Cognyte Announces Second Quarter Results

Double-Digit Revenue Growth with Significant Gross Margin Expansion

Strong Results Reflect Momentum from Security Analytics Platform

Raising Profitability Guidance for the Year

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 six months ended July 31, 2021 (“Q2 FYE22” and “H1 FYE22”).

“We are pleased with our strong Q2 and first half results which came in ahead of our expectations. We are particularly pleased with our double-digit revenue growth and gross margin expansion driving more than 13% gross profit growth in Q2, which reflects the successful execution of our software strategy. Following a strong start to the year, we believe we are well positioned for a strong second half and are also pleased to be raising our annual outlook for profitability” said Elad Sharon, Cognyte’s Chief Executive Officer.

Q2 Highlights

• Revenue: $116.0 million (GAAP, up 10.4% y-o-y) and $116.4 million (non-GAAP, up 9.5% y-o-y)
• Gross Margin:72.3% (GAAP, up 250 bps y-o-y) and 73.5% (non-GAAP, up 260 bps y-o-y)
• Gross Profit: $83.9 million (GAAP, up 14.3% y-o-y) and $85.6 million (non-GAAP, up 13.5% y-o-y)
• Diluted EPS: ($0.00) (GAAP) and $0.17 (non-GAAP)

H1 Highlights

• Revenue: $230.7 million (GAAP, up 11.8% y-o-y) and $231.5 million (non-GAAP, up 10.9% y-o-y)
• Gross Margin:71.9% (GAAP, up 320 bps y-o-y) and 73.1% (non-GAAP, up 330 bps y-o-y)
• Gross Profit: $165.8 million (GAAP, up 16.8% y-o-y) and $169.2 million (non-GAAP, up 16.1% y-o-y)
• Diluted EPS: ($0.07) (GAAP) and $0.37 (non-GAAP)

“During the quarter, we received multiple seven and eight figure orders and we continue to see strong market demand for security analytics. Both our Q1 and Q2 results came in ahead of expectations, reflecting our successful transition to a software model. We have an improved annual outlook for gross margin and adjusted EBITDA and are pleased to be raising guidance for EPS,” said David Abadi, Cognyte’s Chief Financial Officer.

FYE22 Outlook

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

• Revenue: Up ~10% to $490 million with a range of +/- 2%
  • We expect Q3 revenue to be in a range of $112 million to $117 million and to finish the year with our typical strong Q4.

• Diluted EPS: $0.82 at the midpoint of our revenue outlook
  • We expect Q3 EPS to be $0.10 and to finish the year with our typical strong Q4.

Our non-GAAP outlook for the three months ending October 31, 2021, and 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 $0.4 million and $1.6 million for the three months ending October 31, 2021, and FYE22, respectively.
• Amortization of intangible assets of approximately $0.4 million and $1.8 million for the three months ending October 31, 2021, and FYE22, respectively.

Our non-GAAP outlook for the three months ending October 31, 2021, and 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 $0.5 million and $1 million and between approximately $11 million and $12 million for the three months ending October 31, 2021, and FYE22, respectively.
• Stock-based compensation is expected to be between approximately $8 million and $9 million and $33 million and $36 million, for the three months ending October 31, 2021, and FYE22, respectively, 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 six months ended July 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 six months ended July 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 (800) 708-4540 (United States and Canada) and (847) 619-6397 (International) and the passcode is 50218265. 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 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; 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)
		Six Months Ended										Three Months Ended
		July 31,										July 31,
(in thousands except share and per share data)		2021					2020					2021						2020
Revenue:
Software		$	99,628				$	86,545				$	47,964					$	47,566
Software service		104,690					91,843					53,923						44,683
Professional service and other		26,407					28,071					14,104						12,780
Total revenue		230,725					206,459					115,991						105,029
Cost of revenue:
Software		13,860					15,851					5,970						9,275
Software service		25,312					22,128					13,359						10,083
Professional service and other		25,424					26,074					12,632						12,084
Amortization of acquired technology		341					492					170						239
Total cost of revenue		64,937					64,545					32,131						31,681
Gross profit		165,788					141,914					83,860						73,348
Operating expenses:
Research and development, net		69,542					60,256					36,130						29,068
Selling, general and administrative		95,960					73,022					45,142						32,733
Amortization of other acquired intangible assets		954					640					650						339
Total operating expenses		166,456					133,918					81,922						62,140
Operating (loss) income		(668		)			7,996					1,938						11,208
Other income (expense), net:
Interest income		65					953					42						417
Interest expense		(10		)			(84		)			(6		)				(37		)
Other (expenses) income, net		(417		)			135					(550		)				543
Total other income (expense), net		(362		)			1,004					(514		)				923
(Loss) income before provision for income taxes		(1,030		)			9,000					1,424						12,131
Provision for income taxes		1,211					3,406					382						5,876
Net (loss) income		(2,241		)			5,594					1,042						6,255
Net income attributable to noncontrolling interest		2,433					3,565					1,327						1,766
Net (loss) income attributable to Cognyte Software Ltd.		$	(4,674	)			$	2,029				$	(285	)				$	4,489
Net (loss) income per share attributable to Cognyte Software Ltd.:
Basic		$	(0.07	)			$	0.03				$ (0.00				)		$	0.07
Diluted		$	(0.07	)			$	0.03				$ (0.00				)		$	0.07
Weighted-average shares outstanding:
Basic		66,128					65,773					66,405						65,773
Diluted		66,128					65,773					66,405						65,773

