Cognyte Announces Second Quarter Results

Cognyte Software Ltd. CGNT (the "Company," "Cognyte," "we," "us" and "our"), a global leader in investigative analytics software, today announced results for the three and six months ended July 31, 2022 ("Q2 FYE23" and "H1 FYE23").

"Security threats are pervasive, and customers need innovative security solutions to address evolving threats. However, the global economic slowdown is affecting our near-term performance. In the second quarter, our revenue was disappointing, but we are encouraged with bookings coming in higher than revenue and contributing to a substantial increase in backlog," said Elad Sharon, Cognyte's Chief Executive Officer.

"We are taking actions to focus our resources on the highest potential opportunities, to reduce our cost structure, and to regain visibility. Cognyte has a long history of delivering profitable growth, strong customer relationships and a significant backlog. Leveraging our assets, the management team is laser focused on returning to growth and profitability," Mr. Sharon added.

Q2 Highlights

  • Revenue: $81.1 million (GAAP) and $81.3 million (non-GAAP)
  • Gross Margin: 63.4% (GAAP) and 65.1% (non-GAAP)
  • Diluted EPS: $(0.43) (GAAP) and $(0.04) (non-GAAP)

H1 Highlights

  • Revenue: $167.5 million (GAAP) and $168.0 million (non-GAAP)
  • Gross Margin: 61.5% (GAAP) and 62.9% (non-GAAP)
  • Diluted EPS: $(0.88) (GAAP) and $(0.83) (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 and six months ended July 31, 2022. A real-time webcast of the conference call with presentation slides will be available in the Investor Relations section of Cognyte's website. Those interested in participating in the question-and-answer session need to register here to receive the dial-in numbers and unique PIN to access the call seamlessly. It is recommended that you join 10 minutes prior to the event start (although you may register and dial in at any time during the call). 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)

 

 

Six Months Ended

 

Three Months Ended

 

 

July 31,

 

July 31,

(in thousands except share and per share data)

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

Software

 

$

51,903

 

 

$

99,628

 

 

$

27,019

 

 

$

47,964

 

Software service

 

 

91,269

 

 

 

104,690

 

 

 

45,437

 

 

 

53,923

 

Professional service and other

 

 

24,375

 

 

 

26,407

 

 

 

8,649

 

 

 

14,104

 

Total revenue

 

 

167,547

 

 

 

230,725

 

 

 

81,105

 

 

 

115,991

 

Cost of revenue:

 

 

 

 

 

 

 

 

Software

 

 

9,017

 

 

 

13,860

 

 

 

4,099

 

 

 

5,970

 

Software service

 

 

25,397

 

 

 

25,312

 

 

 

13,254

 

 

 

13,359

 

Professional service and other

 

 

29,720

 

 

 

25,424

 

 

 

12,151

 

 

 

12,632

 

Amortization of acquired technology

 

 

341

 

 

 

341

 

 

 

170

 

 

 

170

 

Total cost of revenue

 

 

64,475

 

 

 

64,937

 

 

 

29,674

 

 

 

32,131

 

Gross profit

 

 

103,072

 

 

 

165,788

 

 

 

51,431

 

 

 

83,860

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development, net

 

 

76,526

 

 

 

69,542

 

 

 

38,547

 

 

 

36,130

 

Selling, general and administrative

 

 

82,445

 

 

 

95,960

 

 

 

39,043

 

 

 

45,142

 

Amortization of other acquired intangible assets

 

 

502

 

 

 

954

 

 

 

251

 

 

 

650

 

Total operating expenses

 

 

159,473

 

 

 

166,456

 

 

 

77,841

 

 

 

81,922

 

Operating (loss) income

 

 

(56,401

)

 

 

(668

)

 

 

(26,410

)

 

 

1,938

 

Other expense, net:

 

 

 

 

 

 

 

 

Interest income

 

 

340

 

 

 

65

 

 

 

193

 

 

 

42

 

Interest expense

 

 

(789

)

 

 

(10

)

 

 

(340

)

 

 

(6

)

Other income (expense), net

 

 

202

 

 

 

(417

)

 

 

(827

)

 

 

(550

)

Total other expense, net

 

 

(247

)

 

 

(362

)

 

 

(974

)

 

 

(514

)

(Loss) income before provision for income taxes

 

 

(56,648

)

 

 

(1,030

)

 

 

(27,384

)

 

 

1,424

 

Provision for income taxes

 

 

447

 

 

 

1,211

 

 

 

312

 

 

 

382

 

Net (loss) income

 

 

(57,095

)

 

 

(2,241

)

 

 

(27,696

)

 

 

1,042

 

Net income attributable to noncontrolling interest

 

 

2,147

 

 

 

2,433

 

 

 

1,178

 

 

 

1,327

 

Net loss attributable to Cognyte Software Ltd.

