MELVILLE, N.Y.–(BUSINESS WIRE)–Verint® (Nasdaq: VRNT), The Customer Engagement Company™, today announced results for the three months ended April 30, 2021 (FYE 2022). Revenue for the three months ended April 30, 2021 was $201 million on a GAAP basis representing 8% year-over-year growth and $202 million on a non-GAAP basis representing 7% year-over-year growth. For the three months ended April 30, 2021, net loss per common share was ($0.04) on a GAAP basis, and diluted EPS was $0.44 on a non-GAAP basis.
“We are pleased with our results coming in ahead of our expectations and our strong performance across all key cloud metrics. We believe our open cloud platform is a true differentiator helping brands connect work, data and experiences across the enterprise to support their digital transformation strategies,” said Dan Bodner, Verint CEO.
Bodner added: “Recent large multi-year cloud wins driven by our cloud platform include orders (total contract value) for $17 million (healthcare), $10 million (financial services), $4 million (business services), $4 million (logistics) and $3 million (insurance). In May, we held our annual Customer Engage Conference with 5,000 registrations, up nearly 40% year-over-year. During the event we showcased innovation across our open cloud platform including our new solutions for Real-time Work, providing in-the-moment AI based assistance to the workforce.”
First Quarter Key Cloud Metrics
Strong Cloud Growth: Cloud revenue up more than 35% year-over-year Strong Software Bookings Growth: Perpetual license equivalent bookings (PLE) up 28% year-over-year with more than half derived from SaaS Improving Visibility from Multi-year Cloud Deals: Remaining performance obligations (RPO) increased 30% year-over-year to $619 million FYE 2022 Outlook
Our non-GAAP outlook for the year ending January 31, 2022 is as follows:
Cloud Revenue Growth: 30% to 35% New PLE Bookings Growth: 10+% Revenue: $860 million with a range of +/- 2% Diluted EPS: $2.23 at the midpoint of our revenue guidance Our non-GAAP outlook for the three months ending July 31, 2021 and year ending January 31, 2022 excludes the following GAAP measures which we are able to quantify with reasonable certainty:
Amortization of intangible assets of approximately $12 million and $45 million, for the three months ending July 31, 2021 and year ending January 31, 2022, respectively. Losses on early retirement of debt of $0 million and $2 million, for the three months ending July 31, 2021 and year ending January 31, 2022, respectively. Favorable change in fair value of future tranche right of $0 million and $16 million, for the three months ending July 31, 2021 and year ending January 31, 2022, respectively. Unrealized losses on derivatives, net of $0 million and $14 million, for the three months ending July 31, 2021 and year ending January 31, 2022, respectively. Our non-GAAP outlook for the three months ending July 31, 2021 and year ending January 31, 2022 excludes the following GAAP measures for which we are able to provide a range of probable significance:
Revenue adjustments are expected to be between approximately $1 million and $2 million, and $3 million and $4 million, for the three months ending July 31, 2021 and year ending January 31, 2022, respectively. Stock-based compensation is expected to be between approximately $17 million and $20 million, and $65 million and $72 million, for the three months ending July 31, 2021 and year ending January 31, 2022, respectively, assuming market prices for our common stock approximately consistent with current levels. Further costs associated with Verint’s February 1, 2021 separation into two independent public companies are expected to be between approximately $3 million and $5 million, and $12 million and $15 million, for the three months ending July 31, 2021 and year ending January 31, 2022, respectively. Our non-GAAP outlook does not include the potential impact of any in-process business acquisitions that may close after the date hereof, and, unless otherwise specified, reflects foreign currency exchange rates approximately consistent with current rates.
We are unable, without unreasonable efforts, to provide a reconciliation for other GAAP measures which are excluded from our non-GAAP outlook, including the impact of future business acquisitions or acquisition expenses, future restructuring expenses, and non-GAAP income tax adjustments due to the level of unpredictability and uncertainty associated with these items. For these same reasons, we are unable to assess the probable significance of these excluded items. While historical results may not be indicative of future results, actual amounts for the three months ended April 30, 2021 and 2020 for the GAAP measures excluded from our non-GAAP outlook appear in Tables 2, 3 and 4 of this press release.
Conference Call Information
We will conduct a conference call today at 4: 30 p.m. ET to discuss our results for the three months ended April 30, 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.verint.com. The webcast slides will be available on our website until at least July 31, 2021. The conference call can also be accessed live via telephone at 1-844-309-0615 (United States and Canada) and 1-661-378-9462 (international) and the passcode is 8399029. Please dial in 5-10 minutes prior to the scheduled start time.
About Non-GAAP Financial Measures
This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of non-GAAP financial measures presented for completed periods to the most directly comparable financial measures prepared in accordance with GAAP, please see the tables below as well as “Supplemental Information About Non-GAAP Financial Measures and Operating Metrics” at the end of this press release.
About Verint Systems Inc.
Verint® (Nasdaq: VRNT) helps the world’s most iconic brands – including over 85 of the Fortune 100 companies – build enduring customer relationships by connecting work, data, and experiences across the enterprise. The Verint Customer Engagement portfolio draws on the latest advancements in AI and analytics, an open cloud architecture, and The Science of Customer Engagement™ to help customers close the Engagement Capacity Gap™.
Verint. The Customer Engagement Company™. Learn more at Verint.com.
