Verint Systems Inc. Making Big Data Actionable TM Presentation to Lenders January 2014 THE COMPANY ACKNOWLEDGES THAT THE RECIPIENT OF THIS PRESENTATION HAS STATED THAT IT DOES NOT WISH TO RECEIVE MATERIAL NON-PUBLIC INFORMATION WITH RESPECT TO THE COMPANY OR ITS SECURITIES. NEITHER THE COMPANY NOR THE ARRANGERS TAKE ANY RESPONSIBILITY FOR THE RECIPIENT'S DECISION TO LIMIT THE SCOPE OF THE INFORMATION IT HAS OBTAINED IN CONNECTION WITH ITS EVALUATION OF THE COMPANY AND THE FACILITIES. Exhibit 99.1 |
1 Forward-Looking Statements This document contains forward-looking statements, including statements regarding expectations, predictions, views, opportunities, plans, strategies, beliefs, and statements of similar effect relating to Verint and the expected benefits of the KANA acquisition. Forward-looking statements are often identified by future or conditional words such as "will", "would", "plans", "expects", "intends", "believes", "seeks", "estimates", or "anticipates", or by variations of such words or by similar expressions. These forward-looking statements are not guarantees of future performance and they are based on management’s expectations that involve a number of risks, uncertainties, and assumptions, any of which could cause actual results or events to differ materially from those expressed in or implied by the forward-looking statements, including risks associated with the KANA acquisition, such as uncertainties regarding the closing of the KANA acquisition or the ability to realize the expected benefits of the transaction, as well as risks associated with related system integrations. For a detailed discussion of risk factors impacting Verint, see Verint’s Annual Report on Form 10-K for the year ended January 31, 2013, its Quarterly Report on Form 10-Q for the quarter ended October 31, 2013, and other filings Verint makes with the SEC. The forward-looking statements contained in this document are made as of the date of this document, and Verint assumes no obligation to revise or update any forward-looking statement, except as otherwise required by law. |
2 Management Presenters Dan Bodner President and Chief Executive Officer Doug Robinson Chief Financial Officer Alan Roden SVP, Corporate Development |
3 Table of Contents Credit Suisse Dan Bodner Doug Robinson Alan Roden Credit Suisse 5. Syndication Overview and Timing 4. Key Credit Highlights 3. Financial Overview 2. Verint Overview 1. Transaction Overview |
1. Transaction Overview |
5 Transaction Overview On January 6, 2014, Verint Systems Inc. (“Verint” or the “Company”) signed a definitive purchase agreement to acquire KANA Software (“KANA” or the “Target”) from Accel-KKR for $514 million in cash (the “Transaction”) KANA is a leader in customer service solutions delivered both on-premises and in the cloud with ~900 customers The Transaction is expected to be financed with: ~$100 million Verint cash from balance sheet $300 million incremental term loan on the Company’s existing senior secured term loan facility ~$126 million revolver draw Pro forma LTM non-GAAP revenue of $1,020 million and non-GAAP EBITDA of $258 million Pro forma LTM gross and net leverage of 4.2x and 3.1x, respectively Verint expects to delever through a combination of EBITDA growth, free cash flow generation and debt paydown Verint has a track record of successfully delevering, having reduced net leverage from 5.7x to 2.0x within two years after acquiring Witness in FY’08 The Company is also seeking an amendment to increase its incremental debt capacity as well as amend the conditionality requirements for future incremental borrowings in connection with permitted acquisitions Existing lenders should submit signature pages for the amendment to LendAmend. Instructions will be posted to SyndTrak Note: LTM based on 10/31/13 results for Verint and the midpoint of 12/31/13E estimates for KANA. KANA has not closed its financials for 12/31/13. Preliminary estimates for LTM 12/31/13E are non-GAAP revenue of $135–$139 million and non-GAAP EBITDA of $35–$37 million. |