 

$

(59,242

)

 

$

(4,674

)

 

$

(28,874

)

 

$

(285

)

 

 

 

 

 

 

 

 

 

Net loss per share attributable to Cognyte Software Ltd.:

Basic

 

$

(0.88

)

 

$

(0.07

)

 

$

(0.43

)

 

$

(0.00

)

Diluted

 

$

(0.88

)

 

$

(0.07

)

 

$

(0.43

)

 

$

(0.00

)

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

67,494

 

 

 

66,128

 

 

 

67,677

 

 

 

66,405

 

Diluted

 

 

67,494

 

 

 

66,128

 

 

 

67,677

 

 

 

66,405

 

 

 

 

 

 

 

 

 

 

Table 2
COGNYTE SOFTWARE LTD.
Condensed Consolidated Balance Sheets

 

 

July 31,

 

January 31,

(in thousands)

 

 

2022

 

 

 

2022

 

 

 

(Unaudited)

 

(Audited)

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

32,884

 

 

$

152,590

 

Restricted cash and cash equivalents and restricted bank time deposits

 

 

4,416

 

 

 

3,597

 

Short-term investments

 

 

17,386

 

 

 

10,434

 

Accounts receivable, net of allowance for credit losses of $1.8 million and $2.1 million, respectively

 

 

133,290

 

 

 

179,198

 

Contract assets, net

 

 

32,147

 

 

 

27,908

 

Inventories

 

 

21,307

 

 

 

14,366

 

Prepaid expenses and other current assets

 

 

35,000

 

 

 

31,970

 

Total current assets

 

 

276,430

 

 

 

420,063

 

Property and equipment, net

 

 

29,611

 

 

 

30,839

 

Operating lease right-of-use assets

 

 

20,576

 

 

 

25,031

 

Goodwill

 

 

158,310

 

 

 

158,233

 

Intangible assets, net

 

 

2,320

 

 

 

3,162

 

Deferred income taxes

 

 

1,561

 

 

 

1,548

 

Other assets

 

 

25,005

 

 

 

25,729

 

Total assets

 

$

513,813

 

 

$

664,605

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

Current liabilities:

 

 

 

 

Short-term loan

 

$

20,000

 

 

 

100,000

 

Accounts payable

 

 

31,545

 

 

 

36,664

 

Accrued expenses and other current liabilities

 

 

79,177

 

 

 

99,774

 

Contract liabilities

 

 

87,594

 

 

 

83,158

 

Total current liabilities

 

 

218,316

 

 

 

319,596

 

Long-term contract liabilities

 

 

12,214

 

 

 

14,520

 

Deferred income taxes

 

 

3,475

 

 

 

3,447

 

Operating lease liabilities

 

 

13,852

 

 

 

17,179

 

Other liabilities

 

 

11,336

 

 

 

10,774

 

Total liabilities

 

 

259,193

 

 

 

365,516

 

Commitments and Contingencies

 

 

 

 

Stockholders' equity:

 

 

 

 

Common stock - $0 par value; Authorized 300,000,000 shares. Issued and outstanding 67,860,387 and 67,217,688 at July 31, 2022 and January 31, 2022, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

329,147

 

 

 

316,706

 

Accumulated deficit

 

 

(74,132

)

 

 

(14,890

)

Accumulated other comprehensive loss

 

 

(16,196

)

 

 

(16,679

)

Total Cognyte Software Ltd. stockholders' equity

 

 

238,819

 

 

 

285,137

 

Noncontrolling interest

 

 

15,801

 

 

 

13,952

 

Total stockholders' equity

 

 

254,620

 

 

 

299,089

 

Total liabilities and stockholders' equity

 