Table 2 COGNYTE SOFTWARE LTD. Condensed Consolidated Balance Sheets
		July 31,					January 31,
		2021					2021
(in thousands)		(Unaudited)					(Audited)
Assets
Current assets:
Cash and cash equivalents		$	49,814				$	78,570
Restricted cash and cash equivalents, and restricted bank time deposits		10,815					27,042
Short-term investments		18,458					4,713
Accounts receivable, net of allowance for doubtful accounts of 3.8 million and 4.6 million, respectively		158,808					175,001
Contract assets, net		20,527					20,317
Inventories		16,091					14,542
Prepaid expenses and other current assets		35,435					30,051
Total current assets		309,948					350,236
Property and equipment, net		30,937					37,595
Operating lease right-of-use assets		28,819					32,126
Goodwill		158,341					158,183
Intangible assets, net		4,004					5,299
Deferred income taxes		7,500					3,303
Other assets		29,484					42,076
Total assets		$	569,033				$	628,818
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	37,582				$	41,552
Accrued expenses and other current liabilities		85,882					91,692
Contract liabilities		96,675					127,012
Current notes payable		—					38,772
Total current liabilities		220,139					299,028
Long-term contract liabilities		17,367					22,037
Deferred income taxes		3,283					4,049
Operating lease liabilities		20,722					24,135
Other liabilities		10,007					9,198
Total liabilities		271,518					358,447
Commitments and Contingencies
Stockholders’ equity:
Common stock – $0 par value; authorized 300,000,000 shares. Issued 66,794,280 and 65,773,335 at July 31, 2021 and January 31, 2021, respectively; outstanding 66,786,771 and 65,773,335 shares at July 31, 2021 and January 31, 2021, respectively		—					—
Additional paid-in capital		302,288					—
Treasury stock, at cost 7,509 and 0 at July 31, 2021 and January 31, 2021, respectively		(181		)			—
Accumulated deficit		(4,674		)			—
Former net parent investment		—					273,006
Accumulated other comprehensive loss		(14,977		)			(15,505		)
Total Cognyte Software Ltd. stockholders’ equity		282,456					257,501
Noncontrolling interest		15,059					12,870
Total stockholders’ equity		297,515					270,371
Total liabilities and stockholders’ equity		$	569,033				$	628,818

Table 3 COGNYTE SOFTWARE LTD. Condensed Consolidated Statements of Cash Flows (Unaudited)
		Six Months Ended July 31,
(in thousands)		2021					2020
Cash flows from operating activities:
Net (loss) income		$	(2,241	)			$	5,594
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		11,966					9,735
Provision for doubtful accounts		373					795
Stock-based compensation, excluding cash-settled awards		18,642					13,092
Non-cash gains on derivative financial instruments, net		(169		)			(413		)
Other non-cash items, net		(119		)			424
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable		15,605					12,332
Contract assets		(392		)			(1,649		)
Inventories		(2,068		)			589
Prepaid expenses and other assets		1,912					2,719
Accounts payable and accrued expenses		(9,814		)			(5,900		)
Contract liabilities		(35,212		)			(23,362		)
Other liabilities		938					1,738
Other, net		957					(351		)
Net cash provided by operating activities		$	378				$	15,343
Cash flows from investing activities:
Purchases of property and equipment		(4,767		)			(8,651		)
Purchases of short-term investments		(32,995		)			(33,064		)
Maturities and sales of short-term investments		18,930					21,791
Settlements of derivative financial instruments not designated as hedges		(340		)			374
Cash paid for capitalized software development costs		(3,491		)			(1,650		)
Change in restricted bank time deposits, including long-term portion		5,616					15,503
Other investing activities		512					—
Net cash used in investing activities		$	(16,535	)			$	(5,697	)
Cash flows from financing activities:
Net transfers to former parent		—					(18,146		)
Dividend paid to former parent		(35,000		)			—
Payments of contingent consideration for business combinations (financing portion)		(949		)			(3,382		)
Other financing activities		(181		)			(316		)
Net cash used in financing activities		$	(36,130	)			$	(21,844	)
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents		273					(1,433		)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents		(52,014		)			(13,631		)
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		$	62,643				$	219,778
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period:
Cash and cash equivalents		$	49,814				$	188,065
Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits		10,585					22,890
Restricted cash and cash equivalents included in other assets		2,244					8,823
Total cash, cash equivalents, restricted cash, and restricted cash equivalents		$	62,643				$	219,778

Contacts

Investor Relations Contact
Matthew Frankel, CFA

Cognyte Software Ltd.

[email protected]

Read full story here