Cautions About Forward-Looking Statements
This press release contains forward-looking statements, including statements regarding expectations, predictions, views, opportunities, plans, strategies, beliefs, and statements of similar effect relating to Verint Systems Inc. These forward-looking statements are not guarantees of future performance and they are based on management’s expectations that involve a number of known and unknown risks, uncertainties, assumptions, and other important factors, any of which could cause our actual results or conditions to differ materially from those expressed in or implied by the forward-looking statements. Some of the factors that could cause our actual results or conditions to differ materially from current expectations include, among others: uncertainties regarding the impact of 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 COVID-19 pandemic, as well as the resulting impact on information technology spending by enterprises and government customers, on our business; risks that our customers 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 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 challenges and needs, while simultaneously preserving our legacy businesses and migrating away from areas of commoditization; risks due to aggressive competition in all of our markets, including with respect to maintaining revenue, margins, and sufficient levels of investment in our business and operations, and competitors with greater resources than we have; risks relating to our ability to properly manage investments in our business and operations, execute on growth or strategic initiatives, 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; challenges associated with our cloud transition, including increased importance of subscription renewal rates, and risk of increased variability in our period to period results based on the mix, terms, and timing of our transactions; risks that we may be unable to maintain, expand, and enable our relationships with partners as part of our growth strategy; risks associated with our reliance on third-party suppliers, partners, or original equipment manufacturers (“OEMs”) for certain components, products, or services, including companies that may compete with us or work with our competitors, as well as cloud hosting providers; 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, exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, and challenges associated with a significant portion of our cash being held overseas; risks associated with a significant part of our business coming from government contracts and associated procurement processes; risks associated with complex and changing domestic and foreign regulatory environments, relating to our own operations, the products and services we offer, and/or the use of our solutions by our customers, including, among others, with respect to data privacy and protection, government contracts, anti-corruption, trade compliance, tax, and labor matters; risks associated with the mishandling or perceived mishandling of sensitive or confidential information and data, including personally identifiable information or other information that may belong to our customers or other third parties, including in connection with our SaaS or other hosted or managed service offerings or when we are asked to perform service or support; risks that our solutions or services, or those of third-party suppliers, partners, or OEMs 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; risk of security vulnerabilities or lapses, including cyber-attacks, information technology system breaches, failures, or disruptions; 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 leverage resulting from our current debt position or our ability to incur additional debt, including with respect to liquidity considerations, covenant limitations and compliance, fluctuations in interest rates, dilution considerations (with respect to our convertible notes), and our ability to maintain our credit ratings; risks 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 arising as a result of contingent or other obligations or liabilities assumed in our acquisition of our former parent company, Comverse Technology, Inc. (“CTI”), or associated with formerly being consolidated with, and part of a consolidated tax group with, CTI, or as a result of the successor to CTI’s business operations, Mavenir, Inc., being unwilling or unable to provide us with certain indemnities to which we are entitled; risks associated with changing accounting principles or standards, tax laws and regulations, tax rates, and the continuing availability of expected tax benefits; risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, internal controls, and personnel, and our ability to successfully implement and maintain enhancements to the foregoing, for our current and future operations and reporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays; risks associated with market volatility in the prices of our common stock and convertible notes based on our performance, third-party publications or speculation, or other factors and risks associated with actions of activist stockholders; risks associated with Apax Partners’ significant ownership position and potential that its interests will not be aligned with those of our common stockholders; and risks associated with the spin-off of our Cyber Intelligence Solutions business, including the possibility 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. We assume no obligation to revise or update any forward-looking statement, except as otherwise required by law. For a detailed discussion of these risk factors, see our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2021, when filed, and other filings we make with the SEC.
VERINT, THE CUSTOMER ENGAGEMENT COMPANY, BOUNDLESS CUSTOMER ENGAGEMENT, THE ENGAGEMENT CAPACITY GAP and THE SCIENCE OF CUSTOMER ENGAGEMENT are trademarks of Verint Systems Inc. or its subsidiaries. Verint and other parties may also have trademark rights in other terms used herein.
Table 1
VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
April 30,
(in thousands, except per share data)
2021
2020
Revenue:
Recurring
$
144,453
$
129,070
Nonrecurring
56,451
56,795
Total revenue
200,904
185,865
Cost of revenue:
Recurring
38,076
34,928
Nonrecurring
29,880
31,619
Amortization of acquired technology
4,384
4,356
Total cost of revenue
72,340
70,903
Gross profit
128,564
114,962
Operating expenses:
Research and development, net
29,148
32,412
Selling, general and administrative
87,646
76,827
Amortization of other acquired intangible assets
7,328
7,764
Total operating expenses
124,122
117,003
Operating income (loss)
4,442
(2,041
)
Other income (expense), net:
Interest income
23
481
Interest expense
(5,019
)
(10,689
)
Losses on early retirements of debt
(2,474
)
—
Other income (expense), net
4,050
(1,822
)
Total other expense, net
(3,420
)
(12,030
)
Income (loss) from continuing operations before provision for income taxes
1,022
(14,071
)
(Benefit from) provision for income taxes
(72
)
347
Net income (loss) from continuing operations
1,094
(14,418
)
Net income from discontinued operations
—
10,443
Net income (loss)
1,094
(3,975
)
Net income attributable to noncontrolling interests from continuing operations
295
240
Net income attributable to noncontrolling interests from discontinued operations
—
1,799
Net income (loss) attributable to Verint Systems Inc.
799
(6,014
)
Dividends on preferred stock
(3,322
)
—
Net loss attributable to Verint Systems Inc. common shares
$
(2,523
)
$
(6,014
)
Net (loss) income attributable to Verint Systems Inc. common shares
Net loss from continuing operations attributable to Verint Systems Inc. common shares
$
(2,523
)
$
(14,658
)
Net income from discontinued operations attributable to Verint Systems Inc. common shares
$
—
$
8,644
Basic net (loss) income per common share attributable to Verint Systems Inc.:
Continuing operations
$
(0.04
)
$
(0.23
)
Discontinued operations
—
0.14
Total basic net loss per common share attributable to Verint Systems Inc.