6 Sources & Uses and Pro Forma Capitalization ($ in millions) Sources Uses Revolver Draw $126 24.0% Purchase Price $514 Incremental Senior Secured Term Loan 300 57.0% Estimated Transaction Expenses 12 Verint Cash from Balance Sheet 100 19.0% Total Sources $526 100.0% Total Uses $526 Note: Based on current expectations regarding financing structure. (1) KANA non-GAAP EBITDA reflects the midpoint of estimated LTM 12/31/13E results of $35–$37 million. Sources & Uses Pro Forma Capitalization ($ in millions) Existing Pro Forma 10/31/2013 Adjustment 10/31/2013 Unrestricted Cash and Short-Term Investments $376 ($100) $276 $200mm Revolving Credit Facility – 126 126 Senior Secured Term Loan 645 300 945 Total Debt $645 $426 $1,071 Financial summary: $222 $36 $258 Credit statistics: Total Debt / LTM 10/31/13 Non-GAAP EBITDA 2.9x 4.2x Net Debt / LTM 10/31/13 Non-GAAP EBITDA 1.2x 3.1x LTM 10/31/13 Non-GAAP EBITDA (1) |
2. Verint Overview |
8 The Big Data Analytics Opportunity Intelligent organizations are differentiating themselves and driving competitive advantage through big data analytics |
9 Helping Customers Collect Big Data - Examples Enterprise Case Study Enterprise Case Study More than 50 million customer telephony interactions per year More than 300 million customer text related interactions per year - emails, surveys and unstructured text Security Case Study Security Case Study Tens of millions of communications per day - phone, email, chat, SMS, web session, social media, etc. Requires multiple Petabytes of storage Objective: Extract intelligence from customer interactions for customer-centric operations Objective: Extract intelligence from communications to fight crime and terrorism |
10 Large and Diversified Customer Base Note: % represents percentage of Global Fortune 500 companies that are Verint customers. Calculations based on 2012 data. Large base of more than 10,000 customers provides Verint the opportunity to deliver analytical applications across multiple markets Strong Presence Across Global Fortune 500 Companies |
11 Enterprise Intelligence Discover Business Trends Optimize the Workforce Our solutions enable customer service operations to enhance the customer experience while increasing revenue and improving profitability We are expanding from our strong position in the contact center into branch, back-office and customer experience functions Understand Customer Sentiment |
12 Security Intelligence Optimize Public Safety Call Centers Improve Physical Security Cost Effectively Generate Intelligence and Collect Evidence Our solutions enable security organizations to leverage big data from a Migration to IP networks creates new challenges and new opportunities for law enforcement and security organizations wide range of communications, video and data sources to enhance security and prevent crime and terrorism |
13 Go-to-Market Strategy Growing sales force and channel partners Verticalized direct sales force with subject matter expertise ~800 professionals in sales and marketing Partner strategy broadens market coverage ~50% of business through channel partners: OEMs, SIs and regional resellers Flexible business models Perpetual, software-as-a-service, managed services Business models reflect customer preferences Enterprise, typical software model Security, prefer turnkey solutions |
14 Creating a New Leader for Customer Engagement To Empower Organizations to Optimize and Transform Customer Engagements Combination Helps Organizations Enhance Loyalty, Mitigate Risk and Better Manage Operational Costs The complementary solution set would enable organizations worldwide to implement a single-vendor solution that helps optimize and align customer engagement strategy |
15 Complementary Solutions Case Management NLP Knowledge Management Agent Desktop Web Self-Service & Secure Portal Business Process Management Inbound Routing and Queuing Live Chat and Co-Browsing Text Analytics Email & Whitemail Management Mobile and Social WFO and WFM Performance Management Desktop and Process Analytics Enterprise Feedback Management Customer Feedback Management Quality Monitoring Recording Speech Analytics eLearning and Coaching Video and Situation Intelligence |
