UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2017
Commission File No. 001-34807
Verint Systems Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or
Organization)
175 Broadhollow Road, Melville, New York
(Address of Principal Executive Offices)
11-3200514
(I.R.S. Employer Identification No.)
11747
(Zip Code)
Registrant's telephone number, including area code: (631) 962-9600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.001 par value per share
Name of each exchange
on which registered
The NASDAQ Stock Market, LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of common stock held by non-affiliates of the registrant, based on the closing price for the
registrant’s common stock on the NASDAQ Global Select Market on the last business day of the registrant’s most recently
completed second fiscal quarter (July 29, 2016) was approximately $2,172,714,000.
There were 62,418,926 shares of the registrant’s common stock outstanding on March 15, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated herein by reference from
the registrant's definitive proxy statement relating to the Annual Meeting of Stockholders to be held in 2017, which definitive
proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to
which this report relates.
Table of Contents
Verint Systems Inc. and Subsidiaries
Index to Form 10-K
As of and For the Year Ended January 31, 2017
Cautionary Note on Forward-Looking Statements
PART I
Item1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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Cautionary Note on Forward-Looking Statements
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, the provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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. Forward-looking statements may appear throughout this report,
including without limitation, Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and are often identified by future or conditional words such as "will", "plans", "expects", "intends", "believes",
"seeks", "estimates", or "anticipates", or by variations of such words or by similar expressions. There can be no assurances that
forward-looking statements will be achieved. By their very nature, forward-looking statements involve known and unknown
risks, uncertainties, assumptions, and other important factors that could cause our actual results or conditions to differ
materially from those expressed or implied by such forward-looking statements. Important risks, uncertainties, assumptions,
and other factors that could cause our actual results or conditions to differ materially from our forward-looking statements
include, among others:
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uncertainties regarding the impact of general economic conditions in the United States and abroad, particularly in
information technology spending and government budgets, on our business;
risks associated with our ability to keep pace with technological changes, evolving industry standards, and customer
challenges, such as the proliferation and strengthening of encryption and the transition of portions of the software
market to the cloud, to adapt to changing market potential from area to area within our markets, and to successfully
develop, launch, and drive demand for new, innovative, high-quality products that meet or exceed customer needs,
while simultaneously preserving our legacy businesses and migrating away from areas of commoditization;
risks due to aggressive competition in all of our markets, including with respect to maintaining margins and sufficient
levels of investment in our business;
risks created by the continued consolidation of our competitors or the introduction of large competitors in our markets
with greater resources than we have;
risks associated with our ability to successfully compete for, consummate, and implement mergers and acquisitions,
including risks associated with valuations, capital constraints, costs and expenses, maintaining profitability levels,
expansion into new areas, management distraction, post-acquisition integration activities, and potential asset
impairments;
risks relating to our ability to effectively and efficiently enhance our existing operations and execute on our growth
strategy and profitability goals, including managing investments in our business and operations, managing our cloud
transition and our revenue mix, and enhancing and securing our internal and external operations;
risks associated with our ability to effectively and efficiently allocate limited financial and human resources to
business, developmental, strategic, or other opportunities, and risk that such investments may not come to fruition or
produce satisfactory returns;
risks that we may be unable to establish and maintain relationships with key resellers, partners, and systems
integrators;
risks associated with our reliance on third-party suppliers, partners, or original equipment manufacturers ("OEMs") for
certain components, products, or services, including companies that may compete with us or work with our
competitors;
risks associated with the mishandling or perceived mishandling of sensitive or confidential information and with
security vulnerabilities or lapses, including information technology system breaches, failures, or disruptions;
risks that our products or services, or those of third-party suppliers, partners, or OEMs which we incorporate into our
offerings or otherwise rely on, may contain defects or may be vulnerable to cyber-attacks;
