Comverse Technology Announces Third Quarter Results; Conference Call to Discuss Selected Financial Information to be Held Today at 8:30 AM

NEW YORK, Dec. 9, 2011 (GLOBE NEWSWIRE) -- Comverse Technology, Inc. ("CTI") (Nasdaq:CMVT) today announced its results for the three months ended October 31, 2011.

Consolidated Highlights: Below is selected consolidated financial information for the three months ended October 31, 2011 and 2010 prepared in accordance with generally accepted accounting principles ("GAAP") and, where indicated, not in accordance with GAAP ("non-GAAP").

• Revenue increased 6.5% to $453.1 million.
• GAAP net income attributable to CTI of $35.7 million.
• GAAP basic and diluted earnings per share attributable to CTI's shareholders of $0.17.
• Non-GAAP net income attributable to CTI¹ increased from $6.3 million to $35.2 million.
• Basic non-GAAP earnings per share attributable to CTI's shareholders increased from $0.03 to $0.17.
• Diluted non-GAAP earnings per share attributable to CTI's shareholders increased from $0.01 to $0.17.

CTI is a holding company that conducts business through its subsidiaries, principally its wholly-owned subsidiary, Comverse, Inc. ("Comverse"), and its majority-owned subsidiaries, Verint Systems Inc. ("Verint"), Starhome B.V. ("Starhome") and, prior to its sale during fiscal 2010, Ulticom, Inc. For the current fiscal periods, CTI's reportable segments were Comverse Business Support Systems ("BSS"), Comverse Value-Added Services ("VAS"), and Verint. The results of operations of all the other operations of the company, including the Comverse Mobile Internet operating segment ("Comverse MI"), Comverse's Netcentrex operations, Comverse's global corporate functions that support its business units, Starhome B.V. and its subsidiaries, miscellaneous operations and CTI's holding company operations are included in the column captioned "All Other" in the business segment information provided.

Comverse Subsidiary Highlights: Below is selected financial information for the three and nine months ended October 31, 2011 and 2010 for the company's Comverse subsidiary.

Charles Burdick, Chairman and Chief Executive Officer of CTI said, "We achieved profitability and positive operating cash flow in each of our three subsidiaries, and have a solid financial foundation to support our future success. Our Comverse subsidiary is experiencing increasing recognition for its leadership in the emerging converged billing BSS segment, with new Comverse ONE customer wins, and endorsements from network operators and other industry thought leaders. Comverse also continues to reinforce its leading market position in value-added services with the introduction of its new IP messaging platform and Service Enablement Middleware cloud-based solution. Our majority-owned Verint and Starhome subsidiaries again delivered strong operating and market performance."

Comverse and Starhome Highlights: Below is selected financial information for the three and nine months ended October 31, 2011 and 2010 for the company's Comverse BSS and Comverse VAS segments, as well as Comverse Other and Starhome:

Financial Results

Comverse Subsidiary

Comverse Subsidiary Total Revenue

Total revenue for the company's Comverse subsidiary (including intercompany revenue) was $243.8 million for the current fiscal quarter, an increase of 6.5% compared to the $228.9 million for the prior year fiscal quarter. Total revenue for the company's Comverse subsidiary was $589.6 million for the nine months ended October 31, 2011, a decrease of 6.0% compared to the $627.0 million for the corresponding prior year period. Comverse's revenue for the three and nine months ended October 31, 2011 includes $39.0 million and $41.2 million, respectively, of additional revenue recognized due to the adoption of new accounting guidance. This includes $33.9 million recognized in the current fiscal quarter resulting from the material modifications of certain existing contracts.

Comverse's revenue from customer solutions was $160.6 million for the current fiscal quarter, an increase of $19.3 million, or 13.7%, compared to the prior year fiscal quarter. Comverse's revenue from customer solutions was $344.9 million for the nine months ended October 31, 2011, a decrease of $34.9 million, or 9.2%, compared to the corresponding prior year period.

