October 19, 2016
Mr. Stephen Krikorian
Accounting Branch Chief
Office of Information Technologies and Services
United States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549-5546
Re: Verint Systems Inc.
Form 8-K filed March 29, 2016
File No. 001-34807
Dear Mr. Krikorian:
This letter sets forth our response to the additional comment in the letter from the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) to Mr. Dan Bodner, President and Chief Executive Officer of Verint Systems Inc. (“Verint”, “we”, or “our”), dated October 5, 2016, regarding Verint's Form 8-K filed March 29, 2016. For your convenience, we have included the Staff's additional comment in the body of this letter and have provided our response thereto immediately following the comment.
Form 8-K filed March 29, 2016
Exhibit 99.1
1. | We note your response to prior comment 2. Considering the significance of the other adjustments line item it appears that further quantification is warranted. Please revise your disclosure in future earnings releases to present each material adjustment separately in your reconciliation. Alternatively, you may quantify the adjustments in the footnotes. Please provide us with your proposed changes in your response letter. |
We acknowledge the Staff's comment, and in future earnings releases, we will present the significant components of the amounts previously presented as “other adjustments” within our GAAP to non-GAAP reconciliations as separate adjustments.
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Mr. Stephen Krikorian
Accounting Branch Chief
Office of Information Technologies and Services
United States Securities and Exchange Commission
For purposes of illustrating the revised presentation, we have modified our previously disclosed GAAP to non-GAAP reconciliations for the three and six months ended July 31, 2016 to reflect this change (breaking out the "other adjustments" lines), and those revised reconciliations appear on the attached Exhibit 1.
We will also reorganize the descriptions of the applicable GAAP to non-GAAP adjustments which had previously been grouped together within our description of “Other Adjustments”. The reorganized descriptions are also presented on Exhibit 1, below the revised GAAP to non-GAAP reconciliation tables.
In connection with responding to the Staff's comment, we hereby acknowledge the following:
• | We are responsible for the adequacy and accuracy of the disclosure in our filings; |
• | Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
• | We may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
* * * *
We hope that the foregoing is responsive to your comment. If you have any questions with respect to this letter, please contact the undersigned at (631) 962-9846.
Sincerely,
/s/ Douglas E. Robinson
-----------------------------------------
Douglas E. Robinson
Chief Financial Officer
cc: | Christine Dietz, Division of Corporation Finance, SEC |
Ryan Rohn, Division of Corporation Finance, SEC
Bernard Nolan, Division of Corporation Finance, SEC
Gabriel Eckstein, Division of Corporation Finance, SEC
Dan Bodner, President and Chief Executive Officer, Verint Systems Inc.
Peter D. Fante, Chief Legal Officer, Verint Systems Inc.
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Exhibit 1
VERINT SYSTEMS INC. AND SUBSIDIARIES
Reconciliations of GAAP to Non-GAAP Results
(Unaudited)
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands) | 2016 | 2015 (1) | 2016 | 2015 (1) | ||||||||||||
Table of Reconciliation from GAAP Gross Profit to Non-GAAP Gross Profit | ||||||||||||||||
GAAP gross profit | $ | 159,460 | $ | 177,344 | $ | 304,190 | $ | 343,707 | ||||||||
