Verint Announces Q3 FYE 2024 Results

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Verint® (Nasdaq: VRNT), The Customer Engagement Company™, today announced results for the three and nine months ended October 31, 2023 (FYE 2024). Revenue for the three months ended October 31, 2023 was $219 million, representing (3)% year-over-year change. Revenue for the nine months ended October 31, 2023 was $645 million on a GAAP basis and $646 million on a non-GAAP basis, representing (3)% year-over-year change on both a GAAP and non-GAAP basis. For the three months ended October 31, 2023, diluted EPS was $0.12 on a GAAP basis and $0.65 on a non-GAAP basis. For the nine months ended October 31, 2023, net loss per share was $(0.09) on a GAAP basis and diluted EPS was $1.67 on a non-GAAP basis.

“We are pleased to have overachieved our revenue and non-GAAP diluted EPS expectations in Q3 and believe we are on track to complete the year with strong 11% revenue growth in Q4. Our 12 month SaaS pipeline at the end of Q3 was up more than 20% year-over-year and we are pleased with the increase in customer AI adoption with the majority of our Q3 new SaaS ACV bookings including Verint AI-Powered Bots. We look forward to reviewing our significant AI differentiation and the positive impact customer AI adoption has on our financial model at our investor day next week,” said Dan Bodner, Verint CEO.

Q3 FYE 2024 Highlights

SaaS ARR: Up 11% year-over-year
New SaaS ACV Bookings: $25 Million, or an annual run-rate of ~$100 million
% of New ACV Bookings Including Bots: >50%, with customer AI adoption increasing
Favorable Mix Shift to Recurring Revenue: 87% of software revenue recurring year-to-date (up ~200bps year-over-year)
Gross Margin: Up more than 100bps year-to-date compared to the same period last year
GAAP Cash From Operations: Up 19% year-to-date compared to the same period last year

Grant Highlander, Verint CFO, added, “SaaS ARR is becoming an important metric to understand our SaaS growth trends as customers shift to the Verint cloud, and I am pleased that SaaS ARR increased 11% in Q3 year-over-year. I am also pleased with our strong margins and 19% year-over-year increase in GAAP cash from operations year-to-date, which provides us with financial flexibility as we continue to execute on our previously announced $200 million stock buyback program. Going forward, Verint is well positioned for the market shift to more bots and fewer contact center agents. Verint deploying more bot licenses with fewer agent licenses will increase our TAM overall, and provide us the opportunity to accelerate SaaS revenue growth.”

FYE 2024 Outlook

We are providing our non-GAAP outlook for the year ending January 31, 2024 as follows:

Revenue: $910 million +/- 2%
SaaS Revenue: 15% year-over-year growth
Diluted EPS: $2.65 at the midpoint of our revenue guidance, reflecting 5% year-over-year growth

Our non-GAAP outlook for year ending January 31, 2024 excludes the following GAAP measure which we are able to quantify with reasonable certainty:

Amortization of intangible assets of approximately $33 million.

Our non-GAAP outlook for the year ending January 31, 2024 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.
Stock-based compensation expenses are expected to be between approximately $67 million and $69 million, assuming market prices for our common stock approximately consistent with current levels.
Costs associated with modifying our workplace in response to our decision to move to a hybrid work environment, including assumed lease terminations and abandonments, IT facilities and infrastructure costs, and other nonrecurring charges are expected to be between approximately $26 million and $28 million.

Our non-GAAP guidance 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 and nine months ended October 31, 2023 and 2022 for the GAAP measures excluded from our non-GAAP outlook appear in Tables 2, 3 and 4 of this press release.

Q3 Conference Call Information

We will conduct a conference call today at 4:30 p.m. ET to discuss our results for the three and nine months ended October 31, 2023 and outlook. An online, real-time webcast of the conference call and webcast slides will be available on our website at www.verint.com. Participants may register for the call here to receive the dial-in numbers and unique PIN to access the call. Please join the call 5-10 minutes prior to the scheduled start time.

Investor Day Information

We will host an Investor Day on Wednesday, December 13, 2023 at 10 a.m. ET which will focus on Verint’s AI differentiation and CX automation opportunity. A Q&A session will follow the prepared remarks. To register for the Investor Day, which will be hosted virtually, please visit the event’s registration page by clicking here.

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 continuously elevate the customer experience (CX) and reduce operating costs. More than 10,000 organizations in 175 countries – including over 85 of the Fortune 100 companies – rely on Verint’s open customer engagement platform to harness the power of data and artificial intelligence (AI) to maximize CX automation.