$
(0.04
)
$
(0.09
)
Diluted net (loss) income per common share attributable to Verint Systems Inc.:
Continuing operations
$
(0.04
)
$
(0.23
)
Discontinued operations
—
0.14
Total diluted net loss per common share attributable to Verint Systems Inc.
$
(0.04
)
$
(0.09
)
Weighted-average common shares outstanding:
Basic
65,661
64,376
Diluted
65,661
64,376
Table 2
VERINT SYSTEMS INC. AND SUBSIDIARIES
GAAP to Non-GAAP Cloud Metrics
(Unaudited)
Three Months Ended
April 30,
(in thousands)
2021
2020
Table of Reconciliation from GAAP Cloud Revenue to Non-GAAP Cloud Revenue
SaaS revenue – GAAP
$
63,592
$
40,888
Bundled SaaS revenue – GAAP
39,309
33,393
Unbundled SaaS revenue – GAAP
24,283
7,495
Optional managed services revenue – GAAP
16,458
14,132
Cloud revenue – GAAP
$
80,050
$
55,020
Estimated SaaS revenue adjustments
$
844
$
2,926
Estimated bundled SaaS revenue adjustments
782
2,882
Estimated unbundled SaaS revenue adjustments
62
44
Estimated optional managed services revenue adjustments
187
281
Estimated cloud revenue adjustments
$
1,031
$
3,207
SaaS revenue – non-GAAP
$
64,436
$
43,814
Bundled SaaS revenue – non-GAAP
40,091
36,275
Unbundled SaaS revenue – non-GAAP
24,345
7,539
Optional managed services revenue – non-GAAP
16,645
14,413
Cloud revenue – non-GAAP
$
81,081
$
58,227
Table of New SaaS ACV
New SaaS ACV
$
18,804
$
11,892
New SaaS ACV Growth YoY
58.1
%
45.3
%
Table of New Perpetual License Equivalent Bookings
New perpetual license equivalent bookings
$
60,982
$
47,692
New perpetual license equivalent bookings change YoY
27.9
%
(23.7)
%
% of new perpetual license equivalent bookings from SaaS
51.2
%
40.2
%
Table 3
VERINT SYSTEMS INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
Three Months Ended
April 30,
(in thousands, except per share data)
2021
2020
REVENUE
Recurring revenue – GAAP
$
144,453
$
129,070
Nonrecurring revenue – GAAP
56,451
56,795
Total GAAP revenue
200,904
185,865
Recurring revenue adjustments
1,039
3,262
Nonrecurring revenue adjustments
—
—
Total revenue adjustments
1,039
3,262
Recurring revenue – non-GAAP
145,492
132,332
Nonrecurring revenue – non-GAAP
56,451
56,795
Total non-GAAP revenue
$
201,943
$
189,127
GROSS PROFIT AND GROSS MARGIN
Recurring costs
$
38,076
$
34,928
Nonrecurring costs
29,880
31,619
Amortization of acquired technology
4,384
4,356
Total GAAP cost of revenue
72,340
70,903
GAAP gross profit
128,564
114,962
GAAP gross margin
64.0
%
61.9
%
Revenue adjustments
1,039
3,262
Amortization of acquired technology
4,384
4,356
Stock-based compensation expenses
1,262
537
Acquisition expenses, net
25
189
Restructuring expenses
462
1,619
Separation expenses(3)
78
—
Discontinued operations corporate overhead adjustment
—
1,425
Allocation methodology difference
—
(543
)
Non-GAAP gross profit
$
135,814
$
125,807
Non-GAAP gross margin
67.3
%
66.5
%
RESEARCH AND DEVELOPMENT, NET
GAAP research and development, net
$
29,148
$
32,412
As a percentage of GAAP revenue
14.5
%
17.4
%
Stock-based compensation expenses
(1,773
)
(1,173
)
Acquisition expenses, net
(24
)
(201
)
Restructuring expenses
(184
)
(927
)
Separation expenses(3)
(457
)
—
Discontinued operations corporate overhead adjustment
—
(4,521
)
Allocation methodology difference
—
2,202
Non-GAAP research and development, net
$
26,710
$
27,792
As a percentage of non-GAAP revenue
13.2
%
14.7
%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
GAAP selling, general and administrative expenses
$
87,646
$
76,827
As a percentage of GAAP revenue
43.6
%
41.3
%
Stock-based compensation expenses
(13,366
)
(8,968
)
Acquisition (expenses) benefit, net
(1,644
)
3,743
Restructuring expenses
(609
)
(2,018
)
Separation expenses(3)
(5,527
)
—
Other adjustments
(44
)
(101
)
Discontinued operations corporate overhead adjustment
—
(7,566
)
Allocation methodology difference
—
(1,354
)
Non-GAAP selling, general and administrative expenses
$
66,456
$
60,563
As a percentage of non-GAAP revenue
32.9
%
32.0
%
OPERATING INCOME (LOSS) AND OPERATING MARGIN
GAAP operating income (loss)
$
4,442
$
(2,041
)
GAAP operating margin
2.2
%
(1.1
)%
Revenue adjustments
1,039
3,262
Amortization of acquired technology
4,384
4,356
Amortization of other acquired intangible assets
7,328
7,764
Stock-based compensation expenses
16,401
10,678
Acquisition expenses (benefit), net
1,693
(3,353
)
Restructuring expenses
1,255
4,564
Separation expenses(3)
6,062
—
Other adjustments
44
101
Discontinued operations corporate overhead adjustment
—
13,512
Allocation methodology difference
—
(1,391
)
Non-GAAP operating income
$
42,648
$
37,452
Non-GAAP operating margin
21.1
%
19.8
%
Table of Reconciliation from GAAP Other Expense, Net to Non-GAAP Other Expense, Net
GAAP other expense, net
$
(3,420
)
$
(12,030
)
Unrealized losses on derivatives, net
14,305
—
Amortization of convertible note discount
—
3,226
Losses on early retirements of debt