3. Financial Overview |
$139 $213 $200 $192 $205 $220–$223 21% 30% 28% 24% 24% ~24% FY'09 FY'10 FY'11 FY'12 FY'13 FY'14E Non-GAAP EBITDA % Margin 17 Track Record of Strong Financial Performance Outlook Non-GAAP Revenue Non-GAAP EBITDA and % Margin FYE 1/31 ($ in millions) FYE 1/31 ($ in millions) $675 $704 $727 $796 $848 $903–$911 FY'09 FY'10 FY'12 FY'13 FY'14E Note: Guidance relates to non-GAAP revenue, EPS and EBITDA. FYE 2014 FYE 2015 FYE 2014 FYE 2015 Guidance from Q3 Conference Call Revenue Growth: 6.5% to 7.5% from the prior year Diluted EPS: $2.75 to $2.80 Revenue to increase between 7.0% and 9.0% compared to the year ending January 31, 2014 Update from 1/6/14 Conference Call Verint reaffirmed prior guidance Verint guidance expected to be updated after KANA transaction closes CY 2014E KANA Revenue: $140 to $150 million CY 2014E KANA EBITDA: $40 to $45 million |
18 Pro Forma Financial Summary LTM Non-GAAP EBITDA Contribution LTM Non-GAAP Revenue Contribution ($ in millions) ($ in millions) LTM Revenue by Segment Breakdown Verint KANA Pro Forma Note: LTM financials based on 10/31/13 results for Verint and the midpoint of 12/31/13E estimates for KANA. KANA has not closed its financials for 12/31/13. Preliminary estimates for LTM 12/31/13E are non-GAAP revenue of $135–$139 million and non-GAAP EBITDA of $35–$37 million. Enterprise Intelligence 58% Communications Intelligence 29% Video Intelligence 13% Enterprise Intelligence 63% Communications Intelligence 25% Video Intelligence 12% Enterprise Intelligence 100% $883 $137 $1,020 Verint KANA Pro Forma $222 $36 $258 Verint KANA Pro Forma |
19 Track Record of De-levering and Ability to Maintain Efficient Leverage Levels ($ in millions) Net Debt (1) Key Highlights Net Debt (1) / Non-GAAP EBITDA Verint generates good free cash flow and has demonstrated an ability to de-lever The Company has a number of positive cash flow characteristics – Operating margins greater than 20% – Capex of less than 2%–3% of revenue – Minimal working capital needs – Low effective tax rate due to NOLs (2) (1) Total debt less unrestricted cash and short-term investments. (2) Cash and debt balance as of 10/31/13. Unadjusted for current transaction. (3) Capital expenditures includes cash paid for capitalized software development costs. (2) Low Capex Needs ($ in millions) (3) $527 $509 $437 $413 $447 $353 $268 FY'08 FY'09 FY'10 FY'11 FY'12 FY'13 LTM 10/31/13 5.7x 3.6x 2.0x 2.1x 2.3x 1.7x 1.2x FY'08 FY'09 FY'10 FY'11 FY'12 FY'13 LTM 10/31/13 $16 $8 $11 $16 $20 $19 2% 1% 2% 2% 2% 2% FY'09 FY'10 FY'11 FY'12 FY'13 LTM 10/31/13 Capex % of Revenue |
4. Key Credit Highlights |
21 Verint Key Credit Highlights Highly Diversified Business 3 Significant Free Cash Flow Generation to Support Deleveraging 4 Experienced Management Team 5 Compelling Combination 2 Strong Financial Performance Underpinned by Attractive Industry Fundamentals 1 |
22 Strong Financial Performance Underpinned by Attractive Industry Fundamentals 1 Enterprise Intelligence Growth Drivers Integration of WFO applications Greater insight through customer interaction analytics to improve the performance of customer service operations Adoption of WFO across the enterprise Migration to VoIP technologies $139 $213 $200 $192 $205 $220–$223 21% 30% 28% 24% 24% ~24% FY'09 FY'10 FY'11 FY'12 FY'13 FY'14E Non-GAAP EBITDA % Margin Non-GAAP Revenue Non-GAAP EBITDA and % Margin ($ in millions) ($ in millions) $675 $704 $727 $796 $848 $903–$911 FY'09 FY'10 FY'12 FY'13 FY'14E Security Intelligence Growth Drivers Growing demand for advanced intelligence and investigative solutions Terrorism, crime and other security threats around the world are generating demand for advanced video security solutions Increasingly complex communications networks and growing network traffic Transition to IP networks and web and cyber security Legal and regulatory compliance requirements |
