Cognyte Software Ltd. (NASDAQ: CGNT) (the “Company,” “Cognyte,”
“we,” “us” and “our”), a global leader in investigative analytics
software, today announced results for the three months ended April
30, 2022 (“Q1 FYE23”).
“Cognyte has more than two decades of delivering innovative
solutions, strong customer relationships, profitable growth and
managing through periods of volatility. We are disappointed with
our first quarter results, which were impacted by slow pipeline
conversion and supply chain. We have taken actions to improve our
execution and cost structure in the current environment. At this
time, we are unable to give guidance but continue to believe in the
long-term opportunity,” said Elad Sharon, Cognyte’s Chief Executive
Officer.
Q1 Highlights
- Revenue: $86.4 million (GAAP) and $86.7 million
(non-GAAP)
- Gross Margin: 59.7% (GAAP) and 60.8% (non-GAAP)
- Diluted EPS: $(0.45) (GAAP) and $(0.79) (non-GAAP)
Conference Call
Information
We will conduct a conference call today at 8:30 a.m. ET to
discuss our results for the three months ended April 30, 2022. 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 +1 (866)
374-5140 (United States) and +1 (404) 400-0571 (International). The
Conference ID is 62536546. 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" at the end of this
press release.
About Cognyte Software Ltd. We are a global leader in
investigative analytics software that empowers governments and
enterprises with Actionable Intelligence for a Safer World™. Our
open software is designed to help governments and enterprises
accelerate and improve the effectiveness of investigations. Over
1,000 government and enterprise customers rely on our solutions to
accelerate and conduct investigations and derive insights, with
which they identify, neutralize, and tackle threats to national
security, personal safety, business continuity and various forms of
criminal activity. Our government customers consist of national,
regional, and local government agencies in more than 100 countries
around the world. 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 United States Securities 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. All
statements contained in this press release that do not relate to
matters of historical fact should be considered forward-looking
statements. 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:
risks that our customers may delay, cancel, or refrain from placing
orders, refrain from renewing subscriptions or service contracts,
or may be unable to honor contractual or payment obligations; risks
related to the impact of disruptions to the global supply chain;
uncertainties regarding the impact of changes in macroeconomic
and/or global conditions, including as a result of military actions
involving Russia and Ukraine and COVID-19; risks related to the
effects of the COVID-19 pandemic on our business and results,
including customer readiness, deployment, marketing and sale
abilities; risks relating to the global regulatory constraints to
which we are subject; risks associated with larger orders and
customer concentration; risks related to claims by third parties
that our solutions infringe their terms of use or other propriety
rights; risks associated with political and reputational factors
related to our business or operations; risks that we may be unable
to establish and maintain relationships with key resellers,
partners, systems integrators and third-party suppliers; risks
associated with our ability to keep pace with technological
advances and challenges and evolving industry standards; risks due
to aggressive competition in all of our markets; challenges
associated with selling sophisticated solutions, including with
respect to longer sales cycles and more complex sales processes;
risks associated with significant customer and significant partners
concentration, including risks related to significant amounts of
our business coming from government customers around the world;
risks associated with our ability to retain, recruit, and train
qualified personnel in regions in which we operate; risks relating
to our ability to properly manage investments in our business and
operations; risks associated with acquisitions, strategic
investments, partnerships or alliances; risks associated with our
significant international operations, including geopolitical risks,
the relationship to Israel and fluctuations in foreign exchange
rates; 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-parties contain defects, develop operational problems, or are
vulnerable to cyber-attacks; risks associated with the mishandling
or perceived mishandling of sensitive, confidential or classified
information; risks associated with complex and changing regulatory
environments relating to our operations and solutions; risks
associated with our failure to comply with anti-corruption, trade
compliance, anti-money-laundering and economic sanctions laws and
regulations; risks related to the complex and evolving regulatory
requirements that we are subject to, which may be difficult and
expensive to comply with; 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 changing
tax laws and regulations; risks associated with our credit
facilities, liquidity and the discontinuation of LIBOR; risks
associated with exchange rate fluctuations between the U.S. dollar
and the New Israeli Shekel and other non-U.S. currencies; 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; risk
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; risks associated with the agreements with
Verint entered into in connection with the spin-off, and our
indemnification obligations to Verint; risks associated with market
volatility in the price of our shares; risks associated with
different corporate governance requirements applicable to Israeli
companies; risks related to our limited operating history as an
independent public company and risks associated with being a
foreign private issuer; and other risks detailed from time to time
in filings that we make with the Securities and Exchange Commission
(the “SEC”). For a detailed discussion of these risk factors, see
our latest annual report on Form 20-F for the fiscal year ended
January 31, 2022, and our other SEC filings. In addition, we
operate in a very competitive and rapidly changing environment. New
risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of
all factors on its business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements
that we may make. In light of these risks, uncertainties and
assumptions, the forward-looking events and circumstances discussed
in this release are inherently uncertain and may not occur, and
actual results could differ materially and adversely from those
anticipated or implied in the forward-looking statements.