risks associated with our significant international operations, including, among others, in Israel, Europe, and Asia,
exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, and challenges
associated with a significant portion of our cash being held overseas;
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risks associated with a significant amount of our business coming from domestic and foreign government customers,
including the ability to maintain security clearances for applicable projects and reputational risks associated with our
security solutions;
risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we
operate, including, among others, with respect to privacy, information security, trade compliance, anti-corruption, and
regulations related to our security solutions;
risks associated with our ability to retain and recruit qualified personnel in regions in which we operate, including in
new markets and growth areas we may enter;
challenges associated with selling sophisticated solutions, including with respect to educating our customers on the
benefits of our solutions or assisting them in realizing such benefits;
challenges associated with pursuing larger sales opportunities, including with respect to longer sales cycles,
transaction reductions, deferrals, or cancellations during the sales cycle, risk of customer concentration, our ability to
accurately forecast when a sales opportunity will convert to an order, or to forecast revenue and expenses, and
increased volatility of our operating results from period to period;
risks that our intellectual property rights may not be adequate to protect our business or assets or that others may make
claims on our intellectual property or claim infringement on their intellectual property rights;
risks that our customers or partners delay or cancel orders or are unable to honor contractual commitments due to
liquidity issues, challenges in their business, or otherwise;
risks that we may experience liquidity or working capital issues and related risks that financing sources may be
unavailable to us on reasonable terms or at all;
risks associated with significant leverage resulting from our current debt position or our ability to incur additional
debt, including with respect to liquidity considerations, covenant limitations and compliance, fluctuations in interest
rates, dilution considerations (with respect to our convertible notes), and our ability to maintain our credit ratings;
risks arising as a result of contingent or other obligations or liabilities assumed in our acquisition of our former parent
company, Comverse Technology, Inc. (“CTI”), or associated with formerly being consolidated with, and part of a
consolidated tax group with, CTI, or as a result of CTI's former subsidiary, Xura, Inc. (formerly, Comverse, Inc.)
(“Xura”), being unwilling or unable to provide us with certain indemnities or transition services to which we are
entitled;
risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, and personnel
and our ability to successfully implement and maintain enhancements to the foregoing and adequate systems and
internal controls for our current and future operations and reporting needs, including related risks of financial
statement omissions, misstatements, restatements, or filing delays; and
risks associated with changing accounting principles, tax rates, tax laws and regulations, and the continuing
availability of expected tax benefits.
These risks, uncertainties, assumptions, and challenges, as well as other factors, are discussed in greater detail in "Risk Factors"
under Item 1A of this report. You are cautioned not to place undue reliance on forward-looking statements, which reflect our
management’s view only as of the date of this report. We make no commitment to revise or update any forward-looking
statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required
under the federal securities laws. If we were in any particular instance to update or correct a forward-looking statement,
investors and others should not conclude that we would make additional updates or corrections thereafter except as otherwise
required under the federal securities laws.
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PART I
Item 1. Business
Our Company
Verint® Systems Inc. (together with its consolidated subsidiaries, “Verint”, the “Company”, “we”, “us”, and “our”, unless the
context indicates otherwise) is a global leader in Actionable Intelligence® solutions.
Actionable Intelligence is a necessity in a dynamic world of massive information growth because it empowers organizations
with crucial insights and enables decision makers to anticipate, respond, and take action. With Verint solutions and value-
added services, organizations of all sizes and across many industries can make more informed, timely, and effective decisions.
Today, over 10,000 organizations in more than 180 countries, including over 80 percent of the Fortune 100, use Verint solutions
to optimize customer engagement and make the world a safer place. Verint delivers its Actionable Intelligence solutions
through two operating segments: Customer Engagement Solutions™ and Cyber Intelligence Solutions™.
We have established leadership positions in Actionable Intelligence by developing highly-scalable, enterprise-class software
and services with advanced, integrated analytics for both structured and unstructured information. Our innovative solutions are
developed by a large research and development (“R&D”) team comprised of approximately 1,400 professionals and backed by
more than 800 patents and patent applications worldwide.