Comverse's revenue from maintenance was $83.2 million for the current fiscal quarter, a decrease of $4.4 million, or 5.1%, compared to the prior year fiscal quarter. Comverse's revenue from maintenance was $244.7 million for the nine months ended October 31, 2011, a decrease of $2.5 million, or 1.0%, compared to the corresponding prior year period.

Comverse Subsidiary Income (Loss) from Operations

Income from operations for the company's Comverse subsidiary was $29.5 million for the current fiscal quarter, compared to loss from operations of $9.1 million for the prior year fiscal quarter. BSS and VAS segment operating income of $30.4 million and $48.4 million, respectively, do not include corporate overhead allocations. Such expenses are included in Comverse Other operating loss, which was $49.3 million.

Comverse Performance

Comverse performance was $43.4 million for the current fiscal quarter, representing a Comverse performance margin of 17.8%, compared to $40.9 million for the prior year fiscal quarter, also representing a segment performance margin of 17.8%.

Comverse performance represents the operating results of the company's Comverse subsidiary without the impact of significant expenditures incurred by Comverse in connection with the efforts to become or remain current in periodic reporting obligations under the federal securities laws which are expected to be eliminated over time, certain noncash charges, and certain other gains and charges.

Comverse BSS Revenue

Comverse BSS revenue from customer solutions and maintenance was $117.7 million for the current fiscal quarter, an increase of $26.8 million, or 29.5%, compared to the prior year fiscal quarter. Revenue from Comverse BSS customer solutions was $82.3 million for the current fiscal quarter, an increase of $30.2 million, or 58.0%, compared to the prior year fiscal quarter. The increase in revenue from Comverse BSS customer solutions in the current fiscal quarter was primarily attributable to material modifications of certain existing contracts that allowed the recognition of additional revenue of approximately $33.5 million. Comverse BSS maintenance revenue was $35.4 million for the current fiscal quarter, a decrease of $3.4 million, or 8.7%, compared to the prior year fiscal quarter.

Comverse BSS revenue from customer solutions and maintenance was $278.4 million for the nine months ended October 31, 2011, an increase of $36.3 million, or 15.0%, compared to the corresponding prior year period.  

Comverse VAS Revenue

Comverse VAS revenue from customer solutions and maintenance was $112.7 million for the current fiscal quarter, a decrease of $8.5 million, or 7.0%, compared to the prior year fiscal quarter. Revenue from Comverse VAS customer solutions was $69.8 million for the current fiscal quarter, a decrease of $5.9 million, or 7.8%, compared to the prior year fiscal quarter. Comverse VAS maintenance revenue was $42.9 million for the current fiscal quarter, a decrease of $2.6 million, or 5.6%, compared to the prior year fiscal quarter.

Comverse VAS revenue from customer solutions and maintenance was $276.2 million for the nine months ended October 31, 2011, a decrease of $64.8 million, or 19.0%, compared to the corresponding prior year period.

Comverse Other Revenue

Comverse Other revenue from customer solutions and maintenance was $13.4 million for the current fiscal quarter, a decrease of $3.4 million, or 20.4%, compared to the prior year fiscal quarter. Comverse Other revenue was $35.0 million for the nine months ended October 31, 2011, a decrease of $8.9 million, or 20.3%, compared to the corresponding prior year period.

Starhome Revenue

Starhome's revenue from customer solutions and maintenance (including intercompany revenue) was $11.0 million for the current fiscal quarter, an increase of $0.3 million, or 2.5%, compared to the prior year fiscal quarter. Starhome's revenue from customer solutions and maintenance was $32.7 million for the nine months ended October 31, 2011, an increase of $4.7 million, or 17.0%, compared to the corresponding prior year period.

Financial Condition of CTI and its Comverse Subsidiary

As of October 31, 2011, CTI and its Comverse subsidiary had combined cash, cash equivalents, bank time deposits and restricted cash of approximately $342.6 million, compared to approximately $374.2 million as of July 31, 2011. During the current fiscal quarter, CTI and Comverse made significant disbursements aggregating approximately $36.5 million, primarily related to $20.0 million paid under a class action settlement agreement, $10.4 million in professional fees, $4.0 million in restructuring payments, and $2.1 million in payments made in connection with a separation agreement with CTI's former President and Chief Executive Officer. In addition, during such period, CTI's holding company operations experienced negative cash flows from operations. These decreases were partially offset primarily by positive cash flows from operations at Comverse.