Accordingly, you should not rely upon forward-looking statements as
predictions of future events. 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)
Three Months Ended April
30,
(in thousands except share and per share
data)
2022
2021
Revenue:
Software
$ 24,884
$ 51,664
Software service
45,832
50,767
Professional service and other
15,726
12,303
Total revenue
86,442
114,734
Cost of revenue:
Software
4,918
7,890
Software service
12,143
11,953
Professional service and other
17,569
12,792
Amortization of acquired technology
171
171
Total cost of revenue
34,801
32,806
Gross profit
51,641
81,928
Operating expenses:
Research and development, net
37,979
33,412
Selling, general and administrative
43,402
50,818
Amortization of other acquired intangible
assets
251
304
Total operating expenses
81,632
84,534
Operating loss
(29,991)
(2,606)
Other income, net:
Interest income
147
23
Interest expense
(449)
(4)
Other income, net
1,029
133
Total other income, net
727
152
Loss before provision for income
taxes
(29,264)
(2,454)
Provision for income taxes
135
829
Net loss
(29,399)
(3,283)
Net income attributable to noncontrolling
interest
969
1,106
Net loss attributable to Cognyte
Software Ltd.
$ (30,368)
$ (4,389)
Net loss per share attributable to
Cognyte Software Ltd.:
Basic
$ (0.45)
$ (0.07)
Diluted
$ (0.45)
$ (0.07)
Weighted-average shares
outstanding:
Basic
67,304
65,842
Diluted
67,304
65,842
Table 2
COGNYTE SOFTWARE LTD.
Condensed Consolidated Balance
Sheets
April 30,
January 31,
(in thousands)
2022
2022
(Unaudited)
(Audited)
Assets
Current assets:
Cash and cash equivalents
$ 91,790
$ 152,590
Restricted cash and cash equivalents and
restricted bank time deposits
740
3,597
Short-term investments
14,527
10,434
Accounts receivable, net of allowance for
credit losses of $2.1 million and $2.1 million, respectively
158,642
179,198
Contract assets, net
26,823
27,908
Inventories
18,359
14,366
Prepaid expenses and other current
assets
36,131
31,970
Total current assets
347,012
420,063
Property and equipment, net
29,880
30,839
Operating lease right-of-use assets
22,007
25,031
Goodwill
158,396
158,233
Intangible assets, net
2,741
3,162
Deferred income taxes
1,741
1,548
Other assets
25,621
25,729
Total assets
$ 587,398
$ 664,605
Liabilities and stockholders'
equity
Current liabilities:
Short-term loan
$ 50,000
100,000
Accounts payable
37,027
36,664
Accrued expenses and other current
liabilities
100,542
99,774
Contract liabilities
82,159
83,158
Total current liabilities
269,728
319,596
Long-term contract liabilities
13,396
14,520
Deferred income taxes
3,575
3,447
Operating lease liabilities
15,290
17,179
Other liabilities
10,920
10,774
Total liabilities
312,909
365,516
Commitments and Contingencies
Stockholders' equity:
Ordinary shares - $0 par value; Authorized
300,000,000 shares. Issued and outstanding 67,480,737 and
67,217,688 at April 30, 2022 and January 31, 2022, respectively
—
—
Additional paid-in capital
322,620
316,706
Accumulated deficit
(45,258)
(14,890)
Accumulated other comprehensive loss
(17,458)
(16,679)
Total Cognyte Software Ltd.