23 Compelling Combination Favorable Industry Reaction to the Transaction…. …And Industry Experts …From Wall Street Analysts… “ Kana enhances VRNT's SaaS capabilities and call center technologies and deepens its reach into customer experience and workforce optimization solutions. ” “ We believe this acquisition is a significant enhancement for Verint, as it augments the company's existing solution suite to include significant online/e-business capabilities, such as response management for e-mail, chat, and social media, as well as KANA's agent desktop solution. ” “ We like the transaction as it could accelerate the adoption of customer engagement suites through the deployment of a solution set from a single vendor and increase the company's importance as a strategic supplier. KANA Software should add ~800 employees (200 in R&D) and ~900 customers to Verint. We believe the move could be an important part in helping the overall growth rate accelerate into the double-digits. ” “ We like this acquisition as it is expected to be accretive to FY 2015 earnings (FYE January) and see it expanding the Company’s service suite in its fastest growing area – actionable intelligence. ” “ Big data and analytics meet customer experience. Verint expects to expand its customer engagement optimization offering with the acquisition of Kana. Verint's core capabilites, Vovici's voice of the customer assets, and Kana's multichannel customer experience solutions allow customers to move from data to information to insight to action or decisions. ” “ The acquisition provides greater gains than just complementary product lines, and a venue for both companies to expand their current footprints by cross-and upselling into their respective installed base. The acquisition provides a vision for deeply personalized customer service interactions which are delivered with maximum efficiency for a contact center. ” “ By offering a ‘best of breed’ customer support suite, with pre- integrated EFM capabilities, Verint should not only be able to sell the entire stack, and have infinite upsell opportunities with existing customers, but they also can better partner with companies to create a vision for EFM, and then enable the entire vision from phone calls to final analysis. ” “ Kana enhances VRNT's SaaS capabilities and call center technologies and deepens its reach into customer experience and workforce optimization solutions. ” |
24 24 LTM Pro Forma Revenue by Segment LTM Pro Forma Revenue by Type (1) More than 10,000 Customers in Over 150 Countries Finance and Insurance Communications Government Enterprise Retail & Hospitality Health Care Utilities Transportation Note: LTM pro forma revenue based on 10/31/13 results for Verint and the midpoint of 12/31/13E estimates for KANA. KANA has not closed its financials for 12/31/13. Preliminary estimate for LTM 12/31/13E non-GAAP revenue of $135–$139 million. (1) KANA revenue by type estimates based on historical results; Product revenue includes KANA License revenue; Service and Support revenue includes all other KANA revenue. LTM Pro Forma Revenue by Region Highly Diversified Business 3 Product Revenue 41% Service and Support Revenue 59% Americas 54% EMEA 24% APAC 22% Enterprise Intelligence 63% Communications Intelligence 25% Video Intelligence 12% |
25 Significant Free Cash Flow Generation to Support Deleveraging Net Debt (1) Net Debt (1) / Non-GAAP EBITDA Capital Structure Highlights Favorable debt structure No maturities until 2018 Efficient capital structure with ability to prepay all debt without incurring prepayment penalties Significant free cash flow generation to support deleveraging The Company has a number of positive cash flow characteristics – Operating margins greater than 20% – Capex of less than 2%–3% of revenue – Minimal working capital needs – Low effective tax rate due to NOLs Proven ability to delever following an acquisition – Acquired Witness in FY’08 and reduced net leverage to 2.0x by the end of FY’10 Strong liquidity 10/31/13 pro forma unrestricted cash and short-term investments balance of $276 million Pro forma revolver availability of ~$75 million (1) Total debt less unrestricted cash and short-term investments. (2) Calculated as CFO less capex and cash paid for capitalized software development costs. $527 $509 $437 $413 $447 $353 $268 FY'08 FY'09 FY'10 FY'11 FY'12 FY'13 LTM 10/31/13 5.7x 3.6x 2.0x 2.1x 2.3x 1.7x 1.2x FY'08 FY'09 FY'10 FY'11 FY'12 FY'13 LTM 10/31/13 4 Free Cash Flow (2) NM $38 $93 $59 $90 $103 $154 FY'08 FY'09 FY'10 FY'11 FY'12 FY'13 LTM 10/31/13 ($ in millions) ($ in millions) |