2,474
—
Change in fair value of future tranche right
(15,810
)
—
Acquisition (benefit) expenses, net
(3,200
)
12
Non-GAAP other expense, net(1)
$
(5,651
)
$
(8,792
)
Table of Reconciliation from GAAP (Benefit from) Provision for Income Taxes to Non-GAAP Provision for Income Taxes
GAAP (benefit from) provision for income taxes
$
(72
)
$
347
GAAP effective income tax rate
(7.1
)%
(2.5
)%
Non-GAAP tax adjustments
3,740
2,037
Non-GAAP provision for income taxes
$
3,668
$
2,384
Non-GAAP effective income tax rate
9.9
%
8.3
%
Table of Reconciliation from GAAP Net Loss from Continuing Operations Attributable to Verint Systems Inc. Common Shares to Non-GAAP Net Income from Continuing Operations Attributable to Verint Systems Inc. Common Shares
GAAP net loss from continuing operations attributable to Verint Systems Inc. common shares
$
(2,523
)
$
(14,658
)
Revenue adjustments
1,039
3,262
Amortization of acquired technology
4,384
4,356
Amortization of other acquired intangible assets
7,328
7,764
Stock-based compensation expenses
16,401
10,678
Unrealized losses on derivatives, net
14,305
—
Amortization of convertible note discount
—
3,226
Losses on early retirements of debt
2,474
—
Change in fair value of future tranche right
(15,810
)
—
Acquisition benefit, net
(1,507
)
(3,341
)
Restructuring expenses
1,255
4,564
Separation expenses(3)
6,062
—
Other adjustments
44
101
Discontinued operations corporate overhead adjustment
—
13,512
Allocation methodology difference
—
(1,391
)
Non-GAAP tax adjustments
(3,740
)
(2,037
)
Dividends, reversed due to assumed conversion of preferred stock
3,322
—
Total adjustments
35,557
40,694
Non-GAAP net income from continuing operations attributable to Verint Systems Inc. common shares
$
33,034
$
26,036
Table Comparing GAAP Diluted Net Loss from Continuing Operations Per Common Share Attributable to Verint Systems Inc. to Non-GAAP Diluted Net Income from Continuing Operations Per Common Share Attributable to Verint Systems Inc.
GAAP diluted net loss from continuing operations per common share attributable to Verint Systems Inc.
$
(0.04
)
$
(0.23
)
Non-GAAP diluted net income from continuing operations per common share attributable to Verint Systems Inc.
$
0.44
$
0.40
GAAP weighted-average shares used in computing diluted net loss from continuing operations per common share attributable to Verint Systems Inc.
65,661
64,376
Additional weighted-average shares applicable to non-GAAP diluted net income from continuing operations per common share attributable to Verint Systems Inc.
10,031
1,233
Non-GAAP diluted weighted-average shares used in computing net income from continuing operations per common share attributable to Verint Systems Inc.
75,692
65,609
Table of Reconciliation from GAAP Net Income (Loss) from Continuing Operations Attributable to Verint Systems Inc. to Adjusted EBITDA
GAAP net income (loss) from continuing operations attributable to Verint Systems Inc.
$
799
$
(14,658
)
As a percentage of GAAP revenue
0.4
%
(7.9
)%
Net income attributable to noncontrolling interest
295
240
(Benefit from) provision for income taxes
(72
)
347
Other expense, net
3,420
12,030
Depreciation and amortization(2)
18,281
19,025
Revenue adjustments
1,039
3,262
Stock-based compensation expenses
16,401
10,678
Acquisition expenses (benefit), net
1,693
(3,353
)
Restructuring expenses
1,254
4,564
Separation expenses(3)
5,696
—
Other adjustments
44
101
Discontinued operations corporate overhead adjustment
—
13,512
Allocation methodology difference
—
(1,391
)
Adjusted EBITDA
$
48,850
$
44,357
As a percentage of non-GAAP revenue
24.2
%
23.5
%
Table of Reconciliation from Gross Debt to Net Debt
April 30,
2021
January 31,
2021
Current maturities of long-term debt
$
386,887
$
386,713
Long-term debt
405,614
402,781
Unamortized debt discounts and issuance costs
9,386
7,518
Gross debt
801,887
797,012
Less:
Cash and cash equivalents
359,418
585,273
Restricted cash and cash equivalents, and restricted bank time deposits
389,795
15
Short-term investments
668
46,300
Net debt, excluding long-term restricted cash, cash equivalents, time deposits, and investments
52,006
165,424
Long-term restricted cash, cash equivalents, time deposits and investments
483
651
Net debt, including long-term restricted cash, cash equivalents, time deposits, and investments
$
51,523
$
164,773
(1) For the three months ended April 30, 2021, non-GAAP other expense, net of $5.7 million was comprised of $5.1 million of interest and other expense, net of $0.6 million of foreign exchange gains primarily related to balance sheet translations.
(2) Adjusted for financing fee amortization.
(3) For the three months ended April 30, 2020, separation expenses are considered part of discontinued operations and are, therefore, not included in the reported results from continuing operations.
