Cyberattack hits Verint's low profile

Dan Bodner Photo: Eyal Izhar

A cyberattack and complaints from a dissastified investor have put the media shy tech company in the headlines.

Customer engagement technology company Verint Systems Inc. (Nasdaq: VRNT) prefers to stay out of the spotlight, even though it has over 6,000 employees, including 1,500 in Israel; a $4 billion market cap on Nasdaq; and has had annual revenue of over $1 billion since 2015.

Despite being involved in an accounting scandal in the preceding decade that caused the suspension of trading in its share and having taken strategic measures and made prominent acquisitions, Verint did all it could to maintain a low profile, among other things because of its technological activity in the intelligence sector, especially with government agencies.

Verint's CEO Dan Bodner has granted very few media interviews in recent years, and its most recent press conference was over a decade ago, when its then-parent company Comverse was entangled in an accounting scandal and Verint tried to calm investors.

It is probable that Verint would prefer to stay out of the headlines, but a combination of two factors in recent weeks has made this impossible. An investment company with a minority holding in Verint is making demands and complaints and is seeking to shake up Verint's board of directors. In addition, Verint, which among other things, offers its customers security against cyber attacks, has itself been the target of a cyber attack on its systems.

The backdating affair also affected Verint

Verint provides business and security intelligence systems and services, including analytics, cyber security, and video surveillance solutions. In recent years, Verint has emphasized cyber solutions for both civilian and defense customers, as well as various government authorities. The company's solutions take a collection of information and data and turn them into intelligence information that will help a customer decide on specific actions.

Verint, founded in 1994, became a public company through an IPO on Nasdaq in 2002 at a $374 million company value. During this period, it was part of the Comverse Technology group led by Kobi Alexander, until being separated from its parent company in 2013. Verint became an independent company with no controlling core.

Throughout this period and to this day, Verint has been led by CEO Dan Bodner, 60. Bodner has also been the company's chairperson since the death of previous chairperson Victor DeMarines in 2017. Bodner is well-paid by Verint; for example, the cost of his salary totaled $8.8 million last year, consisting mostly of shares.

Before being spun off, Verint had several tough years. A 2006 investigation by "The Wall Street Journal" revealed scandalous accounting practices in parent company Comverse: shares were allocated to employees and managers at exceedingly low prices, raising a suspicion of backdating - retroactive change in the share allocation dates. The US Securities and Exchange Commission (SEC) began an investigation. Alexander, Comverse's chairperson and CEO, resigned his position and went into more than a decade of voluntary exile in Namibia. Alexander was released last year from prison in Israel, to where he was transferred to serve the rest of his sentence after being in a US prison for 18 months.

Verint claimed that it had not committed any backdating, but the company was unable to publish its financial statements on time because of the investigations. As a result of failing to comply with the trading rules, Verint was put on the pink sheets list. After the completion of the investigation and publishing its financial statements three years later, the share was again listed on the main Nasdaq index.

After hitting a bottom of $3.30 in 2009, a very poor year in the global markets in general, not just for Verint, the company's share price spurted to $24 after being returned to Nasdaq in July 2010, and continued its climb. When it was separated from Comverse two and a half years later, Verint's market cap was $1.4 billion.

Unflattering comparison with NICE Systems

It has been repeatedly suggested that Verint would merge with Israeli competitor <A target=new href=http://www.nice.com>NICE Systems Ltd.</a> (Nasdaq: <a href=Javascript:viewInstrument('NICE',11,'EN')>NICE</a>; TASE: <a href=Javascript:viewInstrument('273011',45,'EN')>NICE</a>) but this has never materialized. Verint and Nice operate in similar markets, but their paths have diverged in recent years, after Nice, under the management of CEO Barak Eilam, made a strategic decision to exit the defense market and focus on the civilian market, with an emphasis on cloud computing. A letter sent by Verint minority shareholder Neuberger Berman late last week to Verint investors drew several comparisons between Verint and NICE to Verint's disadvantage, among them the return on the share, the operating profit margin, and the increase in net profit per share.

Another argument raised by Neuberger Berman concerns Verint's investments and their contribution to the company's performance. Neuberger Berman said that Verint had spent $2.1 billion on acquiring companies and $1.9 billion on research and development in the past 12 years, but that despite these expenses in excess of $4 billion, its current market cap was only $4 billion.

Verint's biggest acquisitions were US companies Witness for $950 million in early 2007, for which Verint reportedly competed with Nice, and KANA, a provider of cloud customer service solutions, for $514 seven years later.

It was reported last year that Verint was interested in the acquisition of Israeli company NSO, an offensive cyber company, in a billion-dollar deal, even though Verint's balance sheet had $770 million in long-term debt. The acquisition eventually fell through. As of the end of 2018, Verint's debt was $782 million and the company had $445 million in cash and investments.

Although the comparison in return on the share portrays Verint as inferior to Nice, recent months have been very positive for Verint's shareholders. The share price reached a peak of $66 in 2015, but lost over half its value in just a few months, following weak financial results, accompanied by layoffs (the company said at the time that these were very limited in scope).

The share recently resumed its upward climb, soaring 44% this year and neared its all-time high, while the general Nasdaq index rose 23% in the same period. The company reported positive results: $1.25 billion in revenue in the preceding fiscal year and $215 million in cash flow from current activity, 22% more than in the preceding year. Verint cited these figures in a letter to investors in answer to Neuberger Berman as evidence that its strategy was working well, and that there was no reason for changes.

What lies behind the cyber attack on Verint

It took cyber defense company Verint a whole week to notify investors of the cyber attack against it, which it finally did late last week during the weekend of the second Passover holiday. Verint's systems were broken into and ransomware was installed on them. Information on its servers was locked and payments was demanded for its release.

The company's announcement was preceded 24 hours earlier by an initial report in "Globes" stating that the Ministry of Defense was examining whether the cyber attack against Verint was worse than described by the company's initial laconic announcement, which stated, "The company's defense system detected the attack as soon as it began, and took the necessary actions to thwart it."

"Globes" reported that the Ministry of Defense was examining whether the attack against Verint had continued for several months, whether it was more sophisticated and not confined to a ransom attack, whether a foreign country was involved in the attack, and whether sensitive information was stolen from the company and whether such information was locked by the attackers. Cyber industry sources said that the attack software was Ryuk malware previously checked by Check Point investigators, who found that it originated in North Korea.

Since Verint is a defense company, a cyber attack against it is handled by the Director of Security of the Defense Establishment (Malmab), not by the cyber apparatus.

Verint's notice to investors did not explicitly state that the entire event had ended, or that all of the company's systems were now operating as usual, without any damage. The company did say that its IT systems had resumed activity after 24 hours, without any damage caused to its partners or customers. Verint also said that it had acted to counter the attack and reduce its severity, and would continue to monitor its operations and interfaces with its customers. The announcement by Verint chief administrative officer Peter Fante stated that since April 16, no new cases of ransom had been detected.

Sources told "Globes" that in cyber attacks of this kind, weeks and months can pass before full picture of the damage, if any, becomes clear, and that this information may not be published even then.

Published by Globes, Israel business news - en.globes.co.il - on April 30, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Dan Bodner Photo: Eyal Izhar
Dan Bodner Photo: Eyal Izhar
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