26 Experienced Management Team Years at Verint Multi- disciplinary expertise Significant industry background Significant M&A execution and integration track record Strong public company experience Long tenure Professional Experience Dan Bodner Chief Executive Officer and President 19 33 Doug Robinson Chief Financial Officer 7 30 Elan Moriah President of Verint Enterprise Intelligence Solutions and Verint Video Intelligence Solutions 13 24 Hanan Gino President, Communications and Cyber Intelligence 1 27 Meir Sperling Chief Strategy Officer 13 38 Peter Fante Chief Legal Officer and Chief Compliance Officer 11 20 Alan Roden SVP, Corporate Development 11 20 Jane O’Donnell SVP, Global Human Resources 12 33 5 |
5. Syndication Overview and Timing |
28 Indicative Terms Incremental Senior Secured Term Loan (1) Credit agreement terms include a cap on cash netting of $150mm. Accordingly, pro forma for this transaction, the 1 lien net leverage ratio is approximately 3.6x. Borrower: Verint Systems Inc. Joint Lead Arrangers: Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., RBC Capital Markets, Barclays, HSBC Securities (USA) Inc. Issue: Maturity: September 6, 2019 (same as existing TL-B) LIBOR margin: L + 300 bps (-25 bps step-down at BB- / Ba3) LIBOR floor: 1.00% Issue price: 99.75 Guarantors: Same as existing, but will include all of KANA Software’s domestic subsidiaries Amortization : 1.00% per annum (adjusted to be fungible with existing term loans); payable quarterly, with balance due at maturity Incremental facility : Call protection: Security: Same as under existing facilities, with inclusion of assets of U.S. subsidiaries of Kay Technology Holdings, Inc., including KANA Software, as new guarantors Mandatory prepayments: Same as existing TL-B Financial covenants: None $200mm plus an unlimited amount subject to 3.5x 1st lien net leverage (1) 101 repricing protection through 3/6/2014 (same as existing TL-B) st $300 million Incremental Senior Secured Term Loan (fungible with existing TL-B) |
29 Timetable January 13 Lender conference call January 17 Commitments due from lenders February 3 Close and fund S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 January 2014 Holiday Key date Date S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 February 2014 Event (1) (1) Closing is subject to the expiration of applicable regulatory waiting periods and the satisfaction or waiver of the other closing conditions. |
30 Transaction Contacts Verint Alan Roden Senior Vice President, Corporate Development (631) 962-9304 alan.roden@verint.com Credit Suisse Jeff Cohen Managing Director, Co-Head of US Syndicated Loan Capital Markets (212) 325-7455 jeffrey.a.cohen@credit-suisse.com Ryan Williams Vice President, Syndicated Loan Capital Markets (212) 538-9568 ryan.williams@credit-suisse.com Michael Speller Managing Director, Leveraged Finance Origination (212) 538-8769 michael.speller@credit-suisse.com Judy Smith Managing Director, Corporate Banking (212) 538-2178 judy.smith@credit-suisse.com Michael D’Onofrio Associate, Corporate Banking (212) 325-6098 suisse.com Raghu Velamati Vice President, Diversified Industrials and Services Investment Banking (312) 750-3059 raghu.velamati@credit-suisse.com Brett Kornblatt Associate, Diversified Industrials and Services Investment Banking (312) 750-3043 brett.kornblatt@credit-suisse.com Chris O’Keeffe Analyst, Diversified Industrials and Services Investment Banking (312) 750-2921 christopher.okeeffe@credit- suisse.com michael.d’onofrio@credit- Title Phone Email |
Appendix |