Table 4
VERINT SYSTEMS INC. AND SUBSIDIARIES
GAAP to Non-GAAP Recurring and Nonrecurring Revenue and Gross Profit
(Unaudited)
Three Months Ended
April 30,
(in thousands)
2021
2020
Table of Reconciliation from GAAP Recurring and Nonrecurring Revenue to Non-GAAP Recurring and Nonrecurring Revenue
Recurring revenue – GAAP
$
144,453
$
129,070
Cloud revenue – GAAP
80,050
55,020
Support revenue – GAAP
64,403
74,050
Nonrecurring revenue – GAAP
$
56,451
$
56,795
Perpetual revenue – GAAP
29,323
28,525
Professional services revenue – GAAP
27,128
28,270
Total revenue – GAAP
$
200,904
$
185,865
Estimated recurring revenue adjustments
$
1,039
$
3,262
Estimated cloud revenue adjustments
1,031
3,207
Estimated support revenue adjustments
8
55
Estimated nonrecurring revenue adjustments
$
—
$
—
Estimated perpetual revenue adjustments
—
—
Estimated professional services revenue adjustments
—
—
Total estimated revenue adjustments
$
1,039
$
3,262
Recurring revenue – non-GAAP
$
145,492
$
132,332
Cloud revenue – non-GAAP
81,081
58,227
Support revenue – non-GAAP
64,411
74,105
Nonrecurring revenue – non-GAAP
$
56,451
$
56,795
Perpetual revenue – non-GAAP
29,323
28,525
Professional services revenue – non-GAAP
27,128
28,270
Total revenue – non-GAAP
$
201,943
$
189,127
Table of Reconciliation from GAAP Recurring Gross Profit to Non-GAAP Recurring Gross Profit
GAAP recurring revenue
$
144,453
$
129,070
GAAP recurring costs
38,076
34,928
GAAP recurring gross profit
106,377
94,142
GAAP recurring gross margin
73.6
%
72.9
%
Recurring revenue adjustments
1,039
3,262
Recurring stock-based compensation expenses
429
265
Recurring acquisition expenses, net
25
28
Recurring restructuring expenses
353
781
Recurring separation expenses(1)
32
—
Recurring discontinued operations corporate overhead adjustment
—
224
Recurring allocation methodology difference
—
207
Non-GAAP recurring gross profit
$
108,255
$
98,909
Non-GAAP recurring gross margin
74.4
%
74.7
%
Table of Reconciliation from GAAP Nonrecurring Gross Profit to Non-GAAP Nonrecurring Gross Profit
GAAP nonrecurring revenue
$
56,451
$
56,795
GAAP nonrecurring costs
29,880
31,619
GAAP nonrecurring gross profit
26,571
25,176
GAAP nonrecurring gross margin
47.1
%
44.3
%
Nonrecurring revenue adjustments
—
—
Nonrecurring stock-based compensation expenses
833
272
Nonrecurring acquisition expenses, net
—
161
Nonrecurring restructuring expenses
109
838
Nonrecurring separation expenses(1)
46
—
Nonrecurring discontinued operations corporate overhead adjustment
—
1,201
Nonrecurring allocation methodology difference
—
(750
)
Non-GAAP nonrecurring gross profit
$
27,559
$
26,898
Non-GAAP nonrecurring gross margin
48.8
%
47.4
%
(1) For the three months ended April 30, 2020, separation expenses are considered part of discontinued operations and are, therefore, not included in the reported results from continuing operations.
Table 5
VERINT SYSTEMS INC. AND SUBSIDIARIES
Calculation of Change in Revenue on a Constant Currency Basis
(Unaudited)
GAAP Revenue
Non-GAAP Revenue
(in thousands, except percentages)
Three Months
Ended
Three Months
Ended
Revenue for the three months ended April 30, 2020
$
185,865
$
189,127
Revenue for the three months ended April 30, 2021
$
200,904
$
201,943
Revenue for the three months ended April 30, 2021 at constant currency(1)
$
196,000
$
197,000
Reported period-over-period revenue growth
8.1
%
6.8
%
% impact from change in foreign currency exchange rates
(2.6
)%
(2.6
)%
Constant currency period-over-period revenue growth
5.5
%
4.2
%
(1) Revenue for the three months ended April 30, 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 months ended April 30, 2020 rather than actual current-period foreign currency exchange rates.
For further information see “Supplemental Information About Constant Currency” at the end of this press release.
Table 6
VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
April 30,
January 31,
(in thousands, except share and per share data)
2021
2021
Assets
Current Assets:
Cash and cash equivalents
$
359,418
$
585,273
Restricted cash and cash equivalents, and restricted bank time deposits
389,795
15
Short-term investments
668
46,300
Accounts receivable, net of allowance for doubtful accounts of $1.5 million and $1.6 million, respectively
147,932
206,157
Contract assets, net
38,907
36,716
Inventories
5,593
5,541
Prepaid expenses and other current assets
56,223
42,814
Current assets of discontinued operations
—
354,926
Total current assets
998,536
1,277,742
Property and equipment, net
69,071
69,090
Operating lease right-of-use assets
53,396
57,849
Goodwill
1,329,798
1,327,407
Intangible assets, net
132,316
143,744
Other assets
118,194
104,511
Long-term assets of discontinued operations
—
280,952
Total assets
$
2,701,311
$
3,261,295
Liabilities, Temporary Equity, and Stockholders’ Equity
Current Liabilities:
Accounts payable
$
35,797
$
35,463
Accrued expenses and other current liabilities
154,606
211,517
Current maturities of long-term debt
386,887
386,713
Contract liabilities
244,892
261,033
Current liabilities of discontinued operations
—
268,713
Total current liabilities
822,182
1,163,439
Long-term debt
405,614
402,781
Long-term contract liabilities
17,391
16,502
Operating lease liabilities
51,412
56,712
Other liabilities
38,743
75,710
Long-term liabilities of discontinued operations
—
58,118
Total liabilities
1,335,342
1,773,262
Commitments and Contingencies
Temporary Equity:
Preferred Stock – $0.001 par value; authorized 2,207,000 shares
Series A Preferred Stock; 200,000 shares issued and outstanding at April 30, 2021 and January 31, 2021, respectively; aggregate liquidation preference and current redemption value of $203,467 and $206,067 at April 30, 2021 and January 31, 2021, respectively.