To help our customers maximize the benefits of our technology over the solution lifecycle and provide a high degree of
flexibility, we offer a broad range of services, such as strategic consulting, managed services, implementation services, training,
maintenance, and 24x7 support. Additionally, we offer a broad range of deployment options, including cloud, on-premises, and
hybrid, and software licensing and delivery models that include perpetual licenses and software as a service (“SaaS”).
Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of
selling and support partners.
Company Background
We were incorporated in Delaware in February 1994 and completed our initial public offering (“IPO”) in May 2002. Over the
last two decades, we have grown our revenue and expanded our portfolio of Actionable Intelligence solutions through a
combination of organic innovation and acquisitions.
Our Actionable Intelligence solutions initially focused on the capture of unstructured data, mainly speech data. Over time, we
added capabilities for video, text, and other data types and sources, including the web, social media, and machine data. As the
company has grown and achieved scale, we have built domain expertise in two areas: customer engagement and cyber
intelligence. These areas have driven the evolution of our focus on Actionable Intelligence solutions.
The two operating segments we have today are Customer Engagement Solutions (“Customer Engagement”) and Cyber
Intelligence Solutions (“Cyber Intelligence”). Each operating segment has dedicated management teams, sales and marketing,
customer service, and research and development resources with shared back-office services.
Our two operating segments are described in greater detail below and in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” under Item 7 of this report. See also Note 16, “Segment, Geographic, and Significant
Customer Information” to our consolidated financial statements included under Item 8 of this report for additional information
and financial data about each of our operating segments and geographic regions.
Through our website at www.verint.com, we make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-
Q and Current Reports on Form 8-K, as well as amendments to those reports, filed or furnished by us pursuant to Section 13(a)
or Section 15(d) of the Exchange Act, free of charge, as soon as reasonably practicable after we file such materials with, or
furnish such materials to, the Securities and Exchange Commission (“SEC”). Our website address set forth above is not
intended to be an active link and information on our website is not incorporated in, and should not be construed to be a part of,
this report.
Our Actionable Intelligence Strategy
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To address the need for Actionable Intelligence across many use cases in customer engagement and cyber intelligence, we
developed an innovative foundation—Verint’s advanced Actionable Intelligence platform. We define our platform as having
the following four components:
• Data Capture—Our Actionable Intelligence platform enables the capture of a wide range of data, including both
structured and unstructured data, such as operational, transactional, network, and web data. Our platform is designed
to support big data applications which depend on the ability to capture, store, and manage very large data sets from
multiple data sources.
• Data Processing—Our Actionable Intelligence platform facilitates the process of taking structured and unstructured
data from multiples sources and then cleansing, fusing, and preparing the data for analysis. This data processing stage
is particularly important in applications that require data capture and fusion from multiple sources, different systems,
and numerous environments.
• Data Analysis—Our Actionable Intelligence platform enables the use of a wide range of engines for data analytics,
including classification, correlation, anomaly detection, identity extraction, behavioral analysis, and predictive
analytics. Big data analysis is a crucial step in identifying critical insights that otherwise might not be intuitive.
• Data Visualization—Our Actionable Intelligence platform facilitates the presentation of crucial insights from data to
decision makers and the provision of workflow, collaboration, and case management capabilities so they can make
more timely and informed decisions. The platform supports many use cases, and the type of data visualization used
for delivering actionable insights to users can be optimized based on the specific user environment.
Our strategy is to continue to leverage our Actionable Intelligence platform as a foundation for new analytical solutions to
address specific use cases for Customer Engagement and Cyber Intelligence. As noted above, our two operating segments have
dedicated domain experts and operational functions focused on understanding the specific requirements of their respective
markets and customers, and develop leading Actionable Intelligence solutions that can effectively address the unique needs of
their customers.
Customer Engagement Solutions
Overview
Verint is a leading provider of Customer Engagement software and services that can be deployed on-premises or in the cloud.