32 About Non-GAAP Financial Measures The following tables include a reconciliation of certain financial measures prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) to the most directly comparable financial measures not prepared in accordance with GAAP (“non-GAAP”). Non-GAAP financial measures should not be considered in isolation or as a substitute for comparable GAAP financial measures. The non-GAAP financial measures we present in the following tables 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 the adjustments made in these non-GAAP financial measures. We believe that the non-GAAP financial measures we present in the following tables provide meaningful supplemental information regarding our operating results primarily because they exclude certain non-cash charges or items that we do not believe are reflective of our ongoing operating results when budgeting, planning and forecasting, determining compensation and when assessing the performance of our business with our individual operating segments or our senior management. We believe that these non-GAAP financial measures also facilitate the comparison by management and investors of results between periods and among our peer companies. However, those companies may calculate similar non- GAAP financial measures differently than we do, limiting their usefulness as comparative measures. Our non-GAAP financial measures reflect adjustments to the corresponding GAAP financial measure based on the items set forth below. The purpose of these adjustments is to give an indication of our performance exclusive of certain non-cash charges and other items that are considered by our senior management to be outside of our ongoing operating results. The non-GAAP financial measures Verint presents have limitations in that they do not reflect all of the amounts associated with Verint’s or KANA’s results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate Verint’s or KANA’s results of operations in conjunction with the corresponding GAAP financial measures. These non-GAAP financial measures do not represent discretionary cash available to Verint or KANA to invest in the growth of its business, and Verint or KANA may in the future incur expenses similar to or in addition to the adjustments made in these non-GAAP financial measures. Because we do not predict special items that might occur in the future, and our outlook is developed at a level of detail different than that used to prepare GAAP financial measures, we are not providing a reconciliation to GAAP of forward-looking financial measures for the fiscal years ending January 31, 2014 and January 31, 2015. Estimates for KANA’s non-GAAP measures presented in this document were prepared in a manner similar to Verint’s non-GAAP measures. KANA defines EBITDA as earnings (or loss) from continuing operations before interest expense, income taxes, depreciation and amortization, and amortization of non-cash stock-based compensation, non-recurring acquisition and restructuring expenses and the goodwill impairment charges. |
33 About Non-GAAP Financial Measures |
34 Verint GAAP to Non-GAAP Reconciliation ($ in millions) FY FY FY FY FY FY FY 2014 LTM FYE 1/31 2008A 2009A 2010A 2011A 2012A 2013A Q1A Q2A Q3A 10/31/2013 Revenue Reconciliation GAAP revenue $535 $670 $704 $727 $783 $840 $205 $222 $224 $881 Revenue Adjustments Related to Acquisitions 37 6 – – 14 9 1 0 0 3 Non-GAAP revenue $572 $675 $704 $727 $796 $848 $205 $223 $225 $883 EBIT Reconciliation GAAP Operating Income ($115) ($15) $66 $73 $86 $100 $14 $31 $38 $118 Revenue Adjustments Related to Acquisitions 37 6 – – 14 9 1 0 0 3 Amortization and Impairment of Acquired Technology and Backlog 8 9 8 9 12 15 4 2 2 12 Amortization of Other Acquired Intangible Assets 20 25 22 21 23 24 6 6 6 24 Restructuring Costs 3 6 0 – – – – – – – Stock-Based Compensation Expenses 31 36 44 47 28 25 6 9 10 32 M&A and Other Adjustments – – 1 5 12 17 6 2 0 17 Expenses Related to Restatement and Extended Filing Delay 41 29 55 29 1 – – – – – Impairments of Goodwill and Other Acquired Intangible Assets 23 26 – – – – – – – – In-process Research and Development 7 – – – – – – – – – Integration Costs 11 3 – – – – – – – – Other Legal Expenses (Recoveries) 9 (4) – – – – – – – – Non-GAAP Operating Income $75 $120 $196 $185 $177 $189 $37 $51 $56 $205 Non-GAAP Depreciation and Amortization 18 19 18 15 15 16 4 4 4 17 Non-GAAP EBITDA $93 $139 $213 $200 $192 $205 $41 $55 $61 $222 |