200,628
200,628
Series B Preferred Stock; 200,000 shares issued and outstanding at April 30, 2021; no shares issued and outstanding at January 31, 2021; aggregate liquidation preference and current redemption value of $200,722 at April 30, 2021.
235,693
—
Equity component of currently redeemable convertible notes
—
4,841
Total temporary equity
436,321
205,469
Stockholders’ Equity:
Common stock – $0.001 par value; authorized 120,000,000 shares. Issued 69,946,000 and 70,177,000 shares; outstanding 64,999,000 and 65,773,000 shares at April 30, 2021 and January 31, 2021, respectively.
70
70
Additional paid-in capital
1,333,312
1,726,166
Treasury stock, at cost – 4,947,000 and 4,404,000 shares at April 30, 2021 and January 31, 2021, respectively.
(233,992
)
(208,124
)
Accumulated deficit
(68,123
)
(113,797
)
Accumulated other comprehensive loss
(104,171
)
(136,878
)
Total Verint Systems Inc. stockholders’ equity
927,096
1,267,437
Noncontrolling interests
2,552
15,127
Total stockholders’ equity
929,648
1,282,564
Total liabilities, temporary equity, and stockholders’ equity
$
2,701,311
$
3,261,295
See notes to condensed consolidated financial statements.
Table 7
VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
April 30,
(in thousands)
2021
2020
Cash flows from operating activities:
Net income (loss)
$
1,094
$
(3,975
)
(Income) from discontinued operations, net of income taxes
—
(10,443
)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization
19,049
20,989
Stock-based compensation, excluding cash-settled awards
16,405
10,683
Change in fair value of future tranche right
(15,810
)
—
Amortization of discount on convertible notes
—
3,226
Non-cash losses on derivative financial instruments, net
14,374
1
Losses on early retirements of debt
2,474
—
Other, net
(2,317
)
(3,703
)
Changes in operating assets and liabilities:
Accounts receivable
58,026
36,159
Contract assets
(2,184
)
6,064
Inventories
(350
)
(2,855
)
Prepaid expenses and other assets
(18,781
)
(10,657
)
Accounts payable and accrued expenses
(1,510
)
3,679
Contract liabilities
(15,524
)
(7,158
)
Deferred income taxes
(16,977
)
752
Other, net
(260
)
2,557
Net cash provided by operating activities – continuing operations
37,709
45,319
Net cash (used in) provided by operating activities – discontinued operations
(8,007
)
30,659
Net cash provided by operating activities
29,702
75,978
Cash flows from investing activities:
Purchases of property and equipment
(4,369
)
(4,201
)
Maturities and sales of investments
45,640
9,000
Cash paid for capitalized software development costs
(1,966
)
(2,287
)
Change in restricted bank time deposits, and other investing activities, net
(32
)
11
Net cash provided by investing activities – continuing operations
39,273
2,523
Net cash provided by investing activities – discontinued operations
—
6,770
Net cash provided by investing activities
39,273
9,293
Cash flows from financing activities:
Proceeds from issuance of preferred stock
200,000
—
Proceeds from borrowings
315,000
155,000
Repayments of borrowings and other financing obligations
(310,633
)
(1,898
)
Purchases of capped calls
(40,950
)
—
Payments of debt-related costs
(9,422
)
—
Purchases of treasury stock and common stock for retirement
(75,014
)
(36,836
)
Preferred stock dividend payments
(5,200
)
—
Distributions paid to noncontrolling interest
—
(245
)
Payment for termination of interest rate swap
(16,502
)
—
Net cash transferred to Cognyte Software Ltd.
(114,657
)
—
Dividend and other settlements received from Cognyte Software Ltd.
40,164
—
Payments of contingent consideration for business combinations (financing portion) and other financing activities
(2,842
)
(1,282
)
Net cash (used in) provided by financing activities
(20,056
)
114,739
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents
218
(3,106
)
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents
49,137
196,904
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period
700,133
411,657
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period
$
749,270
$
608,561
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period to the condensed consolidated balance sheets:
Cash and cash equivalents
$
359,418
$
556,671
Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits
389,795
38,004
Restricted cash and cash equivalents included in other assets
57
13,886
Total cash, cash equivalents, restricted cash, and restricted cash equivalents
$
749,270
$
608,561
See notes to condensed consolidated financial statements.
Verint Systems Inc. and Subsidiaries
Supplemental Information About Non-GAAP Financial Measures and Operating Metrics
This press release contains non-GAAP financial measures, consisting of non-GAAP revenue, non-GAAP recurring revenue, non-GAAP nonrecurring revenue, non-GAAP perpetual revenue, non-GAAP support revenue, non-GAAP professional services revenue, non-GAAP cloud revenue, non-GAAP SaaS revenue, non-GAAP bundled SaaS revenue, non-GAAP unbundled SaaS revenue, non-GAAP optional managed services revenue, non-GAAP recurring gross profit and gross margins, non-GAAP nonrecurring gross profit and gross margins, 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 from continuing operations attributable to Verint Systems Inc. common shares, non-GAAP diluted net income from continuing operations per common share attributable to Verint Systems Inc., adjusted EBITDA and adjusted EBITDA margins, net debt and constant currency measures. 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 technology companies who publish similar non-GAAP measures, and allowing investors to see and understand key supplementary metrics used by our management to run our business, including for budgeting and forecasting, resource allocation, and compensation matters. We also make these non-GAAP financial measures available because a number of our investors have informed us that they find this supplemental information useful.