$

513,813

 

 

$

664,605

 

Table 3
COGNYTE SOFTWARE LTD.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 

 

Six Months Ended July 31,

(in thousands)

 

 

2022

 

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(57,095

)

 

$

(2,241

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

9,092

 

 

 

11,966

 

Allowance for credit losses

 

 

415

 

 

 

373

 

Stock-based compensation, excluding cash-settled awards

 

 

11,463

 

 

 

18,642

 

Provision from deferred income taxes

 

 

(60

)

 

 

 

Non-cash gains on derivative financial instruments, net

 

 

(222

)

 

 

(169

)

Other non-cash items, net

 

 

(326

)

 

 

(119

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

44,733

 

 

 

15,605

 

Contract assets

 

 

(4,409

)

 

 

(392

)

Inventories

 

 

(7,715

)

 

 

(2,068

)

Prepaid expenses and other assets

 

 

(2,535

)

 

 

1,912

 

Accounts payable and accrued expenses

 

 

(23,809

)

 

 

(9,814

)

Contract liabilities

 

 

1,911

 

 

 

(35,212

)

Other liabilities

 

 

1,395

 

 

 

938

 

Other, net

 

 

(330

)

 

 

957

 

Net cash (used in) provided by operating activities

 

$

(27,492

)

 

$

378

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment

 

 

(4,795

)

 

 

(4,767

)

Purchases of short-term investments

 

 

(28,438

)

 

 

(32,995

)

Maturities and sales of short-term investments

 

 

21,210

 

 

 

18,930

 

Settlements of derivative financial instruments not designated as hedges

 

 

153

 

 

 

(340

)

Cash paid for capitalized software development costs

 

 

(1,695

)

 

 

(3,491

)

Change in restricted bank time deposits, including long-term portion

 

 

150

 

 

 

5,616

 

Other investing activities

 

 

2

 

 

 

512

 

Net cash used in investing activities

 

$

(13,413

)

 

$

(16,535

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Repayment of credit facility - presented as short-term loan

 

 

(80,000

)

 

 

 

Dividend paid to former parent

 

 

 

 

 

(35,000

)

Payments of contingent consideration for business combinations (financing portion)

 

 

 

 

 

(949

)

Other financing activities

 

 

 

 

 

(181

)

Net cash used in financing activities

 

$

(80,000

)

 

$

(36,130

)

Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents

 

 

(101

)

 

 

273

 

Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents

 

 

(121,006

)

 

 

(52,014

)

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

 

$

37,214

 

 

$

62,643

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents at end of period:

 

 

 

 

Cash and cash equivalents

 

$

32,884

 

 

$

49,814

 

Restricted cash and cash equivalents included in restricted cash and cash equivalents and restricted bank time deposits

 

 

4,146

 

 

 

10,585

 

Restricted cash and cash equivalents included in other assets

 

 

184

 

 

 

2,244

 

Total cash, cash equivalents, restricted cash, and restricted cash equivalents

 

$

37,214

 

 

$

62,643

 

Table 4
COGNYTE SOFTWARE LTD.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)

 

 

Six Months Ended
July 31,

 

Three Months Ended
July 31,

(in thousands, except per share data)

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Revenue

Total GAAP revenue

 

$

167,547

 

 

$

230,725

 

 

$

81,105

 

 

$

115,991

 

Revenue adjustments

 

 

488

 

 

 

820

 

 

 

244

 

 

 

387

 

Total non-GAAP revenue

 

$

168,035

 

 

$

231,545

 

 

$

81,349

 

 

$

116,378

 

 

 

 

 

 

 

 

 

 

Gross profit and gross margin

 

 

 

 

 

 

 

 

GAAP gross profit

 

 

103,072

 

 

 

165,788

 

 

 

51,431

 

 

 

83,860

 

GAAP gross margin

 

 

61.5

%

 

 

71.9

%

 

 

63.4

%

 

 

72.3

%

Revenue adjustments

 

 

488

 

 

 

820

 

 

 

244

 

 

 

387

 

Amortization of acquired technology

 

 

341

 

 

 

341

 

 

 

170

 

 

 

170

 

Stock-based compensation expenses

 

 

1,471

 

 

 

2,211

 

 

 

814

 

 

 

1,175

 

