Verint Announces Q2 FY2020 Results with Strong Cloud Growth

Verint Systems Inc. (NASDAQ: VRNT), a global Actionable Intelligence leader, today announced results for the three and six months ended July 31, 2019 (FY2020).

“We are pleased with our second quarter and first half results which reflect our strong innovation and market leadership. In Customer Engagement, we continue to execute well on our Cloud First initiative with strong cloud revenue growth and large enterprise wins. In Cyber Intelligence, our strategic initiative to unbundle and productize our data mining software is tracking well ahead of plan and resulted in significant gross margin expansion. Overall, we continue to accelerate innovation and evolve our business models which we believe is resonating well with our customers and large partner network,” said Dan Bodner, CEO.

FY2020 Financial Highlights (Three and Six Months Ended July 31, 2019, Compared to Three and Six Months Ended July 31, 2018)

	Three Months Ended July 31, 2019				Six Months Ended July 31, 2019
	GAAP		Non-GAAP		GAAP		Non-GAAP
Revenue	$324 million		$331 million		$640 million		$655 million
y-o-y change	+5.9%		+7.4%		+7.4%		+9.2%
Revenue (Constant Currency)	$328 million		$335 million		$649 million		$664 million
y-o-y change	+7.1%		+8.6%		+9.0%		+10.6%
Gross Margin	64.1%		67.5%		63.9%		67.4%
y-o-y change	+110bps		+160bps		+210bps		+250bps
Operating Income	$15 million		$66 million		$30 million		$128 million
y-o-y change	-47.7%		+4.0%		-19.6%		+17.0%
Operating Margin	4.7%		19.9%		4.7%		19.6%
y-o-y change	-480bps		-70bps		-150bps		+140bps
Diluted EPS	$0.16		$0.82		$0.18		$1.55
y-o-y change	-51.5%		+8.0%		-40.0%		+20.3%

FY2020 First Half Highlights

Customer Engagement

• Revenue growth of 8.1% on a GAAP basis and 12.2% on a non-GAAP constant currency basis
• “Cloud First” strategy progressing well
  • Strong cloud revenue growth on a GAAP basis of 37% and on a non-GAAP basis of 49%
  • Strong new SaaS ACV growth of 84%
  • 11 cloud orders over $1 million Total Contract Value (TCV) versus 4 in the prior year first half
• Automation innovation helping customers achieve elevated customer experience while reducing their operating costs

Cyber Intelligence

• Revenue growth of 6.1% on a GAAP basis and 7.5% on a non-GAAP constant currency basis
  • While accelerating our planned reduction of low margin pass-through hardware revenue
• Software model strategy ahead of plan
  • Gross margins (estimated fully allocated) up more than 600bps
• Continuing to win large orders reflecting customer need for advanced data mining solutions
  • Added approximately 50 new customers in the first half

Financial Outlook for FY2020 (Year Ending January 31, 2020)

Our non-GAAP outlook for revenue and EPS for the year ending January 31, 2020 is as follows:

• Revenue: $1.375 billion with a range of +/- 2%
  • Reflects 10.5% year-over-year growth
• EPS: $3.65 at the midpoint of our revenue guidance
  • Reflects 14% year-over-year growth

Our non-GAAP outlook for the year ending January 31, 2020 excludes the following GAAP measures which we are able to quantify with reasonable certainty:

• Amortization of intangible assets of approximately $55 million.
• Amortization of discount on convertible notes of approximately $12 million.

Our non-GAAP outlook for the year ending January 31, 2020 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 $26 million and $28 million.
• Stock-based compensation is expected to be between approximately $75 million and $79 million, assuming market prices for our common stock approximately 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 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 six months ended July 31, 2019 and 2018 for the GAAP measures excluded from our non-GAAP outlook appear in Table 3 to this press release.

Conference Call Information

We will conduct a conference call today at 4:30 p.m. ET to discuss our results for the three and six months ended July 31, 2019 and outlook. An online, real-time webcast of the conference call will be available on our website at www.verint.com. The conference call can also be accessed live via telephone at 1-844-309-0615 (United States and Canada) and 1-661-378-9462 (international) and the passcode is 3464357. Please dial in 5-10 minutes prior to the scheduled start time.

About Non-GAAP Financial Measures

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

About Verint Systems Inc.