Non-GAAP financial measures should not be considered in isolation as substitutes for, or superior to, comparable GAAP financial measures. The non-GAAP financial measures we present have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures. These non-GAAP financial measures do not represent discretionary cash available to us to invest in the growth of our business, and we may in the future incur expenses similar to or in addition to the adjustments made in these non-GAAP financial measures. Other companies may calculate similar non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.
Our non-GAAP financial measures are calculated by making the following adjustments to our GAAP financial measures:
Revenue adjustments. We exclude from our non-GAAP revenue the impact of fair value adjustments required under GAAP relating to cloud services and customer support contracts 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. Our non-GAAP revenue also reflects certain adjustments from aligning an acquired company’s revenue recognition policies to our policies. We believe that our non-GAAP revenue measure helps management and investors understand our revenue trends and serves as a useful measure of ongoing business performance.
Amortization of acquired technology and other acquired intangible assets. When we acquire an entity, we are required under GAAP to record the fair values of the intangible assets of the acquired entity and amortize those assets over their useful lives. We exclude the amortization of acquired intangible assets, including acquired technology, from our non-GAAP financial measures because they are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. We also exclude these amounts to provide easier comparability of pre- and post-acquisition operating results.
Stock-based compensation expenses. We exclude stock-based compensation expenses related to restricted stock awards, stock bonus programs, bonus share programs, and other stock-based awards from our non-GAAP financial measures. We evaluate our performance both with and without these measures because stock-based compensation is typically a non-cash expense and can vary significantly over time based on the timing, size and nature of awards granted, and is influenced in part by certain factors which are generally beyond our control, such as the volatility of the price of our common stock. In addition, measurement of stock-based compensation is subject to varying valuation methodologies and subjective assumptions, and therefore we believe that excluding stock-based compensation from our non-GAAP financial measures allows for meaningful comparisons of our current operating results to our historical operating results and to other companies in our industry.
Unrealized gains and losses on certain derivatives, net. We exclude from our non-GAAP financial measures unrealized gains and losses on certain derivatives which are not designated as hedges under accounting guidance. We exclude unrealized gains and losses on foreign currency derivatives that serve as economic hedges against variability in the cash flows of recognized assets or liabilities, or of forecasted transactions. These contracts, if designated as hedges under accounting guidance, would be considered “cash flow” hedges. These unrealized gains and losses are excluded from our non-GAAP financial measures because they are non-cash transactions which are highly variable from period to period. Upon settlement of these foreign currency derivatives, any realized gain or loss is included in our non-GAAP financial measures.
Amortization of convertible note discount. Our non-GAAP financial measures for periods prior to February 1, 2021 exclude the amortization of the imputed discount on our convertible notes. Under GAAP, certain convertible debt instruments that may be settled in cash upon conversion were required to be bifurcated into separate liability (debt) and equity (conversion option) components in a manner that reflected the issuer’s assumed non-convertible debt borrowing rate. For GAAP purposes, we were required to recognize imputed interest expense on the difference between our assumed non-convertible debt borrowing rate and the coupon rate on our 1.50% convertible notes. This difference is excluded from our non-GAAP financial measures because we believe that this expense is based upon subjective assumptions and does not reflect the cash cost of our convertible debt. Effective with the February 1, 2021 adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, we no longer record the conversion feature of our convertible senior notes in equity. Instead, we combined the previously separated equity component with the liability component, which together is classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense.
Losses on early retirements of debt. We exclude from our non-GAAP financial measures losses on early retirements of debt attributable to refinancing or repaying our debt because we believe they are not reflective of our ongoing operations.
Change in fair value of future tranche right. On December 4, 2019, we entered into an Investment Agreement with an affiliate of Apax Partners (the “Apax Investor”), whereby the Apax Investor agreed to make an investment in us of up to $400.0 million of convertible preferred stock. In connection with the Apax Investor’s first $200.0 million investment on May 7, 2020 (for 200,000 shares of Series A Preferred Stock), we determined that our obligation to issue, and the Apax Investor’s obligation to purchase the Series B Preferred Stock in connection with the completion of the spin-off of Cognyte Software Ltd. (our former Cyber Intelligence Solutions business) and other customary closing conditions (the “Future Tranche Right”) met the definition of a freestanding financial instrument. This Future Tranche Right was reported at fair value as an asset or liability on our consolidated balance sheet and was remeasured at fair value each reporting period until the settlement of the right at the time of issuance of the Series B Preferred Stock, which occurred on April 6, 2021. Changes in its fair value have been recognized as a non-cash charge or benefit within other income (expense), net on the condensed consolidated statement of operations. We are excluding this change in fair value of the Future Tranche Right from our non-GAAP financial measures because it is unusual in nature, can vary significantly in amount, and is unrelated to our ongoing operations.
