Cognyte Announces Third Quarter Results

HERZLIYA, Israel–(BUSINESS WIRE)–Cognyte Software Ltd. (NASDAQ: CGNT) (the “Company,” “Cognyte,” “we,” “us” and “our”), a global leader in security analytics software, today announced results for the three and nine months ended October 31, 2021 (“Q3 FYE22” and “YTD FYE22”).

“We are pleased with our third quarter results which came in ahead of expectations for both revenue and EPS. During the quarter, we received many large deals, including multiple seven- and eight-digit deals, driven by our innovative security analytics platform. As we approach completing our first year as an independent company, I am pleased with our sequential revenue growth and the ongoing increase in gross margin,” said Elad Sharon, Cognyte’s Chief Executive Officer.

Q3 Highlights

• Revenue: $118.4 million (GAAP, up 4.8% y-o-y) and $118.7 million (non-GAAP, up 4.4% y-o-y)

• Gross Margin: 72.7% (GAAP, down 10 bps y-o-y) and 73.7% (non-GAAP, no change y-o-y)

• Diluted EPS: $0.03 (GAAP) and $0.21 (non-GAAP)

YTD FYE22 Highlights

• Revenue: $349.1 million (GAAP, up 9.3% y-o-y) and $350.3 million (non-GAAP, up 8.6% y-o-y)

• Gross Margin: 72.1% (GAAP, up 200 bps y-o-y) and 73.3% (non-GAAP, up 210 bps y-o-y)

• Diluted EPS: $(0.04) (GAAP) and $0.58 (non-GAAP)

“Due to recent events affecting the timing of deployments including new travel restrictions in certain countries related to a worsening of the pandemic, recent shortages of third-party components required to deliver certain of our software solutions, and other factors, we are revising our FYE22 outlook. Our new outlook reflects approximately 7.5% revenue growth and 10% gross profit growth year-over-year,” said David Abadi, Cognyte’s Chief Financial Officer.

Revised FYE22 Outlook

Our non-GAAP outlook for the year ending January 31, 2022 (“FYE22”) is as follows:

• Revenue: $480 million with a range of +/- 2%

• Diluted EPS: $0.80 at the midpoint of our revenue outlook

Our non-GAAP outlook for FYE22 excludes the following GAAP measures which we are able to quantify with reasonable certainty, as described further below under “Supplemental Information About non-GAAP Financial Measures and Operating Metrics”:

• Revenue adjustments are expected to be approximately $1.6 million.

• Amortization of intangible assets of approximately $2.1 million.

Our non-GAAP outlook for FYE22 excludes the following GAAP measures for which we are able to provide a range of probable significance:

• Costs to complete separation of Cognyte from Verint Systems Inc. (hereafter “Verint”) and establish Cognyte as an independent public company of between approximately $11.1 million and $11.6 million.

• Stock-based compensation is expected to be between approximately $34.5 million and $35.5 million, assuming market prices for our ordinary shares are generally consistent with current levels.

Our non-GAAP outlook does not include the potential impact of any in-process business acquisitions that may close after the date hereof, and, unless otherwise specified, reflects foreign currency exchange rates approximately consistent with current rates.

We are unable, without unreasonable effort, 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, 2021, and 2020, respectively, for the GAAP measures excluded from our non-GAAP outlook appear in Table 4 of this press release.

Conference Call Information

We will conduct a conference call today at 8:30 a.m. ET to discuss our results for the three and nine months ended October 31, 2021, outlook, and long-term targets. An online, real-time webcast of the conference call and webcast slides will be available on our website at www.Cognyte.com . The conference call can also be accessed live via telephone at +1 (888) 771-4371 (United States and Canada) and +1 (847) 585-4405 (International) and the passcode is 50264430. Please dial in 5-10 minutes prior to the scheduled start time. An archived webcast of the conference call will also be available in the “Investors” section of the company’s website.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of non-GAAP financial measures presented for completed periods to the most directly comparable financial measures prepared in accordance with GAAP, please see the tables below as well as “Supplemental Information About Non-GAAP Financial Measures and Operating Metrics” at the end of this press release.

