Image Source: Verint
Shares of simulated Best Ideas Newsletter portfolio idea Verint surged after hours September 5 following a strong fiscal second quarter report.
By Kris Rosemann
Simulated Best Ideas Newsletter portfolio idea Verint (VRNT) turned in an impressive second quarter report September 9, and shares leapt in after-hours trading after management raised its full year top- and bottom-line guidance. The company’s focus on actionable intelligence in customer engagement and cyber intelligence, which includes high-growth areas such as analytics, artificial intelligence, and automation technologies, is being met by strong demand as evidenced by its 11% year-over-year revenue growth reported in the quarter.
Non-GAAP revenue in its ‘Customer Engagement’ segment (~66% of total revenue) advanced 10.6% from the year-ago period, and its ‘Cyber Intelligence’ segment turned in ~11.4% year-over-year revenue growth in the period. Non-GAAP operating income in the quarter came in at $63.4 million compared to $45.6 million in the year-ago period, and its non-GAAP operating margin expanded more than four percentage points to 20.6%. Non-GAAP diluted net income per share in the quarter grew to $0.76 from $0.61 in the comparable period of the prior fiscal year.
Though Verint continues to report a material difference in its GAAP and non-GAAP income figures, we remain confident in its financial performance thanks to its robust free cash flow generation. In the six months ended July 31, 2018, it reported free cash flow of just over $83 million, up from $82 million in the year-ago period despite a ~26% increase in purchases of property and equipment and capitalized software development costs (cash flow from operations grew nearly 6%). The company’s balance sheet remains relatively healthy given its cash-flow generating capacity with a net debt position of ~$377 million as of the end of its fiscal second quarter, which is down from ~$417 million at the beginning of the fiscal year.
Verint’s material guidance increases that accompanied its fiscal second quarter report helped drive shares significantly higher in after-hours trading September 5. Total revenue guidance for the full fiscal year was raised to $1.24 billion from $1.23 billion, and it now expects it ‘Customer Engagement’ and ‘Cyber Intelligence’ segments to grow revenue by 7% and ~10%, respectively, compared to prior expectations for mid-single-digit and 10% revenue growth. Diluted earnings per share guidance was raised to $3.15 from $3.09 previously, which represents ~12% year-over-year growth.
We plan to continue highlighting Verint as an idea in our simulated Best Ideas Newsletter portfolio, and we’re sticking with our fair value estimate of $54 per share for the time being. The company’s recent guidance increase may put the upper bound of our fair value range in play for shares if it continues to deliver on its recent momentum, especially as it relates to margin expansion. Shares were initially highlighted in the simulated Best Ideas Newsletter portfolio at $38.95 in April 2017, and its share price has advanced nicely since then, even before its impressive fiscal second quarter report.
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Kris Rosemann does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.