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, rising interest rates, tightening credit markets, inflation, instability in the banking sector, actual or threatened trade wars, political unrest, armed conflicts, natural disasters, or outbreaks of disease (such as the COVID-19 pandemic), as well as the resulting impact on spending by customers or partners, on our business; risks that our customers or partners delay, downsize, cancel, or refrain from placing orders or renewing subscriptions or contracts, or are unable to honor contractual commitments or payment obligations due to challenges or uncertainties in their budgets, liquidity or and businesses; risks associated with our ability to keep pace with technological advances and challenges and evolving industry standards, including achieving and maintaining the competitive differentiation of our solution platform; 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 and services 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 and our ability to keep pace with competitors, some of whom may be able to grow faster than us or have greater resources than us, including in areas such as sales and marketing, branding, technological innovation and development, and recruiting and retention; risks associated with our ability to properly execute on our software as a service (“SaaS”) transition, including successfully transitioning customers to our cloud platform and the 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 relating to our ability to properly identify and execute on growth or strategic initiatives, manage investments in our business and operations, 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 or costs to retain, recruit , and train qualified personnel and management in regions in which we operate either physically or remotely, including in new markets and growth areas we may enter, due to competition for talent, increased labor costs, applicable regulatory requirements, or otherwise; challenges associated with selling sophisticated solutions and cloud-based solutions, which may incorporate newer technologies, such as artificial intelligence, whose adoption and use-cases are still emerging, including with respect to longer sales cycles, more complex sales processes and customer evaluation and approval processes, more complex contractual and information security requirements, and assisting customers in understanding and realizing the benefits of our solutions and technologies, as well as with developing, offering, implementing, and maintaining an enterprise class, broad solution portfolio; risks that we may be unable to maintain, expand, or enable our relationships with partners as part of our growth strategy, including partners with whom we may overlap or compete, while avoiding excessive concentration with one or more partners; risks associated with our reliance on third-party suppliers, partners, or original equipment manufacturers (“OEMs”) for certain services, products, or components, including companies that may compete with us or work with our competitors; risks associated with our significant international operations, including exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, inflation, increased financial accounting and reporting burdens and complexities, 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 and regulatory requirements; 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, legacy liabilities, reputational considerations, capital constraints, costs and expenses, maintaining profitability levels, expansion into new areas, management distraction, post-acquisition integration activities, and potential asset impairments; risks associated with complex and changing domestic and foreign regulatory environments, including, among others, with respect to data privacy, artificial intelligence, cyber / information security, government contracts, anti-corruption, trade compliance, climate change or other environmental, social and governance matters, tax, and labor matters, relating to our own operations, the products and services we offer, and/or the use of our solutions by our customers; 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 services offerings or when we are asked to perform service or support; risks associated with our reliance on third parties to provide certain cloud hosting or other cloud-based services to us or our customers, including the risk of service disruption, data breaches, or data loss or corruption; 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, vulnerabilities, or develop operational problems; risk that we or our solutions maybe subject to 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 February 1, 2021 spin-off of our former Cyber Intelligence Solutions business, including the possibility that the spin-off transaction 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, 2023, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2023, our Quarterly Report on Form 10-Q for the quarter ended July 31, 2023, our Quarterly Report on Form 10-Q for the quarter ended October 31, 2023, when filed, and other filings we make with the SEC.

VERINT, VERINT DA VINCI, VERINT OPEN CCAAS, THE CUSTOMER ENGAGEMENT COMPANY, BOUNDLESS CUSTOMER ENGAGEMENT and THE ENGAGEMENT CAPACITY GAP 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 October 31,						Nine Months Ended October 31,
(in thousands, except per share data)	2023			2022			2023			2022
Revenue:
Recurring	$	161,117		$	174,222		$	488,555		$	500,029
Nonrecurring		57,430			50,971			156,723			165,969
Total revenue		218,547			225,193			645,278			665,998
Cost of revenue:
Recurring		38,883			38,834			118,093			120,714
Nonrecurring		25,046			28,013			79,213			90,781
Amortization of acquired technology		1,609			3,550			5,511			10,742
Total cost of revenue		65,538			70,397			202,817			222,237
Gross profit		153,009			154,796			442,461			443,761
Operating expenses:
Research and development, net		32,084			32,941			97,923			97,844
Selling, general and administrative		87,879			93,757			297,532			302,344
Amortization of other acquired intangible assets		6,328			6,420			19,028			19,887
Total operating expenses		126,291			133,118			414,483			420,075
Operating income		26,718			21,678			27,978			23,686
Other income (expense), net:
Interest income		1,650			1,045			5,440			1,742
Interest expense		(2,609	)		(2,147	)		(7,994	)		(5,511	)
Other income, net		59			1,045			59			3,186
Total other expense, net		(900	)		(57	)		(2,495	)		(583	)
Income before provision for income taxes		25,818			21,621			25,483			23,103
Provision for income taxes		12,953			17,395			14,772			20,539
Net income		12,865			4,226			10,711			2,564
Net income attributable to noncontrolling interests		253			150			804			614
Net income attributable to Verint Systems Inc.		12,612			4,076			9,907			1,950
Dividends on preferred stock		(5,200	)		(5,200	)		(15,600	)		(15,600	)
Net income (loss) attributable to Verint Systems Inc. common shares	$	7,412		$	(1,124	)	$	(5,693	)	$	(13,650	)