Restricted cash aggregated $61.8 million as of October 31, 2011, compared to $78.5 million as of July 31, 2011. Cash, cash equivalents, bank time deposits and restricted cash excludes ARS. As of October 31, 2011 and July 31, 2011, CTI had $68.7 million and $68.9 million aggregate principal amount of ARS, respectively, with a carrying amount on each such date of approximately $50.3 million and $51.9 million, respectively. Proceeds from sales and redemptions of ARS (including interest thereon) were restricted under the terms of the consolidated shareholder class action settlement agreement.

Subsequent to October 31, 2011, CTI paid all remaining amounts under the settlement agreement aggregating $91.3 million, of which $82.5 million was paid using CTI shares of common stock and the remaining $8.8 million in cash. Following such payment, all ARS and cash proceeds from sales of ARS became unrestricted. In addition, in November 2011, CTI sold ARS with an aggregate principal amount of approximately $61.2 million and a carrying amount of $50.0 million for approximately $49.2 million.

As of October 31, 2011 and July 31, 2011, CTI and its Comverse subsidiary had combined indebtedness of approximately $2.2 million.

Verint Segment

Verint is a majority-owned subsidiary of CTI. Its common stock is traded on the NASDAQ Global Market under the symbol "VRNT."

For additional information concerning Verint's results for the three and nine months ended October 31, 2011, please see the press release issued by Verint on December 7, 2011, which is available on Verint's website, www.verint.com and is included as an exhibit to the Current Report on Form 8-K filed by Verint with the Securities and Exchange Commission (the "SEC"), and Verint's quarterly report on Form 10-Q for the three months ended October 31, 2011.

Conference Call Information

We will be conducting a conference call today at 8:30 am to discuss our results for the third quarter.  An on-line, real-time webcast of the conference call will be available on our website at www.cmvt.com. The conference call can also be accessed live via telephone at 1-678-825-8369.  Please dial in 5-10 minutes prior to the scheduled start time.

A replay of the call will be available, beginning at approximately 11:00 am on December 9, 2011, for thirty days, at 1-404-537-3406, and archived via webcast at www.cmvt.com.  The replay access code is 34995666.

Segment Performance

CTI evaluates its business by assessing the performance of each of its operating segments. CTI's Chief Executive Officer is its chief operating decision maker ("CODM"). The CODM uses segment performance, as defined below, as the primary basis for assessing the financial results of the operating segments and for the allocation of resources. Segment performance, as the company defines it in accordance with the Financial Accounting Standard Board's ("FASB") guidance relating to segment reporting, is not necessarily comparable to other similarly titled captions of other companies. Segment performance, as defined by management, represents operating results of a segment without the impact of significant expenditures incurred by the segment in connection with the efforts to become or remain current in periodic reporting obligations under the federal securities laws which are expected to be eliminated over time, certain non-cash charges, and certain other insignificant gains and charges.

Segment performance is computed by management as income (loss) from operations adjusted for the following: (i) stock-based compensation expense; (ii) amortization of acquisition-related intangibles; (iii) compliance-related professional fees; (iv) compliance-related compensation and other expenses; (v) impairment charges; (vi) litigation settlements and related costs; (vii) acquisition-related charges; (viii) restructuring and integration charges; and (ix) certain other gains and charges. Compliance-related professional fees and compliance-related compensation and other expenses recorded for fiscal periods ended on or before July 31, 2011 relate to fees and expenses incurred in connection with (a) the company's efforts to complete current and previously issued financial statements and audits of such financial statements, and (b) the company's efforts to become current in its periodic reporting obligations under the federal securities laws. Compliance-related professional fees and compliance-related compensation and other expenses recorded for the three months ended October 31, 2011 relate to fees and expenses incurred in connection with the timely filing of the company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2011 and CTI's efforts to remediate material weaknesses in internal control over financial reporting that are expected to be eliminated over time.