Our solutions help customer-centric organizations optimize customer engagement, increase customer loyalty, and maximize
revenue opportunities, while generating operational efficiencies, reducing cost, and mitigating risk. We offer solutions that help
organizations empower their customers and employees through intelligence that can be shared enterprise-wide. As a result,
organizations are better informed and have greater automation and agility to engage with customers in a highly effective,
consistent way. Empowered employees can provide customers with the high-quality, contextual experiences they expect, while
generating significant operational efficiencies at the same time. We deploy our solutions globally in a wide range of industries
and across an organization’s contact centers, branch and back-office operations, customer experience teams, and digital
marketing initiatives. Our Customer Engagement vision is powered by our Actionable Intelligence platform to generate
intelligence from structured and unstructured data.
Trends
We believe the key trends driving demand for solutions that optimize Customer Engagement include:
• Evolving Customer Expectations. Consumers expect a more personalized, contextual, and consistent customer
experience across service channels. Customer service has evolved from traditional call centers and in-store visits, to
omnichannel contact centers, or customer engagement centers, that include self-service channels, such as web, voice and
mobile self-service, and customer communities; a host of digital communications mediums, such as email, chat, and social
media; and the traditional telephone. Today, consumers may select a service channel based on a number of factors,
including which channels are available, their experiences with those channels, personal preference, and the type of service
issue at hand. Often they use multiple channels for the same service-related issue, and alternate between traditional (voice)
and digital (web, social, and mobile) channels based on individual preferences. With multiple engagement channels
available and consumers having a preference to have their needs addressed in the first contact, we believe a focus on “ease
of doing business” with an organization is becoming increasingly important and can be a key competitive differentiator.
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Forward-looking organizations are evolving their customer engagement operations to meet or exceed their customers’
expectations, and we believe that Customer Engagement solutions, such as those from Verint, can play an important role in
achieving this goal.
• Evolving Employee Expectations. Employee expectations are also evolving. Employees want their voices to be heard
and their opinions to be taken into account. They want their skills and preferences to be considered and acted upon, and
they want to be able to do the right things for their customers. Studies from the industry analyst community have
reinforced the impact and importance of an engaged and empowered workforce, finding that when it comes to serving
customers, happier, more empowered employees can have a significant impact not only on the customer experience, but
also on a company’s financial performance. We believe an engaged and empowered employee base can be a significant
differentiator for organizations. Customer Engagement solutions, such as those from Verint, can play an important role in
helping empower and develop employees, as well as solicit, analyze, and act on their opinions and feedback.
• Evolving Customer-Centric Organizations. Customer-centric organizations are increasingly looking to aggregate,
analyze, and act on information to improve the customer experience, build customer loyalty, and drive profitability.
Today’s organizations have a significant amount of structured and unstructured data related to their customers, workforce,
and other information that is generated from numerous departments and multiple systems across the enterprise. We believe
that these organizations are increasingly seeking customer engagement solutions that allow them to collect and analyze
intelligence across multiple engagement channels to gain a better understanding of the performance of their workforces,
the effectiveness of their service processes, the quality of their interactions, and changing customer behaviors. When
captured, analyzed, and acted upon, organizations can use this Actionable Intelligence to help achieve important strategic
objectives, such as empowering staff, enhancing loyalty, gaining a holistic view of operations and effectiveness, driving
automation, reducing operational costs, increasing revenue, and mitigating risk.
• Evolving Requirements for Authentication, Fraud Detection, Risk Management, and Compliance. Organizations
face significant challenges when it comes to safeguarding customers’ personal information, investigating fraud, and
complying with regulatory and compliance requirements. Many of these risks are fueled by new system vulnerabilities,
insider threats, and the rise of sophisticated methods of cyber-attack. For example, in financial services, contact center
fraud has driven demand for voice biometrics and predictive analytics solutions that can identify and thwart fraudsters,
while quickly authenticating legitimate customers. In financial services, branch and ATM fraud has driven demand for
surveillance and analytics tools to support fraud investigations. Financial protection and other regulations—such as the
Dodd-Frank Wall Street Reform and Consumer Protection Act and the Payment Card Industry Data Security Standard—
also present tremendous challenges, with the risk of significant financial penalties and remediation efforts for non-
compliance. While organizations often have detailed processes/procedures for employees to follow, we believe that many
are increasingly seeking Actionable Intelligence to anticipate and prevent breaches, effectively authenticate customers and
protect personal information, mitigate risk, investigate and prevent fraud, and help ensure compliance.