Net income (loss) per common share attributable to Verint Systems Inc.:
Basic	$	0.12		$	(0.02	)	$	(0.09	)	$	(0.21	)
Diluted	$	0.12		$	(0.02	)	$	(0.09	)	$	(0.21	)

Weighted-average common shares outstanding:
Basic		63,887			65,583			64,411			65,161
Diluted		64,144			65,583			64,411			65,161

Table 2 VERINT SYSTEMS INC. AND SUBSIDIARIES GAAP to Non-GAAP SaaS Metrics (Unaudited)


SaaS Revenue

	Three Months Ended October 31,				Nine Months Ended October 31,
(in thousands)	2023		2022		2023		2022
Bundled SaaS revenue – GAAP	$	63,251	$	57,041	$	184,770	$	161,005
Unbundled SaaS revenue – GAAP		52,400		58,746		161,470		152,066
SaaS revenue – GAAP		115,651		115,787		346,240		313,071

Estimated bundled SaaS revenue adjustments		117		374		960		2,323
Estimated unbundled SaaS revenue adjustments		—		—		—		—
Estimated SaaS revenue adjustments		117		374		960		2,323

Bundled SaaS revenue – non-GAAP		63,368		57,415		185,730		163,328
Unbundled SaaS revenue – non-GAAP		52,400		58,746		161,470		152,066
SaaS revenue – non-GAAP	$	115,768	$	116,161	$	347,200	$	315,394

New SaaS ACV
		Three Months Ended October 31,				Nine Months Ended October 31,
(in thousands)		2023		2022		2023		2022
New SaaS ACV	$	25,389	$	26,833	$	67,838	$	78,178
New SaaS ACV – Last Twelve Months		91,713		108,466

SaaS ARR
		Three Months Ended October 31,
(in thousands)		2023		2022
SaaS ARR	$	512,304	$	460,812

Table 3 VERINT SYSTEMS INC. AND SUBSIDIARIES Reconciliation of GAAP to Non-GAAP Measures (Unaudited)


Revenue

	Three Months Ended October 31,				Nine Months Ended October 31,
(in thousands)	2023		2022		2023		2022
Recurring revenue – GAAP	$	161,117	$	174,222	$	488,555	$	500,029
Nonrecurring revenue – GAAP		57,430		50,971		156,723		165,969
Total GAAP revenue		218,547		225,193		645,278		665,998
Recurring revenue adjustments		120		423		989		2,498
Nonrecurring revenue adjustments		—		—		—		—
Total revenue adjustments		120		423		989		2,498
Recurring revenue – non-GAAP		161,237		174,645		489,544		502,527
Nonrecurring revenue – non-GAAP		57,430		50,971		156,723		165,969
Total non-GAAP revenue		218,667		225,616		646,267		668,496

Gross Profit and Gross Margin

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
Recurring cost of revenues	$	38,883		$	38,834		$	118,093		$	120,714
Nonrecurring cost of revenues		25,046			28,013			79,213			90,781
Amortization of acquired technology		1,609			3,550			5,511			10,742
Total GAAP cost of revenue		65,538			70,397			202,817			222,237
GAAP gross profit		153,009			154,796			442,461			443,761
GAAP gross margin		70.0	%		68.7	%		68.6	%		66.6	%
Revenue adjustments		120			423			989			2,498
Amortization of acquired technology		1,609			3,550			5,511			10,742
Stock-based compensation expenses		1,093			1,329			2,905			4,245
Acquisition expenses, net		31			—			353			176
Restructuring (benefit) expenses, net		(2	)		593			1,447			969
Non-GAAP gross profit	$	155,860		$	160,691		$	453,666		$	462,391
Non-GAAP gross margin		71.3	%		71.2	%		70.2	%		69.2	%