Verint (Nasdaq: VRNT) is a global leader in Actionable Intelligence solutions with a focus on customer engagement optimization and cyber intelligence. Today, over 10,000 organizations in more than 180 countries—including over 85 percent of the Fortune 100—count on intelligence from Verint solutions to make more informed, effective and timely decisions. Learn more about how we’re creating A Smarter World with Actionable Intelligence at www.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 general economic conditions in the United States and abroad, particularly in information technology spending and government budgets, on our business; 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 and migrating away from areas of commoditization; risks due to aggressive competition in all of our markets, including with respect to maintaining revenues, margins, and sufficient levels of investment in our business and operations; risks created by the continued consolidation of our competitors or the introduction of large competitors in our markets with greater resources than we have; risks associated with our ability to 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; risks relating to our ability to properly manage investments in our business and operations, execute on growth initiatives, and enhance our existing operations and infrastructure, including the proper prioritization and allocation of limited financial and other resources; risks associated with our ability to retain, recruit, and train qualified personnel in regions in which we operate, including in new markets and growth areas we may enter; 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, partners, or original equipment manufacturers (“OEMs”) for certain components, products, or services, including companies that may compete with us or work with our competitors; risks associated with the mishandling or perceived mishandling of sensitive or confidential information, including information that may belong to our customers or other third parties, and with 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 OEMs which we use in or with our offerings or otherwise rely on, including third-party hosting platforms, may contain defects, develop operational problems, or be vulnerable to cyber-attacks; risks associated with our significant international operations, including, among others, in Israel, Europe, and Asia, exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, and challenges associated with a significant portion of our cash being held overseas; risks associated with political factors related to our business or operations, including reputational risks associated with our security solutions and our ability to maintain security clearances where required, as well as risks associated with a significant amount of our business coming from domestic and foreign government customers; risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we operate, including, among others, with respect to trade compliance, anti-corruption, information security, data privacy and protection, tax, labor, government contracts, relating to our own operations as well as to the use of our solutions by our customers; challenges associated with selling sophisticated solutions, including with respect to assisting customers in understanding and realizing the benefits of our solutions, and developing, offering, implementing, and maintaining a broad and sophisticated solution portfolio; challenges associated with pursuing larger sales opportunities, including with respect to longer sales cycles, transaction reductions, deferrals, or cancellations during the sales cycle, risk of customer concentration, our ability to accurately forecast when a sales opportunity will convert to an order, or to forecast revenue and expenses, and increased volatility of our operating results from period to period; 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 that our customers delay or cancel orders or are unable to honor contractual commitments due to liquidity issues, challenges in their business, or otherwise; 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 associated with significant 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 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 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 changing accounting principles or standards, tax laws and regulations, tax rates, and the continuing availability of expected tax benefits; and 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. 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, 2019, our Quarterly Report on Form 10-Q for the quarter ended April 30, 2019, our Quarterly Report on Form 10-Q for the quarter ended July 31, 2019, when filed, and other filings we make with the SEC.

VERINT, ACTIONABLE INTELLIGENCE, THE CUSTOMER ENGAGEMENT COMPANY, NEXT IT, FORESEE, OPINIONLAB, KIRAN ANALYTICS, TRANSVERSAL, TERROGENCE, SENSECY, CUSTOMER ENGAGEMENT SOLUTIONS, CYBER INTELLIGENCE SOLUTIONS, GI2, GITA, FIRSTMILE, OMNIX, WEBINT, LUMINAR, EDGEVR, RELIANT, VANTAGE, STAR-GATE, SUNTECH, and VIGIA are trademarks or registered trademarks of Verint Systems Inc. or its subsidiaries. Other trademarks mentioned are the property of their respective owners.

Table 1 VERINT SYSTEMS INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
		Three Months Ended July 31,								Six Months Ended July 31,
(in thousands, except per share data)		2019				2018				2019				2018
Revenue:
Product		$	109,983			$	110,042			$	214,207			$	215,906
Service and support		214,322				196,285				425,357				379,628
Total revenue		324,305				306,327				639,564				595,534
Cost of revenue:
Product		29,424				32,984				57,544				67,793
Service and support		81,430				74,803				160,791				146,660
Amortization of acquired technology		5,587				5,520				12,294				12,946
Total cost of revenue		116,441				113,307				230,629				227,399
Gross profit		207,864				193,020				408,935				368,135
Operating expenses:
Research and development, net		58,685				52,254				115,854				104,406
Selling, general and administrative		126,265				104,083				247,986				211,580
Amortization of other acquired intangible assets		7,639				7,452				15,352				15,136
Total operating expenses		192,589				163,789				379,192				331,122
Operating income		15,275				29,231				29,743				37,013
Other income (expense), net:
Interest income		1,687				1,134				3,113				1,927
Interest expense		(10,107		)		(9,922		)		(20,041		)		(18,984		)
Other income (expense), net		909				(1,241		)		119				(1,705		)
Total other expense, net		(7,511		)		(10,029		)		(16,809		)		(18,762		)
Income before benefit from income taxes		7,764				19,202				12,934				18,251
Benefit from income taxes		(4,507		)		(3,722		)		(3,098		)		(3,448		)
Net income		12,271				22,924				16,032				21,699
Net income attributable to noncontrolling interests		1,713				944				3,898				1,934
Net income attributable to Verint Systems Inc.		$	10,558			$	21,980			$	12,134			$	19,765
Net income per common share attributable to Verint Systems Inc.:
Basic		$	0.16			$	0.34			$	0.18			$	0.31
Diluted		$	0.16			$	0.33			$	0.18			$	0.30
Weighted-average common shares outstanding:
Basic		66,272				64,694				65,870				64,314
Diluted		67,519				65,840				67,338				65,509

Table 2 VERINT SYSTEMS INC. AND SUBSIDIARIES Segment Revenue (Unaudited)
		Three Months Ended July 31,						Six Months Ended July 31,
(in thousands)		2019			2018			2019			2018
GAAP Revenue By Segment:
Customer Engagement		$	211,436		$	200,807		$	418,531		$	387,263
Cyber Intelligence		112,869			105,520			221,033			208,271
GAAP Total Revenue		$	324,305		$	306,327		$	639,564		$	595,534
Revenue Adjustments:
Customer Engagement		$	6,988		$	2,126		$	15,760		$	4,845
Cyber Intelligence		24			25			151			69
Total Revenue Adjustments		$	7,012		$	2,151		$	15,911		$	4,914
Non-GAAP Revenue By Segment:
Customer Engagement		$	218,424		$	202,933		$	434,291		$	392,108
Cyber Intelligence		112,893			105,545			221,184			208,340
Non-GAAP Total Revenue		$	331,317		$	308,478		$	655,475		$	600,448