• Adopting Innovative Technology. We see several trends in the Customer Engagement market resulting from the
availability of new technologies. With the evolution of cloud technologies, some customers expect deployment flexibility,
such as the ability to deploy solutions on-premises, in the cloud, or in a hybrid fashion. We see greater adoption of cloud
solutions in smaller organizations and greater interest in hybrid deployments in larger enterprises. With the evolution of
artificial intelligence technologies, we also see interest in greater automation, such as next-generation self-service solutions
based on advanced natural language processing and robotic automation. Interest in these solutions is being driven by a
desire to reduce the cost of delivering customer service, while at the same time improving customer retention through a
faster and high quality self-service experience. Finally, with the evolution of social media, mobile, and other interaction
technologies, we see organizations interested in leveraging newer engagement channels to address rapidly-evolving
customer preferences.
Strategy
Our strategy is to further enhance our position as a global leader, enabling organizations to partner with Verint to evolve their
customer engagement operations based on a holistic approach that includes deep domain expertise and deployment flexibility,
as well as a rich portfolio of best-of-breed solutions. Our strategy pillars include:
• Offering the Broadest and Most Innovative Portfolio of Best-of-Breed Customer Engagement Solutions. Verint
strives to offer the broadest and most innovative portfolio of purpose-built software and supporting services that enhance
operational efficiency, reduce cost, improve the customer experience, and drive revenue for contact centers, branch and
back office operations, customer experience, and digital marketing. We continue to invest to further expand our portfolio
of Customer Engagement solutions.
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• Offering a Holistic Approach to Customer Engagement with the Flexibility to Start Anywhere. Customer-centric
organizations are seeking to evolve their customer engagement operations to address the trends outlined above.
Organizations are migrating towards a more holistic approach at different paces, depending on their prior investments,
business priorities, and current budgets. Verint’s strategy is to offer our broad portfolio in a highly modular fashion that
allows customers to preserve their investments in legacy solutions and start anywhere within the Verint portfolio for
maximum flexibility. Many of our customers start with the solution that addresses their most urgent needs, and over time,
adopt more solutions from our portfolio.
• Offering On-Premises, Cloud, and Hybrid Deployment Models with a Broad Range of Value-Added Services.
We believe that customers today are looking for flexible cloud deployment options. To address their varying needs, our
Customer Engagement Optimization portfolio has been cloud-enabled, providing customers the ability to deploy our
solutions in the way that best meets their objectives, including on-premises, in a private cloud, in a public cloud, or in a
hybrid fashion with some solutions deployed on-premises and some in the cloud. In addition, to enable our customers to
gain maximum value from our solutions regardless of deployment mode, we offer a broad range of services, including
implementation services, consulting services, technical services, and managed services.
• Partnering With Customer-Centric Organizations to Address Evolving Trends. We believe that organizations are
looking for strategic partners with a broad portfolio and deep domain expertise to help them evolve their customer
engagement operations to achieve strategic business goals. Historically, voice/telephony was the dominating channel.
Organizations are now looking to add a variety of digital engagement channels (such as web, social, and mobile), as well
as assisted service and self-service capabilities. They are also looking to add analytics, automation, and intelligence to
power a consistent, contextual, and personalized customer engagement, while reducing operating cost and increasing
revenue. To address this opportunity, Verint’s strategy has been to build a broad portfolio of analytics-driven Customer
Engagement solutions that enable organizations to implement a holistic approach to customer engagement with greater
automation and shared intelligence across applications. We partner with customer-centric organizations to help them
protect their legacy investments, while adding new capabilities based on their specific business priorities.