Research and Development, net

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP research and development, net	$	32,084		$	32,941		$	97,923		$	97,844
As a percentage of GAAP revenue		14.7	%		14.6	%		15.2	%		14.7	%
Stock-based compensation expenses		(3,025	)		(3,533	)		(8,818	)		(10,371	)
Acquisition expenses, net		(20	)		—			(96	)		(198	)
Restructuring expenses		(1	)		(509	)		(316	)		(646	)
IT facilities and infrastructure realignment		—			—			(1,648	)		—
Other adjustments		—			(17	)		—			(67	)
Non-GAAP research and development, net	$	29,038		$	28,882		$	87,045		$	86,562
As a percentage of non-GAAP revenue		13.3	%		12.8	%		13.5	%		12.9	%

Selling, General and Administrative Expenses

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP selling, general and administrative expenses	$	87,879		$	93,757		$	297,532		$	302,344
As a percentage of GAAP revenue		40.2	%		41.6	%		46.1	%		45.4	%
Stock-based compensation expenses		(12,068	)		(15,037	)		(38,563	)		(49,346	)
Acquisition benefit (expenses), net		207			(1,172	)		(5,671	)		(2,661	)
Restructuring expenses		(483	)		(1,324	)		(3,337	)		(7,807	)
Separation expenses		(240	)		(291	)		(605	)		(1,142	)
Accelerated lease costs		(98	)		(725	)		(5,262	)		(7,831	)
IT facilities and infrastructure realignment		(1,937	)		(1,095	)		(16,816	)		(3,526	)
Impairment charges		—			—			—			(1,799	)
Other adjustments		(1	)		(900	)		(212	)		(2,511	)
Non-GAAP selling, general and administrative expenses	$	73,259		$	73,213		$	227,066		$	225,721
As a percentage of non-GAAP revenue		33.5	%		32.5	%		35.1	%		33.8	%

Operating Income and Operating Margin

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP operating income	$	26,718		$	21,678		$	27,978		$	23,686
GAAP operating margin		12.2	%		9.6	%		4.3	%		3.6	%
Revenue adjustments		120			423			989			2,498
Amortization of acquired technology		1,609			3,550			5,511			10,742
Amortization of other acquired intangible assets		6,328			6,420			19,028			19,887
Stock-based compensation expenses		16,186			19,899			50,286			63,962
Acquisition (benefit) expenses, net		(156	)		1,172			6,120			3,035
Restructuring expenses		482			2,426			5,100			9,422
Separation expenses		240			291			605			1,142
Accelerated lease costs		98			725			5,262			7,831
IT facilities and infrastructure realignment		1,937			1,095			18,464			3,526
Impairment charges		—			—			—			1,799
Other adjustments		1			917			212			2,578
Non-GAAP operating income	$	53,563		$	58,596		$	139,555		$	150,108
Non-GAAP operating margin		24.5	%		26.0	%		21.6	%		22.5	%

Other Expense, Net

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP other expense, net	$	(900	)	$	(57	)	$	(2,495	)	$	(583	)
Losses on early retirements of debt		—			—			237			—
Acquisition benefit, net		—			—			(156	)		—
Separation expenses		(113	)		—			(232	)		—
Non-GAAP other expense, net⁽¹⁾	$	(1,013	)	$	(57	)	$	(2,646	)	$	(583	)

Provision for Income Taxes

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP provision for income taxes	$	12,953		$	17,395		$	14,772		$	20,539
GAAP effective income tax rate		50.2	%		80.5	%		58.0	%		88.9	%
Non-GAAP income tax adjustments		(8,640	)		(11,296	)		(2,786	)		(5,204	)
Non-GAAP provision for income taxes	$	4,313		$	6,099		$	11,986		$	15,335
Non-GAAP effective income tax rate		8.2	%		10.4	%		8.8	%		10.3	%

Net Income (Loss) Attributable to Verint Systems Inc. Common Shares

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP net income (loss) attributable to Verint Systems Inc. common shares	$	7,412		$	(1,124	)	$	(5,693	)	$	(13,650	)
Revenue adjustments		120			423			989			2,498
Amortization of acquired technology		1,609			3,550			5,511			10,742
Amortization of other acquired intangible assets		6,328			6,420			19,028			19,887
Stock-based compensation expenses		16,186			19,899			50,286			63,962
Losses on early retirements of debt		—			—			237			—
Acquisition (benefit) expenses, net		(156	)		1,172			5,964			3,035
Restructuring expenses		482			2,425			5,100			9,422
Separation expenses		127			291			373			1,142
Accelerated lease costs		98			725			5,262			7,831
IT facilities and infrastructure realignment		1,937			1,095			18,464			3,526
Impairment charges		—			—			—			1,799
Other adjustments		1			917			212			2,578
Non-GAAP tax adjustments		8,640			11,296			2,786			5,204
Dividends, reversed due to assumed conversion of preferred stock⁽³⁾		5,200			5,200			15,600			15,600
Total adjustments		40,572			53,413			129,812			147,226
Non-GAAP net income attributable to Verint Systems Inc. common shares	$	47,984		$	52,289		$	124,119		$	133,576

Diluted Net Income (Loss) Per Common Share Attributable to Verint Systems Inc.