About Cognyte Software Ltd.

We are a global leader in security analytics software that empowers governments and enterprises with Actionable Intelligence for a Safer World™. Our open software fuses, analyzes and visualizes disparate data sets at scale to help security organizations find the needles in the haystacks. Over 1,000 government and enterprise customers in more than 100 countries rely on our solutions to accelerate security investigations and connect the dots to successfully identify, neutralize, and prevent national security, personal safety, business continuity and cyber threats. Our government customers consist of governments around the world, including national, regional, and local government agencies. 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. 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: uncertainties regarding the impact of changes in macroeconomic and/or global conditions, including as a result of slowdowns, recessions, economic instability, political unrest, armed conflicts, natural disasters or outbreaks of disease, such as the novel coronavirus (COVID-19) pandemic, as well as the resulting impact on information technology spending and government budgets in both developed countries and developing countries, on our business; risks that our customers may delay, cancel, or refrain from placing orders, refrain from renewing subscriptions or service contracts, or are unable to honor contractual commitments or payment obligations due to liquidity issues or other challenges in their budgets and business, due to the COVID-19 pandemic or otherwise; risks that continuing restrictions resulting from the COVID-19 pandemic or actions taken in response to the pandemic adversely impact our operations or our ability to fulfill orders, complete implementations, or recognize revenue; risks associated with our ability to keep pace with technological advances and challenges and evolving industry standards, to adapt to changing market potential from area to area within our markets; and to successfully develop, launch, and drive demand for new, innovative, high-quality products that meet or exceed customer needs, while simultaneously preserving our legacy businesses; risks due to aggressive competition in all of our markets, including with respect to maintaining revenue, margins, and sufficient levels of investment in our business and operations, and competitors with greater resources than we have; risks relating to the regulatory constraints to which we are subject, including our dependency on export and marketing licenses from the governments of Israel and other countries where we operate; risks relating to our ability to properly manage investments in our business and operations, execute on growth or strategic initiatives, such as our software model transition, and enhance our existing operations and infrastructure, including the proper prioritization and allocation of limited financial and other resources; risks associated with our ability to identify suitable targets for acquisition or investment or successfully compete for, consummate, and implement mergers and acquisitions, including risks associated with valuations, reputational considerations, capital constraints, costs and expenses, maintaining profitability levels, expansion into new areas, management distraction, post-acquisition integration activities, and potential asset impairments; challenges associated with selling sophisticated solutions, including with respect to longer sales cycles, more complex sales processes, and assisting customers in understanding and realizing the benefits of our solutions, as well as with developing, offering, implementing, and maintaining a broad solution portfolio; risks associated with larger orders and customer concentration, including risk of volatility of our operating results from period to period, and challenges associated with our ability to accurately forecast revenue and expenses; risks associated with a significant amount of our business coming from government customers around the world and associated procurement processes, and limitations on investor visibility due to classification or contractual restrictions; risks associated with political and reputational factors related to our business or operations, including with respect to the nature of our solutions or our Israeli identity, and our ability to maintain security clearances where required; risks that we may be unable to establish and maintain relationships with key resellers, partners, and systems integrators and risks associated with our reliance on third-party suppliers for certain components, products, or services, including companies that may compete with us or work with our competitors; risks associated with our ability to retain, recruit, and train qualified personnel in regions in which we operate, including in new markets and growth areas we may enter; risks associated with our significant international operations, including due to our Israeli operations, fluctuations