Restructuring expenses, net

 

 

316

 

 

 

1

 

 

 

283

 

 

 

1

 

Separation expenses, net

 

 

 

 

 

30

 

 

 

 

 

 

(1

)

Non-GAAP gross profit

 

$

105,688

 

 

$

169,191

 

 

$

52,942

 

 

$

85,592

 

Non-GAAP gross margin

 

 

62.9

%

 

 

73.1

%

 

 

65.1

%

 

 

73.5

%

 

 

 

 

 

 

 

 

 

Research and development, net

 

 

 

 

 

 

 

 

GAAP research and development, net

 

 

76,526

 

 

 

69,542

 

 

 

38,547

 

 

 

36,130

 

As a percentage of GAAP revenue

 

 

45.7

%

 

 

30.1

%

 

 

47.5

%

 

 

31.1

%

Stock-based compensation expenses

 

 

(3,702

)

 

 

(3,982

)

 

 

(1,877

)

 

 

(1,933

)

Restructuring expenses, net

 

 

(933

)

 

 

(189

)

 

 

(933

)

 

 

(189

)

Separation expenses, net

 

 

 

 

 

(67

)

 

 

 

 

 

 

Other adjustments

 

 

2

 

 

 

40

 

 

 

 

 

 

11

 

Non-GAAP research and development, net

 

$

71,893

 

 

$

65,344

 

 

$

35,737

 

 

$

34,019

 

As a percentage of non-GAAP revenue

 

 

42.8

%

 

 

28.2

%

 

 

43.9

%

 

 

29.2

%

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

GAAP selling, general and administrative expenses

 

 

82,445

 

 

 

95,960

 

 

 

39,043

 

 

 

45,142

 

As a percentage of GAAP revenue

 

 

49.2

%

 

 

41.6

%

 

 

48.1

%

 

 

38.9

%

Stock-based compensation expenses

 

 

(6,290

)

 

 

(12,449

)

 

 

(3,667

)

 

 

(6,314

)

Acquisition (expenses) benefit, net

 

 

(97

)

 

 

(560

)

 

 

(12

)

 

 

96

 

Restructuring (expenses) benefit, net

 

 

(2,666

)

 

 

(344

)

 

 

(692

)

 

 

111

 

Separation expenses, net

 

 

(42

)

 

 

(10,768

)

 

 

(10

)

 

 

(2,155

)

Provision for legal claim

 

 

(37

)

 

 

(142

)

 

 

(7

)

 

 

 

Other adjustments

 

 

(4

)

 

 

107

 

 

 

(3

)

 

 

(29

)

Non-GAAP selling, general and administrative expenses

 

$

73,309

 

 

$

71,804

 

 

$

34,652

 

 

$

36,851

 

As a percentage of non-GAAP revenue

 

 

43.6

%

 

 

31.0

%

 

 

42.6

%

 

 

31.7

%

 

 

 

 

 

 

 

 

 

Operating (loss) income, operating margin and adjusted EBITDA

GAAP operating (loss) income

 

 

(56,401

)

 

 

(668

)

 

 

(26,410

)

 

 

1,938

 

GAAP operating margin

 

 

(33.7

)%

 

 

(0.3

)%

 

 

(32.6

)%

 

 

1.7

%

Revenue adjustments

 

 

488

 

 

 

820

 

 

 

244

 

 

 

387

 

Amortization of acquired technology

 

 

341

 

 

 

341

 

 

 

170

 

 

 

170

 

Amortization of other acquired intangible assets

 

 

502

 

 

 

954

 

 

 

251

 

 

 

650

 

Stock-based compensation expenses

 

 

11,463

 

 

 

18,642

 

 

 

6,358

 

 

 

9,422

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
July 31,

 

Three Months Ended
January 31,

(in thousands, except per share data)

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Acquisition expenses (benefit), net

 

 

97

 

 

 

560

 

 

 

12

 

 

 

(96

)

Restructuring expenses, net

 

 

3,915

 

 

 

534

 

 

 

1,908

 

 

 

79

 

Separation expenses, net

 

 

42

 

 

 

10,865

 

 

 

10

 

 

 

2,154

 

Provision for legal claim

 

 

37

 

 

 

142

 

 

 

7

 

 

 

 