	Three Months Ended October 31,					Nine Months Ended October 31,
(in thousands, except per share data)	2023		2022			2023			2022
GAAP diluted net income (loss) per common share attributable to Verint Systems Inc.	$	0.12	$	(0.02	)	$	(0.09	)	$	(0.21	)
Non-GAAP diluted net income per common share attributable to Verint Systems Inc.⁽³⁾	$	0.65	$	0.69		$	1.67		$	1.77

GAAP weighted-average shares used in computing diluted net income (loss) per common share attributable to Verint Systems Inc.		64,144		65,583			64,411			65,161
Additional weighted-average shares applicable to non-GAAP diluted net income per common share attributable to Verint Systems Inc.		9,478		10,004			9,802			10,364
Non-GAAP diluted weighted-average shares used in computing net income per common share attributable to Verint Systems Inc.⁽³⁾		73,622		75,587			74,213			75,525

GAAP Net Income to Adjusted EBITDA

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP net income	$	12,865		$	4,226		$	10,711		$	2,564
As a percentage of GAAP revenue		5.9	%		1.9	%		1.7	%		0.4	%
Provision for income taxes		12,953			17,395			14,772			20,539
Other expense, net		900			57			2,495			583
Depreciation and amortization⁽²⁾		13,874			16,158			55,394			50,199
Revenue adjustments		120			423			989			2,498
Stock-based compensation expenses		16,186			19,899			50,286			63,962
Acquisition (benefit) expenses, net		(156	)		1,172			6,120			3,035
Restructuring expenses		476			2,348			5,007			9,090
Separation expenses		240			291			605			1,142
Accelerated lease costs		98			725			5,262			7,831
IT facilities and infrastructure realignment		1,679			1,095			6,657			3,526
Impairment charges		—			—			—			1,799
Other adjustments		1			917			212			2,578
Adjusted EBITDA	$	59,236		$	64,706		$	158,510		$	169,346
As a percentage of non-GAAP revenue		27.1	%		28.7	%		24.5	%		25.3	%

Gross Debt to Net Debt

(in thousands)	October 31, 2023		January 31, 2023
Long-term debt	$	410,461	$	408,908
Unamortized debt discounts and issuance costs		4,539		6,092
Gross debt		415,000		415,000
Less:
Cash and cash equivalents		209,647		282,099
Restricted cash and cash equivalents, and restricted bank time deposits		1,763		300
Short-term investments		684		697
Net debt, excluding long-term restricted cash, cash equivalents, time deposits, and investments		202,906		131,904
Long-term restricted cash, cash equivalents, time deposits, and investments		175		287
Net debt, including long-term restricted cash, cash equivalents, time deposits, and investments	$	202,731	$	131,617

(1) For the three months ended October 31, 2023, non-GAAP other expense, net of $1.0 million was primarily comprised of interest and other expense.

(2) Adjusted for financing fee amortization.

(3) EPS calculation includes the more dilutive of either preferred stock dividends or conversion of preferred stock shares. Conversion of the outstanding preferred shares was more dilutive in the three and nine months ended October 31, 2023 and 2022.

Table 4 VERINT SYSTEMS INC. AND SUBSIDIARIES GAAP to Non-GAAP Recurring and Nonrecurring Revenue and Gross Profit (Unaudited)


Recurring and Nonrecurring Revenue

	Three Months Ended October 31,				Nine Months Ended October 31,
(in thousands)	2023		2022		2023		2022
Recurring revenue – GAAP	$	161,117	$	174,222	$	488,555	$	500,029
SaaS revenue – GAAP		115,651		115,787		346,240		313,071
Optional managed services revenue – GAAP		11,842		15,436		36,872		47,127
Support revenue – GAAP		33,624		42,999		105,443		139,831
Nonrecurring revenue – GAAP		57,430		50,971		156,723		165,969
Perpetual revenue – GAAP		24,557		24,425		74,103		88,473
Professional services revenue – GAAP		32,873		26,546		82,620		77,496
Total revenue – GAAP		218,547		225,193		645,278		665,998

Estimated recurring revenue adjustments		120		423		989		2,498
Estimated SaaS revenue adjustments		117		374		960		2,323
Estimated optional managed services revenue		3		49		29		161
Estimated support revenue adjustments		—		—		—		14
Estimated nonrecurring revenue adjustments		—		—		—		—
Estimated perpetual revenue adjustments		—		—		—		—
Estimated professional services revenue adjustments		—		—		—		—
Total estimated revenue adjustments		120		423		989		2,498