in foreign exchange rates, and exposure to regions subject to political or economic instability; 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-party suppliers, partners, or original equipment manufacturers which we use in or with our offerings or otherwise rely on, including third-party hosting platforms, may contain defects, develop operational problems, or be vulnerable to cyber-attacks; risks associated with the mishandling or perceived mishandling of sensitive, confidential or classified information, including personally identifiable information or other information that may belong to our customers or other third parties; risks associated with complex and changing regulatory environments relating to our operations, the products and services we offer, and/or the use of our solutions by our customers, including with respect to applicable classification and confidentiality restrictions, and data privacy and protection; risks associated with our failure to comply with anti-corruption, trade compliance, anti-money-laundering and economic sanctions laws and regulations; 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 our credit facilities or 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 associated with changing tax laws and regulations, tax rates, and the continuing availability of expected tax benefits in the countries in which we operate; 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, including related risks of financial statement omissions, misstatements, restatements, or filing delays; risk that our goodwill or other intangible assets may become impaired; risks associated with exchange rate fluctuations between the U.S. dollar and the New Israeli Shekel and other non-U.S. currencies; risks 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, or that it negatively impacts our operations or stock price, including as a result of management distraction from our business or costs associated with transitioning to a standalone public company; risks associated with the agreements with Verint entered into in connection with the spin-off, including our reliance on the transition services agreement and our indemnification obligations to Verint; risks associated with market volatility in the price of our shares based on our performance, third-party publications or speculation, future sales or dispositions of our shares by significant shareholders or officers and directors, or factors and risks associated with actions of activist shareholders; risks associated with different corporate governance requirements applicable to Israeli companies and risks associated with being a foreign private issuer and an emerging growth company; and other risks detailed from time to time in filings that we make with the Securities and Exchange Commission (the “SEC”). 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 20-F for the fiscal year ended January 31, 2021, and our other SEC filings. 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)
		Nine Months Ended								Three Months Ended
		October 31,								October 31,
(in thousands except share and per share data)		2021				2020				2021				2020
Revenue:
Software		$	149,520			$	131,429			$	49,892			$	44,884
Software service		154,754				139,604				50,064				47,761
Professional service and other		44,811				48,405				18,404				20,334
Total revenue		349,085				319,438				118,360				112,979
Cost of revenue:
Software		20,780				22,527				6,920				6,676
Software service		35,365				33,569				10,053				11,441
Professional service and other		40,564				38,442				15,140				12,368
Amortization of acquired technology		512				718				171				226
Total cost of revenue		97,221				95,256				32,284				30,711
Gross profit		251,864				224,182				86,076				82,268
Operating expenses:
Research and development, net		105,069				92,177				35,527				31,921
Selling, general and administrative		139,019				113,230				43,059				40,208
Amortization of other acquired intangible assets		1,205				913				251				273
Total operating expenses		245,293				206,320				78,837				72,402
Operating income		6,571				17,862				7,239				9,866
Other (expense) income, net:
Interest income		104				1,175				39				222
Interest expense		(18		)		(137		)		(8		)		(53		)
Other (expenses) income, net		(1,267		)		3,243				(850		)		3,108
Total other (expense) income, net		(1,181		)		4,281				(819		)		3,277
Income before provision for income taxes		5,390				22,143				6,420				13,143
Provision for income taxes		4,123				7,376				2,912				3,970
Net income		1,267				14,767				3,508				9,173
Net income attributable to noncontrolling interest		3,725				4,908				1,292				1,343
Net (loss) income attributable to Cognyte Software Ltd.		$	(2,458	)		$	9,859			$	2,216			$	7,830
Net (loss) income per share attributable to Cognyte Software Ltd.:
Basic		$	(0.04	)		$	0.15			$	0.03			$	0.12
Diluted		$	(0.04	)		$	0.15			$	0.03			$	0.12
Weighted-average shares outstanding:
Basic		66,393				65,773				66,914				65,773
Diluted		66,393				65,773				67,372				65,773