Table 3 VERINT SYSTEMS INC. AND SUBSIDIARIES Reconciliation of GAAP to Non-GAAP Measures (Unaudited)
		Three Months Ended July 31,								Six Months Ended July 31,
(in thousands, except per share data)		2019				2018				2019				2018
Table of Reconciliation from GAAP Gross Profit to Non-GAAP Gross Profit
GAAP gross profit		$	207,864			$	193,020			$	408,935			$	368,135
GAAP gross margin		64.1		%		63.0		%		63.9		%		61.8		%
Revenue adjustments		7,012				2,151				15,911				4,914
Amortization of acquired technology		5,587				5,520				12,294				12,946
Stock-based compensation expenses		2,034				1,945				3,438				2,791
Acquisition expenses, net		5				(38		)		20				(21		)
Restructuring expenses		1,055				717				1,504				1,080
Non-GAAP gross profit		$	223,557			$	203,315			$	442,102			$	389,845
Non-GAAP gross margin		67.5		%		65.9		%		67.4		%		64.9		%
Table of Reconciliation from GAAP Operating Income to Non-GAAP Operating Income
GAAP operating income		$	15,275			$	29,231			$	29,743			$	37,013
As a percentage of GAAP revenue		4.7		%		9.5		%		4.7		%		6.2		%
Revenue adjustments		7,012				2,151				15,911				4,914
Amortization of acquired technology		5,587				5,520				12,294				12,946
Amortization of other acquired intangible assets		7,639				7,452				15,352				15,136
Stock-based compensation expenses		20,551				17,455				37,654				33,914
Acquisition expenses, net		2,508				72				6,376				2,387
Restructuring expenses		1,639				906				3,076				1,997
Other adjustments		5,732				625				7,791				1,220
Non-GAAP operating income		$	65,943			$	63,412			$	128,197			$	109,527
As a percentage of non-GAAP revenue		19.9		%		20.6		%		19.6		%		18.2		%
Table of Reconciliation from GAAP Other Expense, Net to Non-GAAP Other Expense, Net
GAAP other expense, net		$	(7,511	)		$	(10,029	)		$	(16,809	)		$	(18,762	)
Unrealized losses (gains) on derivatives, net		639				416				1,318				(127		)
Amortization of convertible note discount		3,102				2,943				6,163				5,848
Acquisition expenses, net		(23		)		303				(57		)		331
Non-GAAP other expense, net(1)		$	(3,793	)		$	(6,367	)		$	(9,385	)		$	(12,710	)
Table of Reconciliation from GAAP Benefit from Income Taxes to Non-GAAP Provision for Income Taxes
GAAP benefit from income taxes		$	(4,507	)		$	(3,722	)		$	(3,098	)		$	(3,448	)
GAAP effective income tax rate		(58.0		)%		(19.4		)%		(24.0		)%		(18.9		)%
Non-GAAP tax adjustments		9,462				9,737				13,463				13,719
Non-GAAP provision for income taxes		$	4,955			$	6,015			$	10,365			$	10,271
Non-GAAP effective income tax rate		8.0		%		10.5		%		8.7		%		10.6		%
Table of Reconciliation from GAAP Net Income Attributable to Verint Systems Inc. to Non-GAAP Net Income Attributable to Verint Systems Inc.
GAAP net income attributable to Verint Systems Inc.		$	10,558			$	21,980			$	12,134			$	19,765
Revenue adjustments		7,012				2,151				15,911				4,914
Amortization of acquired technology		5,587				5,520				12,294				12,946
Amortization of other acquired intangible assets		7,639				7,452				15,352				15,136
Stock-based compensation expenses		20,551				17,455				37,654				33,914
Unrealized losses (gains) on derivatives, net		639				416				1,318				(127		)
Amortization of convertible note discount		3,102				2,943				6,163				5,848
Acquisition expenses, net		2,485				375				6,319				2,718
Restructuring expenses		1,639				906				3,076				1,997
Other adjustments		5,732				625				7,791				1,220
Non-GAAP tax adjustments		(9,462		)		(9,737		)		(13,463		)		(13,719		)
Total GAAP net income adjustments		44,924				28,106				92,415				64,847
Non-GAAP net income attributable to Verint Systems Inc.		$	55,482			$	50,086			$	104,549			$	84,612
Table Comparing GAAP Diluted Net Income Per Common Share Attributable to Verint Systems Inc. to Non-GAAP Diluted Net Income Per Common Share Attributable to Verint Systems Inc.
GAAP diluted net income per common share attributable to Verint Systems Inc.		$	0.16			$	0.33			$	0.18			$	0.30
Non-GAAP diluted net income per common share attributable to Verint Systems Inc.		$	0.82			$	0.76			$	1.55			$	1.29
GAAP weighted-average shares used in computing diluted net income per common share attributable to Verint Systems Inc.		67,519				65,840				67,338				65,509
Additional weighted-average shares applicable to non-GAAP diluted net income per common share attributable to Verint Systems Inc.		—				—				—				—
Non-GAAP diluted weighted-average shares used in computing net income per common share attributable to Verint Systems Inc.		67,519				65,840				67,338				65,509
Table of Reconciliation from GAAP Net Income Attributable to Verint Systems Inc. to Adjusted EBITDA
GAAP net income attributable to Verint Systems Inc.		$	10,558			$	21,980			$	12,134			$	19,765
As a percentage of GAAP revenue		3.3		%		7.2		%		1.9		%		3.3		%
Net income attributable to noncontrolling interest		1,713				944				3,898				1,934
Benefit from income taxes		(4,507		)		(3,722		)		(3,098		)		(3,448		)
Other expense, net		7,511				10,029				16,809				18,762
Depreciation and amortization(2)		21,117				20,302				43,410				43,612
Revenue adjustments		7,012				2,151				15,911				4,914
Stock-based compensation expenses		20,551				17,455				37,654				33,914
Acquisition expenses, net		2,508				72				6,376				2,387
Restructuring expenses		1,640				906				3,077				1,996
Other adjustments		5,732				625				7,791				1,220
Adjusted EBITDA		$	73,835			$	70,742			$	143,962			$	125,056
As a percentage of non-GAAP revenue		22.3		%		22.9		%		22.0		%		20.8		%
Table of Reconciliation from Gross Debt to Net Debt										July 31, 2019				January 31, 2019
Current maturities of long-term debt										$	4,263			$	4,343
Long-term debt										782,589				777,785
Unamortized debt discounts and issuance costs										29,661				36,589
Gross debt										816,513				818,717
Less:
Cash and cash equivalents										388,546				369,975
Restricted cash and cash equivalents, and restricted bank time deposits										24,239				42,262
Short-term investments										25,590				32,329
Net debt, excluding long-term restricted cash, cash equivalents, bank time deposits, and investments										378,138				374,151
Long-term restricted cash, cash equivalents, bank time deposits and investments										27,257				23,193
Net debt, including long-term restricted cash, cash equivalents, bank time deposits, and investments										$	350,881			$	350,958