stockholders' equity
259,904
285,137
Noncontrolling interest
14,585
13,952
Total stockholders’ equity
274,489
299,089
Total liabilities and stockholders’
equity
$ 587,398
$ 664,605
Table 3
COGNYTE SOFTWARE LTD.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
Three Months Ended April
30,
(in thousands)
2022
2021
Cash flows from operating
activities:
Net loss
$ (29,399)
$ (3,283)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization
4,362
7,151
Allowance for credit losses
305
(73)
Stock-based compensation, excluding
cash-settled awards
5,105
9,221
Provision from deferred income taxes
(226)
(19)
Non-cash (gains) losses on derivative
financial instruments, net
(348)
84
Change in fair value of contingent
consideration for business combinations
—
55
Other non-cash items, net
(524)
(1,172)
Changes in operating assets and
liabilities:
Accounts receivable
19,710
14,525
Contract assets
776
(1,889)
Inventories
(4,011)
446
Prepaid expenses and other assets
(4,472)
(1,089)
Accounts payable and accrued expenses
1,590
3,779
Contract liabilities
(2,488)
(15,754)
Other liabilities
1,078
483
Other, net
(170)
759
Net cash (used in) provided by
operating activities
$ (8,712)
$ 13,224
Cash flows from investing
activities:
Purchases of property and equipment
(2,452)
(2,417)
Purchases of short-term investments
(14,623)
(14,360)
Maturities and sales of short-term
investments
10,239
4,713
Settlements of derivative financial
instruments not designated as hedges
48
(309)
Cash paid for capitalized software
development costs
(580)
(2,256)
Change in restricted bank time deposits,
including long-term portion
7
5,296
Other investing activities
—
512
Net cash used in investing
activities
$ (7,361)
$ (8,821)
Cash flows from financing
activities:
Repayment of credit facility - presented
as short-term loan
(50,000)
—
Dividend paid to former parent
—
(35,000)
Net cash used in financing
activities
$ (50,000)
$ (35,000)
Foreign currency effects on cash, cash
equivalents, restricted cash, and restricted cash equivalents
170
132
Net decrease in cash, cash equivalents,
restricted cash and restricted cash equivalents
(65,904)
(30,465)
Cash, cash equivalents, restricted
cash, and restricted cash equivalents, beginning of period
158,220
114,657
Cash, cash equivalents, restricted
cash, and restricted cash equivalents, end of period
$ 92,316
$ 84,192
Reconciliation of cash, cash
equivalents, restricted cash and restricted cash equivalents at end
of period:
Cash and cash equivalents
$ 91,790
$ 54,710
Restricted cash and cash equivalents
included in restricted cash and cash equivalents and restricted
bank time deposits
429
22,582
Restricted cash and cash equivalents
included in other assets
97
6,900
Total cash, cash equivalents,
restricted cash, and restricted cash equivalents
$ 92,316
$ 84,192
Table 4
COGNYTE SOFTWARE LTD.
Reconciliation of GAAP to
Non-GAAP Measures
(Unaudited)
Three Months Ended April
30,
(in thousands, except per share data)
2022
2021
Revenue
Total GAAP revenue
$ 86,442
$ 114,734
Revenue adjustments
244
433
Total non-GAAP revenue
$ 86,686
$ 115,167
Gross profit and gross margin
GAAP gross profit
51,641
81,928
GAAP gross margin
59.7 %
71.4 %
Revenue adjustments
244
433
Amortization of acquired technology
171
171
Stock-based compensation expenses
657
1,036
Restructuring expenses, net
33
—
Separation expenses, net
—
31
Non-GAAP gross profit
$ 52,746
$ 83,599
Non-GAAP gross margin
60.8 %
72.6 %
Research and development, net
GAAP research and development,
net
37,979
33,412
As a percentage of GAAP revenue
43.9 %
29.1 %
Stock-based compensation expenses
(1,825)
(2,049)
Separation expenses, net
—
(67)
Other adjustments
2
29
Non-GAAP research and development,
net
$ 36,156
$ 31,325
As a percentage of non-GAAP
revenue
41.7 %
27.2 %
Selling, general and administrative
expenses
GAAP selling, general and
administrative expenses
43,402
50,818
As a percentage of GAAP revenue
50.2 %
44.3 %
Stock-based compensation expenses
(2,623)
(6,136)
Acquisition (expenses) benefit, net
(85)
(656)
Restructuring expenses, net
(1,974)
(455)
Separation expenses, net
(32)
(8,613)
Provision for legal claim
(30)
(142)
Other adjustments
(1)
136
Non-GAAP selling, general and
administrative expenses
$ 38,657
$ 34,952
As a percentage of non-GAAP
revenue
44.6 %
30.3 %
Operating income, operating margin and
adjusted EBITDA
GAAP operating loss
(29,991)
(2,606)
GAAP operating margin
(34.7) %
(2.3) %
Revenue adjustments
244
433
Amortization of acquired technology
171
171
Amortization of other acquired intangible
assets
251
304
Stock-based compensation expenses
5,105
9,221
Three Months Ended April
30,
(in thousands, except per share data)
2022
2021
Acquisition expenses (benefit), net
85
656
Restructuring expenses, net
2,007
455
Separation expenses, net
32
8,711
Provision for legal claim
30
142
Other adjustments
(1)
(165)
Non-GAAP operating (loss)
income
$ (22,067)
$ 17,322
Depreciation and amortization
3,906
3,791
Adjusted EBITDA
$ (18,161)
$ 21,113
Non-GAAP operating margin
(25.5) %
15.0 %
Adjusted EBITDA margin
(21.0) %
18.3 %
Other (expense) income
reconciliation
GAAP other (expense) income,
net
727
152
Change in fair value of equity
investment
(1,660)
(729)
Non-GAAP other (expense) income,
net
$ (933)
$ (577)
Tax provision reconciliation
GAAP provision for income taxes
135
829
Effective income tax rate
(0.5) %
33.8 %
Non-GAAP tax adjustments
29,385
1,214
Non-GAAP provision for income taxes
(1)
$ 29,520
$ 2,043
Non-GAAP effective income tax
rate
(128.4) %
12.2 %
Net (loss) income attributable to
Cognyte software Ltd. reconciliation
GAAP net loss attributable to Cognyte
Software Ltd.