In evaluating each segment's performance, management uses segment revenue, which consists of revenue generated by the segment, including intercompany revenue. Certain segment performance adjustments relate to expenses included in the calculation of income (loss) from operations, while, from time to time, certain segment performance adjustments may be presented as adjustments to revenue. In calculating Verint's segment performance for the three and nine months ended October 31, 2011, the presentation of segment revenue gives effect to segment revenue adjustments that represent the impact of fair value adjustments required under the FASB's guidance relating to acquired customer support contracts that would have otherwise been recognized as revenue on a standalone basis with respect to acquisitions consummated by Verint during the periods presented. Verint did not have a segment revenue adjustment for the three or nine months ended October 31, 2010.

Presentation of Non-GAAP Financial Measures

CTI provides Non-GAAP net income (loss) attributable to Comverse Technology, Inc. and Non-GAAP earnings (loss) per share attributable to Comverse Technology, Inc.'s shareholders as additional information for its operating results. These measures are not in accordance with, or alternatives for, GAAP financial measures and may be different from, or not comparable to similarly titled or other non-GAAP financial measures used by other companies. CTI believes that the presentation of these non-GAAP financial measures provides useful information to investors regarding certain additional financial and business trends relating to its results of operations as viewed by management in monitoring the company's businesses.  In addition, management uses these non-GAAP financial measures for reviewing financial results and for planning purposes. See "Comverse Technology, Inc. and Subsidiaries Consolidated Reconciliation of GAAP to Non-GAAP Financial Measures" below.

About Comverse Technology, Inc.

Comverse Technology, Inc., through its wholly-owned subsidiary Comverse, is the world's leading provider of software and systems enabling converged billing and active customer management and value-added voice, messaging and mobile Internet services. Comverse's extensive customer base spans more than 125 countries and covers over 450 communication service providers serving more than two billion subscribers. CTI also holds majority ownership positions in Verint (Nasdaq:VRNT) and privately-held Starhome.

The Comverse Technology logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7454

Forward-Looking Statements

Certain statements appearing in this press release constitute "forward-looking statements." Forward-looking statements include financial projections, statements of plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "expects," "plans," "anticipates," "estimates," "believes," "potential," "projects," "forecasts," "intends," or the negative thereof or other comparable terminology. By their very nature, forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results, performance and the timing of events to differ materially from those anticipated, expressed or implied by the forward-looking statements in this press release. These and other risks, uncertainties and other important factors are described in CTI's filings with the SEC, including, without limitation, in Item 1A, "Risk Factors" of its Annual Report on Form 10-K for the fiscal year ended January 31, 2011 (the "2010 Form 10-K") and in Part II, Item 1A, "Risk Factors" of subsequently filed Quarterly Reports on Form 10-Q, and include, among other things, the following risks and uncertainties:

• the risk of diminishment in our capital resources as a result of, among other things, future negative cash flows from operations at Comverse or the continued incurrence of significant expenses by CTI and Comverse in connection with the filing by CTI of periodic reports under the federal securities laws and the remediation of material weaknesses in internal control over financial reporting;
• the continuation of material weaknesses or the discovery of additional material weaknesses in our internal control over financial reporting and any delay in the implementation of remedial measures;
• the review of the periodic reports of CTI and Verint Systems by the staff of the SEC could result in amendments to our and Verint Systems' financial information or other disclosures;
• the risk that, if CTI ceases to maintain a majority ownership of Verint Systems' outstanding equity securities and ceases to maintain control over Verint's operations, it may be required to no longer consolidate Verint's financial statements within its consolidated financial statements and, in such event, the presentation of CTI's consolidated financial statements would be materially different from the presentation for the fiscal periods covered by this Quarterly Report and for the fiscal years covered by the 2010 Form 10-K;
• we may need to recognize further impairment of intangible assets or financial assets and goodwill;
• the effects of any potential decline or weakness in the global economy (due to among other things, the downgrade of the U.S. credit rating and European sovereign debt crisis) on the telecommunications industry, which may result in reduced information technology spending and reduced demand for our subsidiaries' products and services;
• disruption in the credit and capital markets may limit our ability to access capital;
• potential loss of business opportunities due to continued concern on the part of customers, partners, investors and employees about our financial condition and CTI's previous extended delay in becoming current in its periodic reporting obligations under the federal securities laws;
• rapidly changing technology in our subsidiaries' industries and our subsidiaries' ability to enhance existing products and develop and market new products;
• our subsidiaries' dependence on contracts for large systems and large installations for a significant portion of their sales and operating results including, among other things, the lengthy and complex bidding and selection process, the difficulty predicting their ability to obtain particular contracts and the timing and scope of these opportunities;
• the difficulty in predicting operating results as a result of lengthy and variable sales cycles, focus on large customers and installations, short delivery windows required by customers, and the high percentage of orders typically generated late in the fiscal quarter;
• the deferral or loss of one or more significant orders or customers or a delay in an expected implementation of such an order could materially and adversely affect our results of operations in any fiscal period, particularly if there are significant sales and marketing expenses associated with the deferred, lost or delayed sales;
• the potential incurrence by our subsidiaries of significant costs to correct previously undetected operational problems in their complex products;
• our subsidiaries' dependence on a limited number of suppliers and manufacturers for certain components and third-party software could cause a supply shortage and/or interruptions in product supply;
• the risk that increased competition could force our subsidiaries to lower their prices or take other actions to differentiate their products and changes in the competitive environment in the telecommunications industry worldwide could seriously affect Comverse's business;
• the risk that increased costs or reduced demand for Comverse's products resulting from compliance with evolving telecommunications regulations and the implementation of new standards may adversely affect our business and financial condition;
• the risk that the failure or delay in achieving interoperability of Comverse's products with its customers' systems could impair its ability to sell its products;
• the competitive bidding process used to generate sales requires our subsidiaries to expend significant resources with no guarantee of recoupment;
• our subsidiaries' inability to maintain relationships with value-added resellers, systems integrators and other third parties that market and sell their products could adversely impact our financial condition and results of operations;
• third parties' infringement of our subsidiaries' proprietary technology and the infringement by our subsidiaries of the intellectual property of third parties, including through the use of free or open source software;
• risks of certain contractual obligations of our subsidiaries exposing them to uncapped or other significant liabilities;
• the impact of mergers and acquisitions, including, but not limited to, difficulties relating to integration, the achievement of anticipated synergies and the implementation of required controls, procedures and policies at the acquired company;
• risks associated with significant foreign operations and international sales, including the impact of geopolitical, economic and military conditions in foreign countries, conducting operations in countries with a history of corruption, entering into transactions with foreign governments and ensuring compliance with laws that prohibit improper payments;
• adverse fluctuations of currency exchange rates;
• risks relating to our significant operations in Israel, including economic, political and/or military conditions in Israel and the surrounding Middle East, and uncertainties relating to research and development grants, tax benefits and the ability of our Israeli subsidiaries to pay dividends;
• potential decline in the price of CTI's common stock in the event of sales of a significant number of shares by shareholders who received shares as part of a class action settlement and by holders of securities awarded under CTI's equity incentive plans;
• risks associated with Verint's significant leverage resulting from its current debt position, including Verint's ability to maintain compliance with the leverage ratio covenant under its credit facility;
• the ability of Verint to pay its indebtedness as it becomes due or refinance its indebtedness as well as comply with the financial and other restrictive covenants contained therein;
• risks that the credit ratings of CTI and its subsidiaries could be downgraded or placed on a credit watch based on, among other things, its financial results;
• Verint's dependence on government contracts and the possibility that U.S. or foreign governments could refuse to purchase Verint's Communications Intelligence solutions or could deactivate Verint's security clearances in their countries;
• risks associated with Verint's handling, or the perception of mishandling, of customers' sensitive information;
• Verint's ability to receive or retain necessary export licenses or authorizations; and
• other risks described in filings with the SEC.

The documents and reports we file with the SEC are available through CTI, or its website, www.cmvt.com, or through the SEC's Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) at www.sec.gov. CTI undertakes no commitment to update or revise any forward-looking statements except as required by law.