(1) For the three months ended July 31, 2019, non-GAAP other expense, net of $3.8 million was comprised of $5.4 million of interest and other expense, net of $1.6 million of foreign exchange gains primarily related to balance sheet translations.

(2) Adjusted for financing fee amortization.

Table 4 VERINT SYSTEMS INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited)
		July 31,				January 31,
(in thousands, except share and per share data)		2019				2019
Assets
Current Assets:
Cash and cash equivalents		$	388,546			$	369,975
Restricted cash and cash equivalents, and restricted bank time deposits		24,239				42,262
Short-term investments		25,590				32,329
Accounts receivable, net of allowance for doubtful accounts of $5.5 million and $3.8 million, respectively		349,161				375,663
Contract assets		55,239				63,389
Inventories		28,459				24,952
Prepaid expenses and other current assets		89,556				97,776
Total current assets		960,790				1,006,346
Property and equipment, net		106,393				100,134
Operating lease right-of-use assets		100,924				—
Goodwill		1,430,082				1,417,481
Intangible assets, net		215,332				225,183
Other assets		118,185				117,883
Total assets		$	2,931,706			$	2,867,027
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable		$	73,021			$	71,621
Accrued expenses and other current liabilities		218,533				212,824
Contract liabilities		347,226				377,376
Total current liabilities		638,780				661,821
Long-term debt		782,589				777,785
Long-term contract liabilities		34,967				30,094
Operating lease liabilities		93,137				—
Other liabilities		94,255				136,523
Total liabilities		1,643,728				1,606,223
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - $0.001 par value; authorized 2,207,000 shares at July 31, 2019 and January 31, 2019, respectively; none issued.		—				—
Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 68,444,000 and 66,998,000 shares; outstanding 66,771,000 and 65,333,000 shares at July 31, 2019 and January 31, 2019, respectively.		68				67
Additional paid-in capital		1,628,665				1,586,266
Treasury stock, at cost - 1,673,000 and 1,665,000 shares at July 31, 2019 and January 31, 2019, respectively.		(58,072		)		(57,598		)
Accumulated deficit		(122,140		)		(134,274		)
Accumulated other comprehensive loss		(175,197		)		(145,225		)
Total Verint Systems Inc. stockholders' equity		1,273,324				1,249,236
Noncontrolling interests		14,654				11,568
Total stockholders' equity		1,287,978				1,260,804
Total liabilities and stockholders' equity		$	2,931,706			$	2,867,027

Table 5 VERINT SYSTEMS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
		Six Months Ended July 31,
(in thousands)		2019				2018
Cash flows from operating activities:
Net income		$	16,032			$	21,699
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44,766				44,935
Stock-based compensation, excluding cash-settled awards		37,605				33,871
Amortization of discount on convertible notes		6,163				5,848
Non-cash gains on derivative financial instruments, net		(728		)		(2,709		)
Other non-cash items, net		3,305				(2,606		)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable		23,439				45,515
Contract assets		7,884				(12,217		)
Inventories		(4,436		)		175
Prepaid expenses and other assets		8,169				(2,984		)
Accounts payable and accrued expenses		(8,291		)		(14,736		)
Contract liabilities		(24,460		)		(5,695		)
Other, net		(11,169		)		(6,943		)
Net cash provided by operating activities		98,279				104,153
Cash flows from investing activities:
Cash paid for business combinations, including adjustments, net of cash acquired		(49,258		)		(27,442		)
Purchases of property and equipment		(17,718		)		(17,897		)
Purchases of investments		(20,101		)		(9,261		)
Maturities and sales of investments		23,836				7,152
Cash paid for capitalized software development costs		(6,581		)		(2,902		)
Change in restricted bank time deposits, and other investing activities, net		3,807				(22,079		)
Net cash used in investing activities		(66,015		)		(72,429		)
Cash flows from financing activities:
Repayments of borrowings and other financing obligations		(3,194		)		(2,728		)
Payments of debt-related costs		(212		)		(206		)
Purchases of treasury stock		(474		)		(173		)
Dividends or distributions paid to noncontrolling interests		(655		)		(760		)
Payments of deferred purchase price and contingent consideration for business combinations (financing portion)		(22,601		)		(9,351		)
Other financing activities, net		—				(433		)
Net cash used in financing activities		(27,136		)		(13,651		)
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents		(1,890		)		(3,578		)
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents		3,238				14,495
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period		412,699				398,210
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period		$	415,937			$	412,705
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		$	388,546			$	375,077
Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits		23,702				35,476
Restricted cash and cash equivalents included in other assets		3,689				2,152
Total cash, cash equivalents, restricted cash, and restricted cash equivalents		$	415,937			$	412,705