Other adjustments

 

 

2

 

 

 

(147

)

 

 

3

 

 

 

18

 

Non-GAAP operating (loss) income

 

$

(39,514

)

 

$

32,043

 

 

$

(17,447

)

 

$

14,722

 

Depreciation and amortization

 

 

8,211

 

 

 

7,593

 

 

 

4,305

 

 

 

3,802

 

Adjusted EBITDA

 

$

(31,303

)

 

$

39,636

 

 

$

(13,142

)

 

$

18,524

 

Non-GAAP operating margin

 

 

(23.5

)%

 

 

13.8

%

 

 

(21.4

)%

 

 

12.7

%

Adjusted EBITDA margin

 

 

(18.6

)%

 

 

17.1

%

 

 

(16.2

)%

 

 

15.9

%

 

 

 

 

 

 

 

 

 

Other (expense) income reconciliation

GAAP other loss, net

 

 

(247

)

 

 

(362

)

 

 

(974

)

 

 

(514

)

Change in fair value of equity investment

 

 

(1,660

)

 

 

(729

)

 

 

 

 

 

 

Non-GAAP other loss, net

 

$

(1,907

)

 

$

(1,091

)

 

$

(974

)

 

$

(514

)

 

 

 

 

 

 

 

 

 

Tax provision reconciliation

GAAP provision for income taxes

 

 

447

 

 

 

1,211

 

 

 

312

 

 

 

382

 

Effective income tax rate

 

 

(0.8

)%

 

 

(117.6

)%

 

 

(1.1

)%

 

 

26.9

%

Non-GAAP tax adjustments

 

 

12,325

 

 

 

2,565

 

 

 

(17,060

)

 

 

1,351

 

Non-GAAP provision for income taxes (1)

 

$

12,772

 

 

$

3,776

 

 

$

(16,748

)

 

$

1,733

 

Non-GAAP effective income tax rate

 

 

(30.8

)%

 

 

12.2

%

 

 

90.9

%

 

 

12.2

%

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to Cognyte software Ltd. reconciliation

GAAP net loss attributable to Cognyte Software Ltd.

 

$

(59,242

)

 

$

(4,674

)

 

$

(28,874

)

 

$

(285

)

Revenue adjustments

 

 

488

 

 

 

820

 

 

 

244

 

 

 

387

 

Amortization of acquired technology

 

 

341

 

 

 

341

 

 

 

170

 

 

 

170

 

Amortization of other acquired intangible assets

 

 

502

 

 

 

954

 

 

 

251

 

 

 

650

 

Stock-based compensation expenses

 

 

11,463

 

 

 

18,642

 

 

 

6,358

 

 

 

9,422

 

Acquisition expenses (benefit), net

 

 

97

 

 

 

560

 

 

 

12

 

 

 

(96

)

Restructuring expenses, net

 

 

3,915

 

 

 

534

 

 

 

1,908

 

 

 

79

 

Separation expenses, net

 

 

42

 

 

 

10,865

 

 

 

10

 

 

 

2,154

 

Provision for legal claim

 

 

37

 

 

 

142

 

 

 

7

 

 

 

 

Other adjustments

 

 

2

 

 

 

(147

)

 

 

3

 

 

 

18

 

Change in fair value of equity investment

 

 

(1,660

)

 

 

(729

)

 

 

 

 

 

 

Non-GAAP tax adjustments

 

 

(12,325

)

 

 

(2,565

)

 

 

17,060

 

 

 

(1,351

)

Total adjustments

 

 

2,902

 

 

 

29,417

 

 

 

26,023

 

 

 

11,433

 

Non-GAAP net (loss) income attributable to Cognyte Software Ltd.

 

$

(56,340

)

 

$

24,743

 

 

$

(2,851

)

 

$

11,148

 

 

 

 

 

 

 

 

 

 

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.

 

$

(0.88

)

 

$

(0.07

)

 

$

(0.43

)

 

 

(0.00

)

Non-GAAP diluted net (loss) income per share attributable to Cognyte Software Ltd.

 

$

(0.83

)

 

$

0.37

 

 

$

(0.04

)

 

$

0.17

 

GAAP weighted-average shares used in computing diluted net loss per share attributable to Cognyte Software Ltd.