Recurring revenue – non-GAAP		161,237		174,645		489,544		502,527
SaaS revenue – non-GAAP		115,768		116,161		347,200		315,394
Optional managed services revenue – non-GAAP		11,845		15,485		36,901		47,288
Support revenue – non-GAAP		33,624		42,999		105,443		139,845
Nonrecurring revenue – non-GAAP		57,430		50,971		156,723		165,969
Perpetual revenue – non-GAAP		24,557		24,425		74,103		88,473
Professional services revenue – non-GAAP		32,873		26,546		82,620		77,496
Total revenue – non-GAAP	$	218,667	$	225,616	$	646,267	$	668,496

Recurring Gross Profit

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP recurring revenue	$	161,117		$	174,222		$	488,555		$	500,029
GAAP recurring cost of revenues		38,883			38,834			118,093			120,714
GAAP recurring gross profit		122,234			135,388			370,462			379,315
GAAP recurring gross margin		75.9	%		77.7	%		75.8	%		75.9	%

Recurring revenue adjustments		120			423			989			2,498
Recurring stock-based compensation expenses		523			729			1,505			2,187
Recurring acquisition expenses, net		31			—			353			22
Recurring restructuring (benefit) expenses, net		(14	)		459			933			588
Non-GAAP recurring gross profit	$	122,894		$	136,999		$	374,242		$	384,610
Non-GAAP recurring gross margin		76.2	%		78.4	%		76.4	%		76.5	%

Nonrecurring Gross Profit

	Three Months Ended October 31,						Nine Months Ended October 31,
(in thousands)	2023			2022			2023			2022
GAAP nonrecurring revenue	$	57,430		$	50,971		$	156,723		$	165,969
GAAP nonrecurring cost of revenues		25,046			28,013			79,213			90,781
GAAP nonrecurring gross profit		32,384			22,958			77,510			75,188
GAAP nonrecurring gross margin		56.4	%		45.0	%		49.5	%		45.3	%

Nonrecurring revenue adjustments		—			—			—			—
Nonrecurring stock-based compensation expenses		570			600			1,400			2,058
Nonrecurring acquisition expenses, net		—			—			—			154
Nonrecurring restructuring expenses		12			134			514			381
Non-GAAP nonrecurring gross profit	$	32,966		$	23,692		$	79,424		$	77,781
Non-GAAP nonrecurring gross margin		57.4	%		46.5	%		50.7	%		46.9	%

Table 5 VERINT SYSTEMS INC. AND SUBSIDIARIES Calculation of Change in Revenue on a Constant Currency Basis (Unaudited)

	GAAP Revenue⁽²⁾						Non-GAAP Revenue⁽³⁾
(in thousands, except percentages)	Three Months Ended			Nine Months Ended			Three Months Ended			Nine Months Ended
Revenue for the three and nine months ended October 31, 2022	$	225,193		$	665,998		$	225,616		$	668,496
Revenue for the three and nine months ended October 31, 2023	$	218,547		$	645,278		$	218,667		$	646,267
Revenue for the three and nine months ended October 31, 2023 at constant currency⁽¹⁾	$	217,000		$	646,000		$	217,000		$	647,000
Reported period-over-period revenue change		(3.0	)%		(3.1	)%		(3.1	)%		(3.3	)%
% impact from change in foreign currency exchange rates		(0.6	)%		0.1	%		(0.7	)%		0.1	%
Constant currency period-over-period revenue change		(3.6	)%		(3.0	)%		(3.8	)%		(3.2	)%

(1) Revenue for the three and nine months ended October 31, 2023 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 nine months ended October 31, 2022 rather than actual current-period foreign currency exchange rates.

(2) GAAP revenue denominated in non-U.S. dollars was 20% and 19% of our total GAAP revenue for the three months ended October 31, 2023 and 2022, respectively. GAAP revenue denominated in non-U.S. dollars was 21% of our total GAAP revenue for each of the nine months ended October 31, 2023 and 2022. Our combined GAAP cost of revenue and operating expenses denominated in non-U.S. dollars was 32% and 29% of our total combined GAAP cost of revenue and operating expenses for the three months ended October 31, 2023 and 2022, respectively. Our combined GAAP cost of revenue and operating expenses denominated in non-U.S. dollars was 31% and 30% of our total combined GAAP cost of revenue and operating expenses for the nine months ended October 31, 2023 and 2022, respectively.