Table 6 VERINT SYSTEMS INC. AND SUBSIDIARIES Calculation of Change in Revenue on a Constant Currency Basis (Unaudited)
		GAAP Revenue							Non-GAAP Revenue
(in thousands, except percentages)		Three Months Ended			Six Months Ended				Three Months Ended			Six Months Ended
Total Revenue
Revenue for the three and six months ended July 31, 2018		$	306,327		$	595,534			$	308,478		$	600,448
Revenue for the three and six months ended July 31, 2019		$	324,305		$	639,564			$	331,317		$	655,475
Revenue for the three and six months ended July 31, 2019 at constant currency(1)		$	328,000		$	649,000			$	335,000		$	664,000
Reported period-over-period revenue growth		5.9		%	7.4		%		7.4		%	9.2		%
% impact from change in foreign currency exchange rates		1.2		%	1.6		%		1.2		%	1.4		%
Constant currency period-over-period revenue growth		7.1		%	9.0		%		8.6		%	10.6		%
Customer Engagement
Revenue for the three and six months ended July 31, 2018		$	200,807		$	387,263			$	202,933		$	392,108
Revenue for the three and six months ended July 31, 2019		$	211,436		$	418,531			$	218,424		$	434,291
Revenue for the three and six months ended July 31, 2019 at constant currency(1)		$	214,000		$	425,000			$	221,000		$	440,000
Reported period-over-period revenue growth		5.3		%	8.1		%		7.6		%	10.8		%
% impact from change in foreign currency exchange rates		1.3		%	1.6		%		1.3		%	1.4		%
Constant currency period-over-period revenue growth		6.6		%	9.7		%		8.9		%	12.2		%
Cyber Intelligence
Revenue for the three and six months ended July 31, 2018		$	105,520		$	208,271			$	105,545		$	208,340
Revenue for the three and six months ended July 31, 2019		$	112,869		$	221,033			$	112,893		$	221,184
Revenue for the three and six months ended July 31, 2019 at constant currency(1)		$	114,000		$	224,000			$	114,000		$	224,000
Reported period-over-period revenue growth		7.0		%	6.1		%		7.0		%	6.2		%
% impact from change in foreign currency exchange rates		1.0		%	1.5		%		1.0		%	1.3		%
Constant currency period-over-period revenue growth		8.0		%	7.6		%		8.0		%	7.5		%

(1) Revenue for the three and six months ended July 31, 2019 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, 2018 rather than actual current-period foreign currency exchange rates.

For further information see "Supplemental Information About Constant Currency" at the end of this press release.

Table 7 VERINT SYSTEMS INC. AND SUBSIDIARIES GAAP to Non-GAAP Customer Engagement Cloud Revenue, Recurring Revenue, and Nonrecurring Revenue (Unaudited)
		Three Months Ended July 31,								Six Months Ended July 31,
(in thousands)		2019				2018				2019				2018
Table of Reconciliation from GAAP Cloud Revenue to Non-GAAP Cloud Revenue
Customer Engagement
Cloud revenue - GAAP		$	47,813			$	36,658			$	94,898			$	69,463
Estimated revenue adjustments		6,918				2,056				15,562				4,573
Cloud revenue - non-GAAP		$	54,731			$	38,714			$	110,460			$	74,036
Table of Reconciliation from GAAP Recurring Revenue to Non-GAAP Recurring Revenue
Customer Engagement
Recurring revenue - GAAP		$	129,332			$	117,759			$	252,690			$	225,589
As a percentage of GAAP revenue		61.2		%		58.6		%		60.4		%		58.3		%
Estimated revenue adjustments		6,988				2,126				15,760				4,845
Recurring revenue - non-GAAP		$	136,320			$	119,885			$	268,450			$	230,434
As a percentage of non-GAAP revenue		62.4		%		59.1		%		61.8		%		58.8		%
Table of Reconciliation from GAAP Nonrecurring Revenue to Non-GAAP Nonrecurring Revenue
Customer Engagement
Nonrecurring revenue - GAAP & non-GAAP		$	82,104			$	83,048			$	165,841			$	161,674