$ (30,368)
$ (4,389)
Revenue adjustments
244
433
Amortization of acquired technology
171
171
Amortization of other acquired intangible
assets
251
304
Stock-based compensation expenses
5,105
9,221
Acquisition expenses (benefit), net
85
656
Restructuring expenses, net
2,007
455
Separation expenses, net
32
8,711
Provision for legal claim
30
142
Other adjustments
(1)
(165)
Change in fair value of equity
investment
(1,660)
(729)
Non-GAAP tax adjustments
(29,385)
(1,214)
Total adjustments
(23,121)
17,985
Non-GAAP net (loss) income attributable
to Cognyte Software Ltd.
$ (53,489)
$ 13,596
Table comparing GAAP diluted net loss
per share attributable to Cognyte Software Ltd. to Non-GAAP diluted
net loss (income) per share attributable to Cognyte Software
Ltd.
GAAP diluted net loss per share
attributable to Cognyte Software Ltd.
$ (0.45)
$ (0.07)
Non-GAAP diluted net (loss) income per
share attributable to Cognyte Software Ltd.
$ (0.79)
$ 0.20
GAAP weighted-average shares used in
computing diluted net loss per share attributable to Cognyte
Software Ltd.
67,304
65,842
Additional weighted-average shares
applicable to non-GAAP diluted net income per share attributable to
Cognyte Software Ltd.
—
964
Non-GAAP diluted weighted-average
shares used in computing net (loss) income per share attributable
to Cognyte Software Ltd.
67,304
66,806
Three Months Ended April
30,
(in thousands, except per share data)
2022
2021
Table of reconciliation from GAAP net
loss attributable to Cognyte Software Ltd. to adjusted
EBITDA
GAAP net loss attributable to Cognyte
Software Ltd.
$ (30,368)
$ (4,389)
As a percentage of GAAP revenue
(35.1) %
(3.8) %
Net income attributable to noncontrolling
interest
969
1,106
GAAP provision for income taxes
135
829
GAAP other expense (income), net
(727)
(152)
Amortization of acquired technology
171
171
Amortization of other acquired intangible
assets
251
304
Depreciation and amortization
3,906
3,791
Revenue adjustments
244
433
Stock-based compensation expenses
5,105
9,221
Acquisition expenses (benefit), net
85
656
Restructuring expenses, net
2,007
455
Separation expenses, net
32
8,711
Provision for legal claim
30
142
Other adjustments
(1)
(165)
Adjusted EBITDA
$ (18,161)
$ 21,113
As a percentage of non-GAAP
revenue
(21.0) %
18.3 %
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
Three Months Ended
Revenue for the three months ended April
30, 2021
$ 114,734
$ 115,167
Revenue for the three months ended April
30, 2022
$ 86,442
$ 86,686
Revenue for the three months ended April
30, 2022 at constant currency (2)
$ 87,500
$ 87,500
Reported period-over-period revenue
change
(24.7) %
(24.7) %
% impact from change in foreign currency
exchange rates
0.9 %
0.9 %
Constant currency period-over-period
revenue change
(23.8) %
(23.9) %
For more information see "Supplemental Information About
Constant Currency" at the end of this press release.
Footnotes
(1) The actual cash tax paid, net of refunds, was $3.0 million
in the three months ended April 30, 2022 and $0.4 million in the
three months ended April 30, 2021.
(2) Revenue for the three months ended April 30, 2022 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
months ended April 30, 2021 rather than actual current-period
foreign currency exchange rates.
Cognyte Software Ltd. and Subsidiaries
Supplemental Information About Non-GAAP Financial
Measures
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 expenses, 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 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 non-GAAP diluted 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 ordinary shares. 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 accelerated depreciation and amortization of assets
which became obsolete following the 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.
Provision for legal claim. We exclude from our non-GAAP
financial measures accrual made for the settlement of certain legal
claims related to our business acquisitions.
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 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) attributable to non-controlling interest 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 each of
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/20220628005125/en/
Investor Relations Dean
Ridlon Cognyte Software Ltd. IR@cognyte.com
Cognyte Software (NASDAQ:CGNT)
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