GAAP gross margin | 60.9 | % | 59.9 | % | 60.0 | % | 60.8 | % | ||||||||
Revenue adjustments related to acquisitions | 2,229 | 1,217 | 5,783 | 2,038 | ||||||||||||
Amortization of acquired technology and backlog | 9,134 | 9,856 | 18,314 | 17,836 | ||||||||||||
Stock-based compensation expenses | 2,262 | 2,286 | 3,766 | 2,882 | ||||||||||||
Acquisition expenses, net | 193 | 2,297 | 2 | 2,405 | ||||||||||||
Restructuring expenses | 122 | 919 | 1,042 | 1,224 | ||||||||||||
Other adjustments | — | — | — | — | ||||||||||||
Non-GAAP gross profit | $ | 173,400 | $ | 193,919 | $ | 333,097 | $ | 370,092 | ||||||||
Non-GAAP gross margin | 65.6 | % | 65.3 | % | 64.9 | % | 65.2 | % | ||||||||
Table of Reconciliation from GAAP Operating Income (Loss) to Non-GAAP Operating Income | ||||||||||||||||
GAAP operating income (loss) | $ | 3,749 | $ | 8,710 | $ | (7,542 | ) | $ | 18,320 | |||||||
As a percentage of GAAP revenue | 1.4 | % | 2.9 | % | (1.5 | )% | 3.2 | % | ||||||||
Revenue adjustments related to acquisitions | 2,229 | 1,217 | 5,783 | 2,038 | ||||||||||||
Amortization of acquired technology and backlog | 9,134 | 9,856 | 18,314 | 17,836 | ||||||||||||
Amortization of other acquired intangible assets | 11,466 | 10,733 | 22,732 | 21,470 | ||||||||||||
Stock-based compensation expenses | 16,388 | 18,983 | 31,728 | 33,833 | ||||||||||||
Acquisition expenses, net | 2,906 | 5,027 | 4,583 | 8,897 | ||||||||||||
Restructuring expenses | 2,351 | 4,280 | 7,265 | 7,239 | ||||||||||||
Other adjustments | 188 | 193 | 343 | 686 | ||||||||||||
Non-GAAP operating income | $ | 48,411 | $ | 58,999 | $ | 83,206 | $ | 110,319 | ||||||||
As a percentage of non-GAAP revenue | 18.3 | % | 19.9 | % | 16.2 | % | 19.4 | % | ||||||||
Table of Reconciliation from GAAP Other Expense, Net to Non-GAAP Other Expense, Net | ||||||||||||||||
GAAP other expense, net | $ | (13,769 | ) | $ | (11,849 | ) | $ | (18,341 | ) | $ | (19,781 | ) | ||||
Unrealized losses (gains) on derivatives, net | 134 | (296 | ) | 392 | 125 | |||||||||||
Amortization of convertible note discount | 2,650 | 2,515 | 5,264 | 4,995 | ||||||||||||
Acquisition expenses, net | (15 | ) | 153 | 86 | 159 | |||||||||||
Restructuring expenses | 118 | 89 | 363 | 142 | ||||||||||||
Impairment charge | 2,400 | — | 2,400 | — | ||||||||||||
Other adjustments | — | — | — | — | ||||||||||||
Non-GAAP other expense, net (2) | $ | (8,482 | ) | $ | (9,388 | ) | $ | (9,836 | ) | $ | (14,360 | ) | ||||
Table of Reconciliation from GAAP Net Loss Attributable to Verint Systems Inc. to Non-GAAP Net Income Attributable to Verint Systems Inc. | ||||||||||||||||
GAAP net loss attributable to Verint Systems Inc. | $ | (11,705 | ) | $ | (7,085 | ) | $ | (29,161 | ) | $ | (7,501 | ) | ||||
Revenue adjustments related to acquisitions | 2,229 | 1,217 | 5,783 | 2,038 | ||||||||||||
Amortization of acquired technology and backlog | 9,134 | 9,856 | 18,314 | 17,836 | ||||||||||||
Amortization of other acquired intangible assets | 11,466 | 10,733 | 22,732 | 21,470 | ||||||||||||
Stock-based compensation expenses | 16,388 | 18,983 | 31,728 | 33,833 |
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Unrealized losses (gains) on derivatives, net | 134 | (296 | ) | 392 | 125 | |||||||||||
Amortization of convertible note discount | 2,650 | 2,515 | 5,264 | 4,995 | ||||||||||||
Acquisition expenses, net | 2,891 | 5,180 | 4,669 | 9,056 | ||||||||||||
Restructuring expenses | 2,469 | 4,369 | 7,628 | 7,381 | ||||||||||||
Impairment charge | 2,400 | — | 2,400 | — | ||||||||||||
Other adjustments | 188 | 193 | 343 | 686 | ||||||||||||
Non-GAAP tax adjustments | (2,586 | ) | (1,646 | ) | (5,230 | ) | (4,630 | ) | ||||||||
Total GAAP net loss adjustments | 47,363 | 51,104 | 94,023 | 92,790 | ||||||||||||