(3) Non-GAAP revenue denominated in non-U.S. dollars was 20% and 19% of our total non-GAAP revenue for the three months ended October 31, 2023 and 2022, respectively. Non-GAAP revenue denominated in non-U.S. dollars was 21% of our total non-GAAP revenue for each of the nine months ended October 31, 2023 and 2022. Our combined Non-GAAP cost of revenue and operating expenses denominated in non-U.S. dollars was 36% and 33% of our total combined Non-GAAP cost of revenue and operating expenses for the three months ended October 31, 2023 and 2022, respectively. Our combined Non-GAAP cost of revenue and operating expenses denominated in non-U.S. dollars was 35% and 34% of our total combined Non-GAAP cost of revenue and operating expenses for the nine months ended October 31, 2023 and 2022, respectively.

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)

	October 31,			January 31,
(in thousands, except share and per share data)	2023			2023
Assets
Current Assets:
Cash and cash equivalents	$	209,647		$	282,099
Short-term investments		684			697
Accounts receivable, net of allowance for credit losses of $1.5 million and $1.3 million, respectively		173,592			188,414
Contract assets, net		50,338			60,444
Inventories		13,042			12,628
Prepaid expenses and other current assets		56,316			75,374
Total current assets		503,619			619,656
Property and equipment, net		47,556			64,810
Operating lease right-of-use assets		28,533			37,649
Goodwill		1,343,449			1,347,213
Intangible assets, net		64,219			85,272
Other assets		147,258			159,001
Total assets	$	2,134,634		$	2,313,601

Liabilities, Temporary Equity, and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	22,172		$	43,631
Accrued expenses and other current liabilities		110,261			155,944
Contract liabilities		237,668			271,476
Total current liabilities		370,101			471,051
Long-term debt		410,461			408,908
Long-term contract liabilities		12,067			18,047
Operating lease liabilities		31,466			40,744
Other liabilities		68,853			80,381
Total liabilities		892,948			1,019,131
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 October 31, 2023 and January 31, 2023, respectively; aggregate liquidation preference and redemption value of $203,467 and $206,067 at October 31, 2023 and January 31, 2023, respectively.		200,628			200,628
Series B Preferred Stock; 200,000 shares issued and outstanding at October 31, 2023 and January 31, 2023, respectively; aggregate liquidation preference and redemption value of $203,467 and $206,067 at October 31, 2023 and January 31, 2023, respectively.		235,693			235,693
Total temporary equity		436,321			436,321
Stockholders’ Equity:
Common stock — $0.001 par value; authorized 240,000,000 shares; issued 63,465,000 and 65,404,000 shares; outstanding 63,465,000 and 65,404,000 shares at October 31, 2023 and January 31, 2023, respectively.		63			65
Additional paid-in capital		999,634			1,055,157
Accumulated deficit		(35,426	)		(45,333	)
Accumulated other comprehensive loss		(161,579	)		(154,099	)
Total Verint Systems Inc. stockholders’ equity		802,692			855,790
Noncontrolling interest		2,673			2,359
Total stockholders’ equity		805,365			858,149
Total liabilities, temporary equity, and stockholders’ equity	$	2,134,634		$	2,313,601

Table 7 VERINT SYSTEMS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended October 31,
(in thousands)	2023			2022
Cash flows from operating activities:
Net income	$	10,711		$	2,564
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		57,287			52,166
Stock-based compensation, excluding cash-settled awards		50,286			63,957
Losses on early retirements of debt		237			—
Other, net		5,676			8,072
Changes in operating assets and liabilities, net of effects of business combinations and divestitures:
Accounts receivable		13,545			22,079
Contract assets		9,943			(8,256	)
Inventories		(415	)		(5,452	)
Prepaid expenses and other assets		32,609			(16,274	)
Accounts payable and accrued expenses		(50,080	)		(9,542	)
Contract liabilities		(39,299	)		(38,513	)
Deferred income taxes		1,788			(1,489	)
Other, net		(10,609	)		(701	)
Net cash provided by operating activities		81,679			68,611

Cash flows from investing activities:
Cash paid for asset acquisitions and business combinations, including adjustments, net of cash acquired		(3,173	)		(3,828	)
Purchases of property and equipment		(12,839	)		(17,920	)
Maturities and sales of investments		3,168			250
Purchases of investments		(3,180	)		(10,168	)
Cash paid for capitalized software development costs		(7,109	)		(5,703	)
Change in restricted bank time deposits, and other investing activities, net		(1,200	)		(107	)
Net cash used in investing activities		(24,333	)		(37,476	)

Cash flows from financing activities:
Proceeds from borrowings		100,000			—
Repayments of borrowings and other financing obligations		(102,430	)		(3,025	)
Payments of debt-related costs		(232	)		(224	)
Purchases of treasury stock and common stock for retirement		(99,263	)		(106,137	)
Preferred stock dividend payments		(20,800	)		(20,800	)
Distributions paid to noncontrolling interest		(490	)		(637	)
Payments of contingent consideration for business combinations (financing portion), and other financing activities		(4,182	)		(3,518	)
Net cash used in financing activities		(127,397	)		(134,341	)
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents		(700	)		(3,510	)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents		(70,751	)		(106,716	)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period		282,161			358,868
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	$	211,410		$	252,152