Our Solutions
Verint’s Customer Engagement portfolio is comprised of a large number of discrete solutions for customer engagement
optimization. We have developed many integration points across the portfolio but have also kept the design modular to allow
customers to choose the sequence and pace of the implementation. Our portfolio can be described across five solution sets:
• Voice of the Customer
• Workforce Optimization
• Employee Engagement
• Engagement Channels
•
Security, Fraud, and Compliance
Voice of the Customer:
Organizations are looking to measure and improve their customers’ experiences, satisfaction, and loyalty, which is why Voice
of the Customer (VoC) solutions have become a strategic imperative across contact center, customer experience, marketing, and
other departments. We offer a complete portfolio for listening, analyzing, and acting on the VoC across all channels (surveys,
digital, voice, text, and social), providing a holistic approach to VoC that spans from recording and analyzing customer
interactions (“active listening”), to soliciting and analyzing customer feedback (“proactive feedback”) across channels.
Holistic VoC implementations help amplify the voice of the customer and create shared intelligence that organizations can
leverage to take action and achieve business objectives across the enterprise. Our Voice of the Customer solutions include the
following:
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Voice of the Customer Solutions
Description
Interaction Analytics
Enterprise Feedback
Digital Feedback
Includes Speech Analytics, Text Analytics, and Social Analytics that proactively
identify trends, themes, and the root causes driving customer behavior in order to
improve performance, optimize processes, and enhance customer experiences.
Provides a fast, smart, accurate solution for automatically categorizing, identifying
trends, and performing root cause analysis on voice and text-based communications—
including call recordings, survey verbatims, social media posts, email, and customer
service chat sessions—according to organizations’ unique objectives and challenges.
Provides an enterprise-class platform to help organizations gain a complete view into
the perceptions, opinions, and intentions of their customers and employees through
company-initiated surveys delivered via mobile, email, web, IVR, and SMS channels.
Features an enterprise solution that captures web and mobile customer-initiated
feedback during key moments in the digital customer journey, and empowers
organizations to analyze and act in real-time on that feedback to deliver demonstrable
business value.
Workforce Optimization:
Workforce Optimization (WFO) drives workforce and operational efficiencies across the contact center, branch, and back-
office operations departments, and is a core component of any organization’s customer engagement strategy. Key functional
domains, outlined in the chart below, facilitate the recording and assessment of employee performance, combined with the
ability to plan, forecast, and schedule staff to help ensure operational service-level targets are met. We are a holistic WFO
provider that uniquely delivers tight integration and workflow across these functions and tight integrations to other Customer
Engagement Optimization solution sets (including VoC, employee engagement, engagement channels, and security, fraud, and
compliance). In addition, we embed analytics within our various WFO solutions including real-time speech analytics,
analytics-driven quality, and desktop and process analytics, enabling greater performance and generating Actionable
Intelligence across the enterprise.
Our Workforce Optimization solutions include the following:
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Workforce Optimization Solutions Description
Intelligent Recording
Analytics-Driven Quality
Coaching/Learning
Workforce Management
Work Allocation
Desktop and Process Analytics
Robotic Process Automation
Performance Management
Enables full-time, enterprise recording to help ensure compliance, reduce liability, and
support customer engagement. Reliably and securely captures, encrypts, indexes,
archives, searches, and replays audio, screen, and other methods of interaction from
different and mixed recording environments, and couples these capabilities with
powerful speech analytics to provide greater value from recorded interactions.
Features sophisticated quality management functionality infused with the power of
speech analytics, enabling a more strategic approach to QM and performance
evaluations. Enables organizations to drive customer-focused quality initiatives by
rapidly surfacing the interactions, intelligence, and issues that are of high business
value and relevance.
Provides a forum for consistent, performance-based mentoring of employees by
supervisors and the delivery of training right to the employee desktop. Can be
scheduled at the best times for minimal impact on service levels, and to enable
employees to engage and improve their skills on-demand.