Non-GAAP net income attributable to Verint Systems Inc. | $ | 35,658 | $ | 44,019 | $ | 64,862 | $ | 85,289 | ||||||||
Table of Reconciliation from GAAP Net Loss Attributable to Verint Systems Inc. to Adjusted EBITDA | ||||||||||||||||
GAAP net loss attributable to Verint Systems Inc. | $ | (11,705 | ) | $ | (7,085 | ) | $ | (29,161 | ) | $ | (7,501 | ) | ||||
Net income attributable to noncontrolling interest | 627 | 1,325 | 1,890 | 2,472 | ||||||||||||
Provision for income taxes | 1,058 | 2,621 | 1,388 | 3,568 | ||||||||||||
Other expense, net | 13,769 | 11,849 | 18,341 | 19,781 | ||||||||||||
Depreciation and amortization (3) | 27,894 | 26,558 | 55,441 | 50,848 | ||||||||||||
Revenue adjustments related to acquisitions | 2,229 | 1,217 | 5,783 | 2,038 | ||||||||||||
Stock-based compensation expenses | 16,388 | 18,983 | 31,728 | 33,833 | ||||||||||||
Acquisition expenses, net | 2,906 | 5,027 | 4,583 | 8,897 | ||||||||||||
Restructuring expenses | 2,348 | 4,265 | 7,261 | 7,206 | ||||||||||||
Other adjustments | 188 | 193 | 343 | 686 | ||||||||||||
Adjusted EBITDA | $ | 55,702 | $ | 64,953 | $ | 97,597 | $ | 121,828 | ||||||||
(1) Amounts for acquisition expenses, restructuring expenses, and impairment charges for the three and six months ended July 31, 2015, which were previously presented collectively within “Other Adjustments”, have been disaggregated to conform to the current periods’ presentation. | ||||||||||||||||
(2) For the three months ended July 31, 2016, non-GAAP other expense, net of $8.5 million was comprised of $6.3 million of interest and other expense, and $2.2 million of foreign exchange charges primarily related to balance sheet translations. | ||||||||||||||||
(3) Adjusted for financing fee amortization. |
Verint Systems Inc. and Subsidiaries
Supplemental Information About Non-GAAP Financial Measures
Acquisition Expenses, net. In connection with acquisition activity (including with respect to acquisitions that are not consummated), we incur expenses, including legal, accounting, and other professional fees, integration costs, changes in the fair value of contingent consideration obligations, and other costs. Integration costs may consist of information technology expenses as systems are integrated across the combined entity, consulting expenses, marketing expenses, and professional fees, as well as non-cash charges to write-off or impair the value of redundant assets. We exclude these expenses from our non-GAAP financial measures because they are unpredictable, can vary based on the size and complexity of each transaction, and are unrelated to our continuing operations or to the continuing operations of the acquired businesses.
Restructuring Expenses. We exclude restructuring expenses from our non-GAAP financial measures, which include employee termination costs, facility exit costs, certain professional fees, asset impairment charges, and other costs directly associated with resource realignments incurred in reaction to changing strategies or business conditions. All of these costs can vary significantly in amount and frequency based on the nature of the actions as well as the changing needs of our business and we believe that excluding them provides easier comparability of pre- and post-restructuring operating results.
Other Adjustments. We exclude from our non-GAAP financial measures asset impairment charges other than those associated with restructuring or acquisition activity, rent expense for redundant facilities, and gains or losses on sales of property, all of which are unusual in nature and can vary significantly in amount and frequency.
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