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	$	209,647		$	252,073
Restricted cash and cash equivalents included in prepaid expenses and other current assets		1,763			22
Restricted cash and cash equivalents included in other assets		—			57
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	211,410		$	252,152

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 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 (loss) attributable to Verint Systems Inc. common shares, non-GAAP diluted net income (loss) per common share attributable to Verint Systems Inc., adjusted EBITDA and adjusted EBITDA as a percentage of non-GAAP revenue, 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. For acquisitions completed prior to February 1, 2023, we exclude from our non-GAAP revenue the impact of fair value adjustments required under previous GAAP guidance relating to SaaS services, optional managed services and customer support contracts acquired in a business acquisition, which would have otherwise been recognized on a stand-alone basis. Beginning February 1, 2023, we adopted accounting guidance which eliminates the fair value provision that resulted in the accounting adjustment on a prospective 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 under prior accounting guidance. 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 unit and performance stock unit 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.

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.

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 (benefit). We exclude restructuring expenses (benefit) from our non-GAAP financial measures, which include employee termination costs, facility exit costs (except as included in accelerated lease costs and IT facilities and infrastructure realignment described below), certain professional fees, asset impairment charges (except as included in acquisition or IT facilities and infrastructure realignment), 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 spin-off of our former Cyber Intelligence Solutions business. We exclude from our non-GAAP financial measures expenses incurred in connection with the spin-off, including third-party advisory, accounting, legal, tax, 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 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 and other expense adjustments associated with a tax-related indemnification asset as a result of the spin-off. 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.

Accelerated lease costs. We exclude from our non-GAAP financial measures accelerated facility costs and associated accelerated lease expenses, including losses on terminations, due to the early termination or abandonment of certain office leases as a result of our move to a hybrid work model because these charges are not reflective of our ongoing business and operating results.

IT facilities and infrastructure realignment. We exclude from our non-GAAP financial measures nonrecurring IT facilities and infrastructure realignment costs and other IT charges associated with modifying the workplace, including consolidating and/or migrating data centers and labs to the cloud, simplifying the corporate network, and one-time costs for implementing collaboration tools to enable our work from anywhere strategy, as well as asset impairment charges, accelerated depreciation and IT facility exit costs.

Impairment charges and other adjustments. We exclude from our non-GAAP financial measures asset impairment charges (other than those already included within restructuring, acquisition, or IT facilities and realignment 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.

Non-GAAP income tax adjustments. We exclude from our non-GAAP measures of net income attributable to Verint Systems Inc., our GAAP provision for (benefit from) income taxes 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, 2024 is currently approximately 9% and was 9% for the year ended January 31, 2023. 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 SaaS revenue, optional managed services 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, training and patent license royalties.

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 are recurring services that are intended to improve our customers’ operations and reduce expenses.

Percentage of software revenue that is recurring revenue is calculated as the sum of SaaS revenue, optional managed services revenue and support revenue as a percentage of total SaaS revenue, optional managed services revenue, support revenue, and perpetual revenue.

New SaaS Annual Contract Value (ACV) includes the annualized contract value of all new SaaS contracts received within the period; new unbundled SaaS contracts only include the license portion of those orders. 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. Orders are only included in New SaaS ACV with a completed customer contract signed by both parties before the end of the period.

SaaS Annual Recurring Revenue (SaaS ARR) represents the annualized quarterly run-rate value of active or signed SaaS contracts as of the end of a period. For unbundled SaaS contracts, the amount included in SaaS ARR is generally consistent with the amount that we invoice the customer annually for the term-based license transaction. We use SaaS ARR to identify the annual recurring value of customer contracts at the end of a reporting period and to monitor the growth of our recurring business as we shift to SaaS. SaaS ARR reduces fluctuations due to seasonality, contract term, and the sales mix of subscriptions for bundled SaaS and unbundled SaaS. SaaS ARR should be viewed independently of revenue, and does not represent our revenue under ASC 606 on an annualized basis, as it is an operating metric that is impacted by contract start and end dates and renewal rates. SaaS ARR is not intended to be a replacement for forecasts of SaaS revenue.

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, stock-based compensation expenses, revenue adjustments, restructuring expenses, acquisition expenses, separation expenses, accelerated lease costs, IT facilities and infrastructure realignment, 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 expenses, 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, GAAP and non-GAAP recurring revenue, GAAP and non-GAAP SaaS 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 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, 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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