Table 2
COGNYTE SOFTWARE LTD.
Condensed Consolidated Balance Sheets
		October 31				January 31
		2021				2021
(in thousands)		(Unaudited)				(Audited)
Assets
Current assets:
Cash and cash equivalents		$	53,079			$	78,570
Restricted cash and cash equivalents, and restricted bank time deposits		10,716				27,042
Short-term investments		15,567				4,713
Accounts receivable, net of allowance for doubtful accounts of 4.1 million and 4.6 million, respectively		171,277				175,001
Contract assets, net		17,176				20,317
Inventories		15,142				14,542
Prepaid expenses and other current assets		30,578				30,051
Total current assets		313,535				350,236
Property and equipment, net		30,896				37,595
Operating lease right-of-use assets		27,598				32,126
Goodwill		158,113				158,183
Intangible assets, net		3,583				5,299
Deferred income taxes		6,909				3,303
Other assets		28,618				42,076
Total assets		$	569,252			$	628,818
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	34,786			$	41,552
Accrued expenses and other current liabilities		84,726				91,692
Contract liabilities		95,044				127,012
Current notes payable		—				38,772
Total current liabilities		214,556				299,028
Long-term contract liabilities		15,415				22,037
Deferred income taxes		3,215				4,049
Operating lease liabilities		19,369				24,135
Other liabilities		10,779				9,198
Total liabilities		263,334				358,447
Commitments and Contingencies
Stockholders’ equity:
Common stock – $0 par value; authorized 300,000,000 shares. Issued 67,017,469 and 65,773,335 at October 31, 2021 and January 31, 2021, respectively; outstanding 67,009,960 and 65,773,335 shares at October 31, 2021 and January 31, 2021, respectively		—				—
Additional paid-in capital		309,992				—
Treasury stock, at cost 7,509 and 0 at October 31, 2021 and January 31, 2021, respectively		(181		)		—
Accumulated deficit		(2,458		)		—
Former net parent investment		—				273,006
Accumulated other comprehensive loss		(15,982		)		(15,505		)
Total Cognyte Software Ltd. stockholders’ equity		291,371				257,501
Noncontrolling interest		14,547				12,870
Total stockholders’ equity		305,918				270,371
Total liabilities and stockholders’ equity		$	569,252			$	628,818

Table 3
COGNYTE SOFTWARE LTD.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
		Nine Months Ended October 31,
(in thousands)		2021				2020
Cash flows from operating activities:
Net income		$	1,267			$	14,767
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,404				15,397
Provision for doubtful accounts		1,149				1,651
Stock-based compensation, excluding cash-settled awards		26,484				20,528
Non-cash gains on derivative financial instruments, net		(142		)		(289		)
Other non-cash items, net		687				(4,444		)
Changes in operating assets and liabilities:
Accounts receivable		1,968				(4,391		)
Contract assets		2,941				78
Inventories		(1,943		)		(1,566		)
Prepaid expenses and other assets		7,482				6,306
Accounts payable and accrued expenses		(11,342		)		(6,340		)
Contract liabilities		(38,268		)		(16,151		)
Other liabilities		1,756				2,246
Other, net		1,146				(615		)
Net cash provided by operating activities		$	9,589			$	27,177
Cash flows from investing activities:
Purchases of property and equipment		(8,497		)		(10,678		)
Purchases of short-term investments		(48,530		)		(44,086		)
Maturities and sales of short-term investments		37,425				39,410
Settlements of derivative financial instruments not designated as hedges		(249		)		336
Cash paid for capitalized software development costs		(4,651		)		(2,824		)
Change in restricted bank time deposits, including long-term portion		5,632				10,428
Other investing activities		512				1,863
Net cash used in investing activities		$	(18,358	)		$	(5,551	)
Cash flows from financing activities:
Net transfers to former parent		—				(11,006		)
Dividend paid to former parent		(35,000		)		—
Dividends paid to noncontrolling interest		(1,861		)		—
Payments of contingent consideration for business combinations (financing portion)		(2,738		)		(4,877		)
Other financing activities		(181		)		(333		)
Net cash used in financing activities		$	(39,780	)		$	(16,216	)
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents		(285		)		(2,156		)
Net decrease (increase) in cash, cash equivalents, restricted cash, and restricted cash equivalents		(48,834		)		3,254
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period		114,657				233,409
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period		$	65,823			$	236,663
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period:
Cash and cash equivalents		$	53,079			$	217,883
Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits		10,502				15,459
Restricted cash and cash equivalents included in other assets		2,242				3,321
Total cash, cash equivalents, restricted cash, and restricted cash equivalents		$	65,823			$	236,663