Table 8 VERINT SYSTEMS INC. AND SUBSIDIARIES Estimated GAAP and Non-GAAP Fully Allocated Gross Margins (Unaudited)
		Three Months Ended July 31,
		2019												2018
(in thousands)		Customer Engagement				Cyber Intelligence				Consolidated				Customer Engagement				Cyber Intelligence				Consolidated
GAAP product revenue		$	54,468			$	55,515			$	109,983			$	55,528			$	54,514			$	110,042
GAAP service revenue		156,968				57,354				214,322				145,279				51,006				196,285
Total GAAP revenue		211,436				112,869				324,305				200,807				105,520				306,327
Products costs		8,852				18,649				27,501				8,523				23,373				31,896
Service expenses		57,165				18,560				75,725				52,989				17,604				70,593
Amortization of acquired technology		5,224				363				5,587				4,104				1,416				5,520
Stock-based compensation expenses (1)		1,570				464				2,034				1,574				371				1,945
Shared support expenses allocation (2)		3,647				1,947				5,594				2,199				1,154				3,353
Total GAAP cost of revenue		76,458				39,983				116,441				69,389				43,918				113,307
GAAP gross profit		$	134,978			$	72,886			$	207,864			$	131,418			$	61,602			$	193,020
GAAP gross margin		63.8		%		64.6		%		64.1		%		65.4		%		58.4		%		63.0		%
Revenue adjustments		6,988				24				7,012				2,126				25				2,151
Amortization of acquired technology		5,224				363				5,587				4,104				1,416				5,520
Stock-based compensation expenses (1)		1,570				464				2,034				1,574				371				1,945
Acquisition expenses, net (3)		3				2				5				(25		)		(13		)		(38		)
Restructuring expenses (3)		688				367				1,055				470				247				717
Non-GAAP gross profit		$	149,451			$	74,106			$	223,557			$	139,667			$	63,648			$	203,315
Non-GAAP gross margin		68.4		%		65.6		%		67.5		%		68.8		%		60.3		%		65.9		%
		Six Months Ended July 31,
		2019												2018
(in thousands)		Customer Engagement				Cyber Intelligence				Consolidated				Customer Engagement				Cyber Intelligence				Consolidated
GAAP product revenue		$	108,470			$	105,737			$	214,207			$	103,892			$	112,014			$	215,906
GAAP service revenue		310,061				115,296				425,357				283,371				96,257				379,628
Total GAAP revenue		418,531				221,033				639,564				387,263				208,271				595,534
Products costs		17,314				36,499				53,813				17,322				48,385				65,707
Service expenses		114,688				37,074				151,762				104,510				34,291				138,801
Amortization of acquired technology		10,612				1,682				12,294				8,369				4,577				12,946
Stock-based compensation expenses (1)		2,654				784				3,438				2,258				533				2,791
Shared support expenses allocation (2)		6,078				3,244				9,322				4,693				2,461				7,154
Total GAAP cost of revenue		151,346				79,283				230,629				137,152				90,247				227,399
GAAP gross profit		$	267,185			$	141,750			$	408,935			$	250,111			$	118,024			$	368,135
GAAP gross margin		63.8		%		64.1		%		63.9		%		64.6		%		56.7		%		61.8		%
Revenue adjustments		15,760				151				15,911				4,845				69				4,914
Amortization of acquired technology		10,612				1,682				12,294				8,369				4,577				12,946
Stock-based compensation expenses (1)		2,654				784				3,438				2,258				533				2,791
Acquisition expenses, net (3)		13				7				20				(14		)		(7		)		(21		)
Restructuring expenses (3)		981				523				1,504				708				372				1,080
Non-GAAP gross profit		$	297,205			$	144,897			$	442,102			$	266,277			$	123,568			$	389,845
Non-GAAP gross margin		68.4		%		65.5		%		67.4		%		67.9		%		59.3		%		64.9		%

(1) Represents the stock-based compensation expenses applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual segment operations and service expense wages, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

(2) Represents the portion of our shared support expenses (as disclosed in footnote 16 to our July 31, 2019 Form 10-Q, when filed) applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual non-GAAP segment revenue, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

(3) Represents the portion of our acquisition expenses, net and restructuring expenses applicable to cost of revenue, allocated proportionally based upon our year ended January 31, 2019 and 2018, respectively, annual non-GAAP segment revenue, which we believe provides a reasonable approximation for purposes of understanding the relative GAAP and non-GAAP gross margins of our two businesses.

Table 9 VERINT SYSTEMS INC. AND SUBSIDIARIES Estimated Non-GAAP Fully Allocated Operating Margins and Estimated Fully Allocated Adjusted EBITDA (Unaudited)
		Three Months Ended July 31,
		2019												2018
(in thousands)		Customer Engagement				Cyber Intelligence				Consolidated				Customer Engagement				Cyber Intelligence				Consolidated
Non-GAAP segment revenue		$	218,424			$	112,893			$	331,317			$	202,933			$	105,545			$	308,478
Segment contribution (1)		78,788				31,571				110,359				78,759				24,549				103,308
Shared support expenses allocation (2)		28,959				15,457				44,416				26,172				13,724				39,896
Estimated non-GAAP operating income		49,829				16,114				65,943				52,587				10,825				63,412
Depreciation and amortization (3)		5,146				2,746				7,892				4,808				2,522				7,330
Estimated adjusted EBITDA		$	54,975			$	18,860			$	73,835			$	57,395			$	13,347			$	70,742
Estimated non-GAAP fully allocated operating margin		22.8		%		14.3		%		19.9		%		25.9		%		10.3		%		20.6		%
Estimated fully allocated adjusted EBITDA margin		25.2		%		16.7		%		22.3		%		28.3		%		12.6		%		22.9		%
		Six Months Ended July 31,
		2019												2018
(in thousands)		Customer Engagement				Cyber Intelligence				Consolidated				Customer Engagement				Cyber Intelligence				Consolidated
Non-GAAP segment revenue		$	434,291			$	221,184			$	655,475			$	392,108			$	208,340			$	600,448
Segment contribution (1)		157,606				58,861				216,467				145,561				45,771				191,332
Shared support expenses allocation (2)		57,552				30,718				88,270				53,664				28,141				81,805
Estimated non-GAAP operating income		100,054				28,143				128,197				91,897				17,630				109,527
Depreciation and amortization (3)		10,279				5,486				15,765				10,187				5,342				15,529
Estimated adjusted EBITDA		$	110,333			$	33,629			$	143,962			$	102,084			$	22,972			$	125,056
Estimated non-GAAP fully allocated operating margin		23.0		%		12.7		%		19.6		%		23.4		%		8.5		%		18.2		%
Estimated fully allocated adjusted EBITDA margin		25.4		%		15.2		%		22.0		%		26.0		%		11.0		%		20.8		%

(1) See footnote 16 to our July 31, 2019 Form 10-Q, when filed.

(2) Represents our shared support expenses (as disclosed in footnote 16 to our July 31, 2019 Form 10-Q, when filed), allocated proportionally based upon our non-GAAP segment revenue for the year ended January 31, 2019 and 2018, respectively, which we believe provides a reasonable approximation for purposes of understanding the relative non-GAAP operating margins of our two businesses.

