How LI-based Verint Systems rebounded from crisis

Inside the security cameras at thousands of ATMs across America, a software program developed by a Long Island company searches day and night for patterns that human eyes could never see.

The program, made by Verint Systems Inc., instantly compares the video feeds with millions of previously captured images, looking for anything suspicious. Perhaps someone is lingering. Or shadowing another customer. The software determines if it resembles past criminal behavior and, if need be, alerts security.

"Our goal is not just to record," Verint CEO Dan Bodner said in an interview. "We want to turn that data into intelligence."

Verint's video surveillance software, used at roughly half of all bank branches nationwide, is among dozens of big-data-analysis programs that have transformed the Melville company into one of Long Island's largest software makers. While little known to the public, Verint's programs are used by 80 percent of the Fortune 100 and ubiquitous within banks, call centers and government agencies to crunch digital images, text and voice recordings.

A $1 billion milestone

Now, after growing steadily for 20 years, Verint has reached a turning point. This year, the company bought a Silicon Valley competitor, KANA Software Inc., for $514 million. The move puts Verint on track to hit as much as $1.16 billion in sales this year -- making it the first Long Island software maker to cross the 10-figure threshold since CA Technologies, which in May moved its headquarters from Islandia to Manhattan.

Surpassing $1 billion in revenue has significant implications for Verint and its 4,500 employees worldwide -- including 150 on Long Island -- by bringing the company broader attention from investors. It also marks the culmination of a dramatic corporate turnaround.

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Eight years ago, Verint appeared headed for a nosedive as its parent company, Comverse Technology in Woodbury, imploded in a scandal over backdating stock options to improperly boost three executives' pay by $8.4 million.

Comverse CEO Jacob "Kobi" Alexander was charged with fraud and fled to Namibia, in southern Africa, where he remains at large. While Verint was not implicated in the criminal case, the company suffered collateral damage nonetheless. Its stock plummeted. It was sued by the U.S. Securities and Exchange Commission. And it was kicked off the Nasdaq stock market.

But Bodner, 55, a former Israeli army captain, encouraged his team to stay with the company.

Within a few years, Verint settled with the SEC and was trading again on Nasdaq. Then, in 2013, Verint bought the remains of Comverse -- effectively jettisoning the troubled parent company.

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"Verint has basically been through a plane crash and survived," said Daniel Ives, an analyst who follows the company for FBR Capital Markets & Co. of Arlington, Va. "It's one of the best turnaround stories in technology in the last decade."

A data revolution

The company's rise has followed the ascent of big data, the business of channeling rivers of information swirling online and beyond. That revolution has provided endless fodder for number-hungry marketers and chief financial officers, who want to quantify consumer trends, employee productivity and predict future sales.

As demand for big number crunching has grown, Verint has emerged as a key player in harnessing data for video surveillance, wiretapping and, to a larger degree, calibrating company interactions with customers.

When someone dials a customer-service center and hears the words, "This call may be recorded for quality assurance," there is a one-in-three chance Verint software is listening, the company says. The programs catalog those calls, then slice and dice them so companies can cull them for insight.

Verint's programs measure pauses in conversation, indicating whether employees are fumbling for answers. They track call patterns, helping companies predict when to beef up staffing.

And, using video surveillance, they can alert retail store managers to dispatch extra employees to cash registers when checkout lines grow too long.

Verint's roots stretch to the early 1990s and voice mail programs developed by Comverse, which was founded in Tel Aviv and later moved to Woodbury.

Bodner, a computer engineer who joined the company in 1987, wanted to move beyond analog tape recordings, which were tedious to search. (Remember rewinding and fast-forwarding to find a song on a cassette or reel-to-reel system?)

Bodner's plan was to solve that problem with computers. So he tapped Comverse for a $10 million loan, then moved to Long Island in 1994 to start the business.

"Our vision was to capture data and make it easier to search," Bodner said.

At first, Verint focused on voice recordings and by 2000 had grown to $120.6 million in annual sales. That same year it expanded into video by buying a Colorado company, Loronix Inc., for $225 million in stock.

Surviving scandal

Verint went public in 2002, raising more than enough cash to repay the loan from Comverse. But the parent company retained a majority stake.

That ownership loomed large in 2006, when the scandal engulfed Comverse. As Alexander, who was also chairman of Verint's board, fled to Africa, Bodner gathered his executives at Verint and urged them to stick together.

"We talked a lot about wanting to 'stay together on the bus' -- that was the euphemism we used," said Peter Fante, Verint's chief compliance and legal officer.

It wasn't easy. Verint undertook a sweeping accounting review, preventing it from filing financial results on time. Consequently, Nasdaq forced the company off the exchange for more than two years. Verint shares dipped to less than $4, down from more than $40.

Still, the company managed to grow sales, hitting $669.5 million in 2009. And in 2010 Verint settled civil charges with the SEC, which accused it of misstating results and padding reserves. Verint did not admit wrongdoing, nor did the company pay a fine.

Finally, in 2012, Verint bought out Comverse's 41 percent ownership stake for $805.7 million, leaving Bodner's team without the burden of having to answer to a parent company.

"Once we got those shackles off, we were able to execute much faster," he said.

Verint shares closed Friday at $47.87, up 2 cents.

Combining technologies

Verint, which has spent roughly $1 billion on research and development over the last decade, has expanded its products through a mix of acquisitions and internal engineering. Perhaps its biggest step came in buying KANA from private equity firm Accel-KKR in February.

KANA, founded in 1996 and based in Sunnyvale, California, specializes in software that analysts say will significantly improve Verint's customer-service programs. A key aspect is helping companies to become not only more efficient, but smarter, Bodner said.

By combining KANA's technology with its own crystal-ball-style predictive analytics, Verint can help companies hone their sales strategy by analyzing complaints on social media, email and elsewhere. Or the programs can alert call-center agents when to push for a sale.

For instance, Verint can scan previous calls for phrases customers have used before buying something. Those phrases become triggers. The next time a customer mentions a trigger, a message pops up on the agent's computer screen saying the caller may be ready to buy. And based on a customer's past buying habits, the software even can suggest a particular product.

Not everyone is bullish on Verint's future. Customer service centers typically don't boost the bottom line. And some analysts are leery whether companies will replace existing software with sophisticated big-data-analytics programs.

"That makes it a difficult sell," said Norman Young, an analyst who follows Verint for Morningstar Inc. of Chicago.

For all its growth, Verint maintains a modest presence on Long Island. The bulk of its engineering operations are in Silicon Valley, in Alpharetta, Georgia, and in Tel Aviv. The Melville headquarters, in a low-slung building tucked along a service road of the Long Island Expressway, houses only 150 employees.

Bodner said that's in part because Verint has never attracted highly specialized data-science engineers in New York. Nonetheless, there are no plans to move, he said.