stock-based compensation expenses applicable to cost of revenue, research and development expenses and selling, general and administrative expenses as allocated to Cognyte from the combined Verint total expenses based on specific identification where possible, with the remainder being allocated on the basis of revenue as a relevant measure, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins and operating margins of the Cognyte business.

(2) The figures for the periods prior to the three and six months ended July 31, 2021 represent the portion of acquisition expenses (benefit), net, restructuring expenses and separation expenses applicable to cost of revenue, research and development expenses and selling, general and administrative expenses as allocated to Cognyte from the combined Verint total expenses based on specific identification where possible, with the remainder being allocated on the basis of revenue as a relevant measure, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins and operating margins of the Cognyte business.

(3) The figures for the periods prior to the three and six months ended July 31, 2021 represent certain depreciation and amortization expenses, which are otherwise included in non-GAAP operating income as allocated to Cognyte from the combined Verint total expenses based on specific identification where possible, with the remainder being allocated on the basis of revenue as a relevant measure, which we believe provides a reasonable approximation for purposes of understanding the relative adjusted EBITDA of the Cognyte business.

(4) Revenue for the three and six months ended July 31, 2021, at constant currency is calculated by translating current-period GAAP or non-GAAP foreign currency revenue (as applicable) into U.S. dollars using average foreign currency exchange rates for the three and six months ended July 31, 2020 rather than actual current-period foreign currency exchange rates.

Cognyte Software Ltd. and Subsidiaries Supplemental Information About Non-GAAP Financial Measures and Operating Metrics

The press release includes reconciliations of certain financial measures not prepared in accordance with GAAP, consisting of non-GAAP revenue, non-GAAP gross profit and gross margins, non-GAAP research and development, net, non-GAAP selling, general and administrative expenses, non-GAAP operating income and operating margins, non-GAAP other income (expense), net, non-GAAP provision for (benefit from) income taxes and non-GAAP effective income tax rate, non-GAAP net income attributable to Cognyte, adjusted EBITDA and adjusted EBITDA margin, non-GAAP diluted net income per share attributable to Cognyte and weighted average shares used in computing such measure. The tables above 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, 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 software 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 our management believes they provide meaningful information about the financial performance of our business and are useful to investors for informational and comparative purposes.

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. We exclude from our non-GAAP revenue the impact of fair value adjustments required under GAAP relating to software and software service revenue and professional service and other revenue acquired in a business acquisition, 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. 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.

Acquisition expenses (benefit), 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.

Separation expenses . On December 4, 2019, Verint announced its intention to separate into two independent publicly traded companies: Cognyte Software Ltd., which consists of Verint’s Cyber Intelligence Solutions business, and Verint Systems Inc., which consists of its Customer Engagement Business. We incurred significant expenses to separate the aforesaid businesses, including third-party advisory, accounting, legal, consulting, and other similar services related to the separation as well as costs associated with the operational separation from Verint, including those related to human resources, brand management, real estate, and information technology to the extent not capitalized. These costs are incremental to our normal operating expenses and incurred solely as a result of the separation transaction. Accordingly, we are excluding these separation expenses from our non-GAAP financial measures in order to evaluate our performance on a comparable basis.

Other adjustments . We exclude from our non-GAAP financial measures rent expense for redundant facilities, gains on change in fair value of equity investment, gains or losses on sales of property, gains or losses on settlements of certain legal matters, and certain professional fees unrelated to our ongoing operations.

Non-GAAP income tax adjustments . We exclude our GAAP provision (benefit) for income taxes from our non-GAAP measures of net income attributable to Cognyte Software Ltd., 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. 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. 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, 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 companies 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.

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. 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210920005264/en/

SOURCE: Cognyte Software Ltd.

Investor Relations Contact
Matthew Frankel, CFA
Cognyte Software Ltd.
IR@cognyte.com

COMTEX_393659605/2456/2021-09-20T07:30:02

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Dec. 8, 2021 4:00p
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