 

 

67,494

 

 

 

66,128

 

 

 

67,677

 

 

 

66,405

 

Additional weighted-average shares applicable to non-GAAP diluted net income per share attributable to Cognyte Software Ltd.

 

 

 

 

 

805

 

 

 

 

 

 

646

 

Non-GAAP diluted weighted-average shares used in computing net (loss) income per share attributable to Cognyte Software Ltd.

 

 

67,494

 

 

 

66,933

 

 

 

67,677

 

 

 

67,051

 

 

 

Six Months Ended
July 31,

 

Three Months Ended
July 31,

(in thousands, except per share data)

 

 

2022

 

 

 

2021

 

 

 

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.

 

$

(59,242

)

 

$

(4,674

)

 

$

(28,874

)

 

$

(285

)

As a percentage of GAAP revenue

 

 

(35.4

)%

 

 

(2.0

)%

 

 

(35.6

)%

 

 

(0.2

)%

Net income attributable to noncontrolling interest

 

 

2,147

 

 

 

2,433

 

 

 

1,178

 

 

 

1,327

 

GAAP provision for income taxes

 

 

447

 

 

 

1,211

 

 

 

312

 

 

 

382

 

GAAP other expense (income), net

 

 

247

 

 

 

362

 

 

 

974

 

 

 

514

 

Amortization of acquired technology

 

 

341

 

 

 

341

 

 

 

170

 

 

 

170

 

Amortization of other acquired intangible assets

 

 

502

 

 

 

954

 

 

 

251

 

 

 

650

 

Depreciation and amortization

 

 

8,211

 

 

 

7,593

 

 

 

4,305

 

 

 

3,802

 

Revenue adjustments

 

 

488

 

 

 

820

 

 

 

244

 

 

 

387

 

Stock-based compensation expenses

 

 

11,463

 

 

 

18,642

 

 

 

6,358

 

 

 

9,422

 

Acquisition expenses (benefit), net

 

 

97

 

 

 

560

 

 

 

12

 

 

 

(96

)

Restructuring expenses, net

 

 

3,915

 

 

 

534

 

 

 

1,908

 

 

 

79

 

Separation expenses, net

 

 

42

 

 

 

10,865

 

 

 

10

 

 

 

2,154

 

Provision for legal claim

 

 

37

 

 

 

142

 

 

 

7

 

 

 

 

Other adjustments

 

 

2

 

 

 

(147

)

 

 

3

 

 

 

18

 

Adjusted EBITDA

 

$

(31,303

)

 

$

39,636

 

 

$

(13,142

)

 

$

18,524

 

As a percentage of non-GAAP revenue

 

 

(18.6

)%

 

 

17.1

%

 

 

(16.2

)%

 

 

15.9

%

Table 5
COGNYTE SOFTWARE LTD.
Calculation of Change in Revenue on a Constant Currency Basis
(Unaudited)

 

 

GAAP Revenue

 

Non-GAAP Revenue

(in thousands)

 

Six Months Ended

 

Three Months Ended

 

Six Months Ended

 

Three Months Ended

Revenue for the three and six months ended July 31, 2021

 

$

230,725

 

 

$

115,991

 

 

$

231,545

 

 

$

116,378

 

Revenue for the three and six months ended July 31, 2022

 

$

167,547

 

 

$

81,105

 

 

$

168,035

 

 

$

81,349

 

Revenue for the three and six months ended July 31, 2022 at constant

currency (2)

 

$

171,000

 

 

$

83,500

 

 

$

171,500

 

 

$

84,000

 

Reported period-over-period revenue change

 

 

(27.4

)%

 

 

(30.1

)%

 

 

(27.4

)%

 

 

(30.1

)%

% impact from change in foreign currency exchange rates

 

 

1.6

%

 

 

2.2

%

 

 

1.6

%

 

 

2.2

%

Constant currency period-over-period revenue change

 

 

(25.8

)%

 

 

(27.8

)%

 

 

(25.9

)%

 

 

(27.9

)%

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 $7.8 and $4.8 million for the six and three months ended July 31, 2022, respectively, and $3.3 and $2.9 million for the six and three months ended July 31, 2021, respectively.

(2) Revenue for the three and six months ended July 31, 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 and six months ended July 31, 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 (loss) 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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