Enables organizations to efficiently plan, forecast, and schedule employees to meet
service level goals. Provides visibility into and a singular management tool for the
work, the people, and the processes across customer touchpoints in contact center,
branch and back-office operations.
Helps increase productivity, meet service delivery goals, and enhance customer
satisfaction by prioritizing the work of individual employees, helping ensure they
focus on the right activities at the right time. Provides a practical approach to
managing claims processing, loan production, and other blended and back-office
functions by prioritizing work items to meet service level agreements (SLAs) based on
available employees with the right skills.
Provides organizations with visibility into how employees use different systems,
applications, and processes to perform their functions. Helps identify opportunities to
improve business processes, enhance compliance, and heighten the overall efficiency,
cost, and quality of customer service.
Automates repetitive manual processes, allowing employees to focus on more
complex and value-added customer-facing activities. Leverages software robots to
execute specific tasks or entire multistep processes within a functional area, leading to
improved quality and productivity.
Serves as a complete, closed-loop solution to manage individual and departmental
performance against goals. Provides a comprehensive view of key performance
indicators (KPIs) using performance scorecards to report on customer interactions,
customer experience trends, and contact center, branch, and back-office staff
performance. Leverages scorecards, along with learning, coaching, and gamification,
as part of a broader capability.
Employee Engagement:
Organizations are looking to empower their employees, while satisfying customers. Likewise, employees expect to be engaged
in order to effectively execute their companies’ strategies. This highlights the importance of having the tools and resources
needed to achieve the key components of employee engagement: flexibility, transparency, motivation, mobility, and
empowerment. In addition to Workforce Optimization (a subset of Employee Engagement), employees can benefit from
knowledge management, advanced desktop tools, and motivational applications, as well as mobile solutions that allow them to
leverage their mobile devices for greater productivity. Verint offers a holistic employee engagement portfolio that enables
today’s organizations to enhance workforce effectiveness and improve employee satisfaction, creating a more engaged and
empowered approach to service delivery.
Our Employee Engagement solutions include the following:
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Employee Engagement Solutions
Description
Workforce Optimization
Knowledge Management
Employee Desktop
Case Management
Internal Communities
Gamification
Mobile Workforce Apps
Voice of the Employee
Described above
Provides a central repository of up-to-date information to deliver the right knowledge
to users in the contact center and to customers through self-service. Provides answers
quickly by searching, browsing, or following guided processes, with personalized
results tailored to the customer’s context, while helping organizations increase first
contact resolution, improve the consistency and quality of answers, enhance
compliance with regulations and company processes, and reduce employee training
time.
Unifies the disparate applications on an employee’s desktop by presenting on one
screen all of the contextual customer information, relevant knowledge, and business
process guidance that an employee needs for handling interactions in any channel,
without having to toggle among numerous screens and applications.
Allows organizations to automate and rapidly adapt business processes in response to
changing market and customer requirements. Tracks the progress of customer and
internal issues as they are resolved between various parties in the organization, helping
deliver end-to-end case lifecycle management using business rules and SLAs.
Supports employee engagement, collaboration, and enterprise social networking
through open and closed micro-communities, peer-to-peer support forums,
communications blogs, wikis, activity streams, and online resources. Enables
knowledge and best practice sharing in a high-value, low-effort manner, enhancing
relationships, productivity, and efficiency.
Applies game mechanics to energize employee engagement, communicate personal
and organizational goals, measure and acknowledge achievements, inspire
collaboration, and motivate teams. Delivers KPI-linked programs to transform the
process of acquiring, maintaining, and improving the skills, knowledge, and behaviors
necessary for employees to enhance quality, customer engagement, sales, and other
expertise.
Comprises a family of mobile applications, offering anytime, anywhere access to
important operational and customer information. Allows employees to access and
change schedules and view performance information, and enables the convenient
collection of in-the-moment feedback through device-friendly survey formats over the
web, email, and SMS, as well as on site in retail stores and sporting venues.