(3) Represents certain depreciation and amortization expenses, which are otherwise included in our non-GAAP operating income, allocated proportionally based upon our non-GAAP segment revenue for the year ended January 31, 2019 and 2018, respectively, which we believe provides a reasonable approximation for purposes of understanding the relative adjusted EBITDA of our two businesses.

Verint Systems Inc. and Subsidiaries
Supplemental Information About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, consisting of non-GAAP revenue, non-GAAP recurring revenue, non-GAAP nonrecurring revenue, non-GAAP cloud revenue, non-GAAP gross profit and gross margin, non-GAAP operating income and operating margin, non-GAAP other income (expense), net, non-GAAP provision (benefit) for income taxes and non-GAAP effective income tax rate, non-GAAP net income attributable to Verint Systems Inc., non-GAAP net income per common share attributable to Verint Systems Inc., adjusted EBITDA, net debt, constant currency measures, estimated GAAP and non-GAAP fully allocated gross margins, and estimated non-GAAP fully allocated operating margins. The tables above include a reconciliation of each non-GAAP financial measure for completed periods presented in this press release to the most directly comparable GAAP financial measure.

We believe these non-GAAP financial measures, used in conjunction with the corresponding GAAP measures, provide investors with useful supplemental information about the financial performance of our business by:

• facilitating the comparison of our financial results and business trends between periods, by excluding certain items that either can vary significantly in amount and frequency, are based upon subjective assumptions, or in certain cases are unplanned for or difficult to forecast,
• facilitating the comparison of our financial results and business trends with other technology companies who publish similar non-GAAP measures, and
• allowing investors to see and understand key supplementary metrics used by our management to run our business, including for budgeting and forecasting, resource allocation, and compensation matters.

We also make these non-GAAP financial measures available because a number of our investors have informed us that they find this supplemental information useful.

Non-GAAP financial measures should not be considered in isolation as substitutes for, or superior to, comparable GAAP financial measures. The non-GAAP financial measures we present have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures. These non-GAAP financial measures do not represent discretionary cash available to us to invest in the growth of our business, and we may in the future incur expenses similar to or in addition to the adjustments made in these non-GAAP financial measures. Other companies may calculate similar non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

Our non-GAAP financial measures are calculated by making the following adjustments to our GAAP financial measures:

Revenue adjustments. We exclude from our non-GAAP revenue the impact of fair value adjustments required under GAAP relating to cloud services and customer support contracts acquired in a business acquisition, which would have otherwise been recognized on a stand-alone basis. We believe that it is useful for investors to understand the total amount of revenue that we and the acquired company would have recognized on a stand-alone basis under GAAP, absent the accounting adjustment associated with the business acquisition. Our non-GAAP revenue also reflects certain adjustments from aligning an acquired company’s revenue recognition policies to our policies. We believe that our non-GAAP revenue measure helps management and investors understand our revenue trends and serves as a useful measure of ongoing business performance.

Amortization of acquired technology and other acquired intangible assets. When we acquire an entity, we are required under GAAP to record the fair values of the intangible assets of the acquired entity and amortize those assets over their useful lives. We exclude the amortization of acquired intangible assets, including acquired technology, from our non-GAAP financial measures because they are inconsistent in amount and frequency and are significantly impacted by the timing and size of acquisitions. We also exclude these amounts to provide easier comparability of pre- and post-acquisition operating results.

Stock-based compensation expenses. We exclude stock-based compensation expenses related to restricted stock awards, stock bonus programs, bonus share programs, and other stock-based awards from our non-GAAP financial measures. We evaluate our performance both with and without these measures because stock-based compensation is typically a non-cash expense and can vary significantly over time based on the timing, size and nature of awards granted, and is influenced in part by certain factors which are generally beyond our control, such as the volatility of the price of our common stock. In addition, measurement of stock-based compensation is subject to varying valuation methodologies and subjective assumptions, and therefore we believe that excluding stock-based compensation from our non-GAAP financial measures allows for meaningful comparisons of our current operating results to our historical operating results and to other companies in our industry.

Unrealized gains and losses on certain derivatives, net. We exclude from our non-GAAP financial measures unrealized gains and losses on certain foreign currency derivatives which are not designated as hedges under accounting guidance. We exclude unrealized gains and losses on foreign currency derivatives that serve as economic hedges against variability in the cash flows of recognized assets or liabilities, or of forecasted transactions. These contracts, if designated as hedges under accounting guidance, would be considered “cash flow” hedges. These unrealized gains and losses are excluded from our non-GAAP financial measures because they are non-cash transactions which are highly variable from period to period. Upon settlement of these foreign currency derivatives, any realized gain or loss is included in our non-GAAP financial measures.

Amortization of convertible note discount. Our non-GAAP financial measures exclude the amortization of the imputed discount on our convertible notes. Under GAAP, certain convertible debt instruments that may be settled in cash upon conversion are required to be bifurcated into separate liability (debt) and equity (conversion option) components in a manner that reflects the issuer’s assumed non-convertible debt borrowing rate. For GAAP purposes, we are required to recognize imputed interest expense on the difference between our assumed non-convertible debt borrowing rate and the coupon rate on our $400.0 million of 1.50% convertible notes. This difference is excluded from our non-GAAP financial measures because we believe that this expense is based upon subjective assumptions and does not reflect the cash cost of our convertible debt.