Table 4
COGNYTE SOFTWARE LTD.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
		Nine Months Ended October 31,								Three Months Ended October 31,
(in thousands, except per share data)		2021				2020				2021				2020
Revenue
Total GAAP revenue		$	349,085			$	319,438			$	118,360			$	112,979
Revenue adjustments			1,178				3,022				358				693
Total non-GAAP revenue		$	350,263			$	322,460			$	118,718			$	113,672
Gross profit and gross margin
GAAP gross profit			251,864				224,182				86,076				82,268
GAAP gross margin			72.1	%			70.2	%			72.7	%			72.8	%
Revenue adjustments			1,178				3,022				358				693
Amortization of acquired technology			512				718				171				226
Stock-based compensation expenses (1)			3,091				1,645				880				586
Restructuring expenses (benefit) (2)			1				(3	)			—				—
Separation expenses, net (2)			30				6				—				6
Non-GAAP gross profit		$	256,676			$	229,570			$	87,485			$	83,779
Non-GAAP gross margin			73.3	%			71.2	%			73.7	%			73.7	%
Research and development, net
GAAP research and development, net			105,069				92,177				35,527				31,921
As a percentage of GAAP revenue			30.1	%			28.9	%			30.0	%			28.3	%
Stock-based compensation expenses (1)			(6,014	)			(4,295	)			(2,032	)			(1,659	)
Acquisition expenses, net (2)			—				(193	)			—				—
Restructuring expenses (2)			(189	)			(356	)			—				(253	)
Separation expenses, net (2)			(67	)			—				—				—
Other adjustments			40				33				—				102
Non-GAAP research and development, net		$	98,839			$	87,366			$	33,495			$	30,111
As a percentage of non-GAAP revenue			28.2	%			27.1	%			28.2	%			26.5	%
Selling, general and administrative expenses
GAAP selling, general and administrative expenses			139,019				113,230				43,059				40,208
As a percentage of GAAP revenue			39.8	%			35.4	%			36.4	%			35.6	%
Stock-based compensation expenses (1)			(17,343	)			(14,611	)			(4,895	)			(5,207	)
Acquisition (expenses) benefit, net (2)			(432	)			2,672				128				1,914
Restructuring expenses, net (2)			(429	)			(1,580	)			(85	)			(501	)
Separation expenses (2)			(10,987	)			(10,970	)			(219	)			(5,581	)
Other adjustments			(2,157	)			453				(2,122	)			53
Non-GAAP selling, general and administrative expenses		$	107,671			$	89,194			$	35,866			$	30,886
As a percentage of non-GAAP revenue			30.7	%			27.7	%			30.2	%			27.2	%
Operating income, operating margin and adjusted EBITDA
GAAP operating income			6,571				17,862				7,239				9,866
GAAP operating margin			1.9	%			5.6	%			6.1	%			8.7	%
Revenue adjustments			1,178				3,022				358				693
Amortization of acquired technology			512				718				171				226
Amortization of other acquired intangible assets			1,205				913				251				273
Stock-based compensation expenses (1)			26,448				20,551				7,807				7,452
Acquisition expenses (benefit), net (2)			432				(2,479	)			(128	)			(1,914	)

Contacts

Investor Relations Contact
Dean Ridlon

Cognyte Software Ltd.

IR@cognyte.com

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