Double-Digit Revenue Growth with Significant
Gross Margin Expansion
Strong Results Reflect Momentum from Security
Analytics Platform
Raising Profitability Guidance for the Year
Cognyte Software Ltd. (NASDAQ: CGNT) (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%
- We expect Q3 revenue to be in a range of $112 million to $117
million and to finish the year with our typical strong Q4.
- Diluted EPS: $0.82 at the midpoint of our revenue
outlook
- We expect Q3 EPS to be $0.10 and to finish the year with our
typical strong Q4.
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
COGNYTE SOFTWARE LTD.
Condensed Consolidated
Statements of Operations
(Unaudited)
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
COGNYTE SOFTWARE LTD.
Condensed Consolidated Balance
Sheets
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
31, 2021 and January 31, 2021,
respectively; outstanding 66,786,771 and 65,773,335 shares at July
31,
2021 and January 31, 2021,
respectively
—
—
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
COGNYTE SOFTWARE LTD.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
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
COGNYTE SOFTWARE LTD.
Reconciliation of GAAP to
Non-GAAP Measures
(Unaudited)
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
COGNYTE SOFTWARE LTD.
Calculation of Change in
Revenue on a Constant Currency Basis
(Unaudited)
GAAP Revenue
Non-GAAP Revenue
(in thousands)
Three Months
Ended
Six Month
Ended
Three Months
Ended
Six Month
Ended
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.
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version on businesswire.com: https://www.businesswire.com/news/home/20210920005264/en/
Investor Relations Contact
Matthew Frankel, CFA Cognyte Software Ltd. IR@cognyte.com
Cognyte Software (NASDAQ:CGNT)
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