Acquisition expenses, net. In connection with acquisition activity (including with respect to acquisitions that are not consummated), we incur expenses, including legal, accounting, and other professional fees, integration costs, changes in the fair value of contingent consideration obligations, and other costs. Integration costs may consist of information technology expenses as systems are integrated across the combined entity, consulting expenses, marketing expenses, and professional fees, as well as non-cash charges to write-off or impair the value of redundant assets. We exclude these expenses from our non-GAAP financial measures because they are unpredictable, can vary based on the size and complexity of each transaction, and are unrelated to our continuing operations or to the continuing operations of the acquired businesses.

Restructuring expenses. We exclude restructuring expenses from our non-GAAP financial measures, which include employee termination costs, facility exit costs, certain professional fees, asset impairment charges, and other costs directly associated with resource realignments incurred in reaction to changing strategies or business conditions. All of these costs can vary significantly in amount and frequency based on the nature of the actions as well as the changing needs of our business and we believe that excluding them provides easier comparability of pre- and post-restructuring operating results.

Impairment charges and other adjustments. We exclude from our non-GAAP financial measures asset impairment charges (other than those already included within restructuring or acquisition activity), rent expense for redundant facilities, gains or losses on sales of property, gains or losses on settlements of certain legal matters, and certain professional fees unrelated to our ongoing operations, including $5.6 million and $7.5 million of fees and expenses for the three and six months ended July 31, 2019 related to a shareholder proxy contest, all of which are unusual in nature and can vary significantly in amount and frequency.

Non-GAAP income tax adjustments. We exclude our GAAP provision (benefit) for income taxes from our non-GAAP measures of net income attributable to Verint Systems Inc., and instead include a non-GAAP provision for income taxes, determined by applying a non-GAAP effective income tax rate to our income before provision for income taxes, as adjusted for the non-GAAP items described above. The non-GAAP effective income tax rate is generally based upon the income taxes we expect to pay in the reporting year. Our GAAP effective income tax rate can vary significantly from year to year as a result of tax law changes, settlements with tax authorities, changes in the geographic mix of earnings including acquisition activity, changes in the projected realizability of deferred tax assets, and other unusual or period-specific events, all of which can vary in size and frequency. We believe that our non-GAAP effective income tax rate removes much of this variability and facilitates meaningful comparisons of operating results across periods. Our non-GAAP effective income tax rate for the year ending January 31, 2020 is currently approximately 9%, and was 11% for the year ended January 31, 2019. 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.

Customer Engagement Cloud, Recurring and Nonrecurring Revenue 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 initial and renewal post contract support and cloud revenue.

Nonrecurring revenue, on both a GAAP and non-GAAP basis, primarily consists of our perpetual licenses, consulting, implementation and installation services, and training.

Cloud revenue, on both a GAAP and non-GAAP basis, primarily consists of SaaS and optional managed services.

SaaS revenue includes bundled SaaS, software with standard managed services and unbundled SaaS that we account for as term licenses where managed services are purchased separately.

We believe that recurring revenue, nonrecurring revenue, and cloud revenue, provide investors with useful insight into the nature and sustainability of our revenue streams. The recurrence of these revenue streams in future periods depends on a number of factors including contractual periods and customers' renewal decisions. Please see “Revenue adjustments” above for an explanation for why we present these revenue numbers on both a GAAP and non-GAAP basis.

New SaaS Annual Contract Value (ACV) includes the annualized contract value of all new SaaS contracts received within the period; in cases where SaaS is offered to partners through usage-based contracts, we include the quarterly values of all usage contracts.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before interest expense, interest income, income taxes, depreciation expense, amortization expense, revenue adjustments, restructuring expenses, acquisition expenses, and other expenses excluded from our non-GAAP financial measures as described above. We believe that adjusted EBITDA is also commonly used by investors to evaluate operating performance between companies because it helps reduce variability caused by differences in capital structures, income taxes, stock-based compensation, accounting policies, and depreciation and amortization policies. Adjusted EBITDA is also used by credit rating agencies, lenders, and other parties to evaluate our creditworthiness.

Net Debt

Net Debt is a non-GAAP measure defined as the sum of long-term and short-term debt on our consolidated balance sheet, excluding unamortized discounts and issuance costs, less the sum of cash and cash equivalents, restricted cash, restricted cash equivalents, restricted bank time deposits, and restricted investments (including long-term portions), and short-term investments. We use this non-GAAP financial measure to help evaluate our capital structure, financial leverage, and our ability to reduce debt and to fund investing and financing activities, and believe that it provides useful information to investors.

Supplemental Information About Constant Currency

Because we operate on a global basis and transact business in many currencies, fluctuations in foreign currency exchange rates can affect our consolidated U.S. dollar operating results. To facilitate the assessment of our performance excluding the effect of foreign currency exchange rate fluctuations, we calculate our GAAP and non-GAAP revenue, cost of revenue, and operating expenses on both an as-reported basis and a constant currency basis, allowing for comparison of results between periods as if foreign currency exchange rates had remained constant. We perform our constant currency calculations by translating current-period foreign currency results into U.S. dollars using prior-period average foreign currency exchange rates or hedge rates, as applicable, rather than current period exchange rates. We believe that constant currency measures, which exclude the impact of changes in foreign currency exchange rates, facilitate the assessment of underlying business trends.

Unless otherwise indicated, our financial outlook for revenue, operating margin, and diluted earnings per share, which is provided on a non-GAAP basis, reflects foreign currency exchange rates approximately consistent with rates in effect when the outlook is provided.

We also incur foreign exchange gains and losses resulting from the revaluation and settlement of monetary assets and liabilities that are denominated in currencies other than the entity’s functional currency. We periodically report our historical non-GAAP diluted net income per share both inclusive and exclusive of these net foreign exchange gains or losses. Our financial outlook for diluted earnings per share includes net foreign exchange gains or losses incurred to date, if any, but does not include potential future gains or losses.

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