Acquisition expenses (benefit), net. In connection with acquisition activity (including with respect to acquisitions that are not consummated), we incur expenses (benefits), 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 February 1, 2021, we completed the previously announced spin-off of Cognyte Software Ltd., whose business and operations consist of our former Cyber Intelligence Solutions business. We have incurred and expect to incur, significant expenses in connection with the spin-off, including third-party advisory, accounting, legal, consulting, and other similar services related to the separation as well as costs associated with the operational separation of the two businesses, including those related to human resources, brand management, real estate, and information technology (which IT expenses are included in Separation expenses to the extent not capitalized). Separation expenses also include incremental cash income taxes related to the reorganization of legal entities and operations in order to effect the separation. These costs are incremental to our normal operating expenses and are being 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.
Impairment charges and other adjustments. We exclude from our non-GAAP financial measures asset impairment charges (other than those already included within restructuring or acquisition activity), rent expense for redundant facilities, 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, all of which are unusual in nature and can vary significantly in amount and frequency.
Discontinued operations corporate overhead adjustment. These amounts represent general corporate overhead costs related to executive management, finance, legal, information technology, and other shared services functions that were historically allocated to Cognyte, but are not permitted to be included in discontinued operations under GAAP guidelines as they represent indirect expenses of Cognyte.
Allocation methodology difference. These amounts are the result of presenting our former Cognyte business on a discontinued operations basis for quarters previously reported due to the completion of the spin-off on February 1, 2021. This adjustment represents the difference between the allocation of shared corporate support expenses under GAAP guidelines for reporting discontinued operations compared to management’s previously estimated allocations of those shared corporate support expenses.
Non-GAAP income tax adjustments. We exclude our GAAP provision for (benefit from) income taxes from our non-GAAP measures of net income attributable to Verint Systems Inc., and instead include a non-GAAP provision for income taxes, determined by applying a non-GAAP effective income tax rate to our income before provision for income taxes, as adjusted for the non-GAAP items described above. The non-GAAP effective income tax rate is generally based upon the income taxes we expect to pay in the reporting year. Our GAAP effective income tax rate can vary significantly from year to year as a result of tax law changes, settlements with tax authorities, changes in the geographic mix of earnings including acquisition activity, changes in the projected realizability of deferred tax assets, and other unusual or period-specific events, all of which can vary in size and frequency. We believe that our non-GAAP effective income tax rate removes much of this variability and facilitates meaningful comparisons of operating results across periods. Our non-GAAP effective income tax rate for the year ending January 31, 2022 is currently approximately 10% and was 8% for the year ended January 31, 2021. 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.
Revenue Metrics and Operating Metrics
Recurring revenue, on both a GAAP and non-GAAP basis, is the portion of our revenue that we believe is likely to be renewed in the future, and primarily consists of cloud revenue and initial and renewal post contract support.
Nonrecurring revenue, on both a GAAP and non-GAAP basis, primarily consists of our perpetual licenses, consulting, implementation and installation services, hardware, and training.
Cloud revenue primarily consists of SaaS and optional managed services.
SaaS revenue includes bundled SaaS, software with standard managed services and unbundled SaaS (including associated support) that we account for as term licenses where managed services are purchased separately.
Optional Managed Services is recurring services that are intended to improve our customers operations and reduce expenses.
New SaaS Annual Contract Value (ACV) includes the annualized contract value of all new SaaS contracts received within the period; in cases where SaaS is offered to partners through usage-based contracts, we include the incremental value of usage contracts over a rolling four quarters.
New Perpetual License Equivalent Bookings are used to normalize between perpetual and SaaS bookings and measure overall software bookings growth. We calculate new perpetual license equivalent bookings by adding to perpetual licenses an amount equal to New SaaS ACV bookings multiplied by a conversion factor that normalizes the mix of bundled and unbundled SaaS and perpetual bookings in a given period. The conversion factor used is based on our order mix and may change from period to period. Management uses perpetual license equivalent bookings to understand our performance, including our software bookings growth and SaaS/perpetual license mix. This metric should not be viewed in isolation from other operating metrics that we make available to investors.
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.
Net Debt
Net Debt is a non-GAAP measure defined as the sum of long-term and short-term debt on our consolidated balance sheet, excluding unamortized discounts and issuance costs, less the sum of cash and cash equivalents, restricted cash, restricted cash equivalents, restricted bank time deposits, and restricted investments (including long-term portions), and short-term investments. We use this non-GAAP financial measure to help evaluate our capital structure, financial leverage, and our ability to reduce debt and to fund investing and financing activities and believe that it provides useful information to investors.
Supplemental Information About Constant Currency
Because we operate on a global basis and transact business in many currencies, fluctuations in foreign currency exchange rates can affect our consolidated U.S. dollar operating results. To facilitate the assessment of our performance excluding the effect of foreign currency exchange rate fluctuations, we calculate our GAAP and non-GAAP revenue, cost of revenue, and operating expenses on both an as-reported basis and a constant currency basis, allowing for comparison of results between periods as if foreign currency exchange rates had remained constant. We perform our constant currency calculations by translating current-period foreign currency results into U.S. dollars using prior-period average foreign currency exchange rates or hedge rates, as applicable, rather than current period exchange rates. We believe that constant currency measures, which exclude the impact of changes in foreign currency exchange rates, facilitate the assessment of underlying business trends.
Unless otherwise indicated, our financial outlook for revenue, operating margin, and diluted earnings per share, which is provided on a non-GAAP basis, reflects foreign currency exchange rates approximately consistent with rates in effect when the outlook is provided.
We also incur foreign exchange gains and losses resulting from the revaluation and settlement of monetary assets and liabilities that are denominated in currencies other than the entity’s functional currency. We periodically report our historical non-GAAP diluted net income per share both inclusive and exclusive of these net foreign exchange gains or losses. Our financial outlook for diluted earnings per share includes net foreign exchange gains or losses incurred to date, if any, but does not include potential future gains or losses.