Features an enterprise-class platform that enables employees to share their
perceptions, opinions, and feedback, while providing organizations with key insights
to foster employee engagement, productivity, satisfaction, and retention, as well as
optimize the customer experience.
Engagement Channels:
Verint’s portfolio supports a wide range of engagement channels, such as digital, social, and mobile, with assisted, as well as
self-service, capabilities. Our engagement channel approach is based on open access to data and vendor neutrality. Therefore,
our engagement channels can be seamlessly deployed into environments that have a combination of legacy or new on-premises
or cloud voice infrastructures. We believe this approach provides organizations looking to modernize their customer operations
with maximum flexibility to build their next-generation, multi-channel customer engagement strategy. As part of building a
modern and open engagement channel strategy, organizations can leverage intelligence generated from other parts of Verint’s
portfolio, such as our knowledge management solution, which helps share knowledge across channels and can empower both
agents and self-service bots.
Our Engagement Channel solutions include the following:
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Engagement Channel Solutions
Description
Web/Mobile Self-Service
Voice Self-Service
Customer Communities
Email/Secure Messaging
Web Chat
Co-Browse
Mobile Messaging
Social Engagement
Enables customers to self-serve on the web or via their mobile devices,
accommodating the preferences of those that prefer to engage with organizations
digitally. Unites knowledge management, case management, process management,
and channel escalation to enable personalized web and mobile self-service
experiences. Features advanced cross-channel messaging, enabling customers to start
a digital interaction on one device and continue it on another, as well as seamlessly
transition from self-service to live service within a mobile app, mobile web, or web
application.
Provides speech-enabled voice self-service enhanced by real-time, contextual
automation and analytics-driven personalization. Leverages business intelligence to
analyze and adapt call flow and the pace of interactions based on caller behavior, and
to continually improve performance over time.
Enables organizations to establish and manage online communities on behalf of their
customers and partners to support social customer service, digital marketing, and
engagement. Fosters self-service, knowledge sharing, collaboration, and networking,
through peer-to-peer support forums, communications blogs, and online resources,
such as discussion forums, product documentation, and how-to videos. Helps
organizations deliver better products faster by sourcing new ideas from customers,
partners, and potential buyers.
Automates the process of capturing, documenting, interpreting, and routing emails,
helping organizations respond to customers quickly and consistently. Routes
messages to the most appropriate employee based on skills, entitlements, and
availability, providing standard templates and responses, a central knowledge base,
and unified customer history across channels. Features a secure web portal for
customers to send/receive confidential information as needed.
Enables employees to help online customers when they need it the most, in real-time.
Provides customers with a quick, easy way to communicate with customer service
employees via a simple text interface, and helps employees rapidly address needs and
decrease the abandonment of online transactions. Guides customers through online
processes using chat in conjunction with co-browsing.
Enables employees to strengthen customer relationships by guiding customers to
successful completions of their digital journeys. Helps reduce web page
abandonment, drive revenue, and deliver better customer experiences by allowing
employees to simultaneously browse the same web pages as customers and assist them
with completing their transactions.
Provides the ability for customers to start an interaction on one device, such as a
website on their laptop, pause for a while, and then pick up right where they left off on
a smartphone or tablet, minutes, hours, or even days later. Enables “conversations” to
persist across devices, over time, all the way from self-service through live assistance.
Collects, analyzes, and reports relevant insights derived from posts and content
published to social media sites and messaging services. Reveals intelligence and
trends related to sentiment, emerging topics and themes, and locations, enabling
organizations to understand the voice of the customer, and giving employees the
means and insight they need to respond to and address issues and concerns expressed
through these channels.
Security, Fraud, and Compliance:
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Whether consumers choose to engage with humans (e.g., contact center agents and branch tellers) or machines (e.g., self-
service voice response, or ATM machines), they expect safe, secure interactions. At the same time, organizations are looking to
minimize and investigate fraud, heighten security and safety for customers and employees, and comply with applicable rules
and regulations.
Verint solutions help fraud mitigation and investigation as part of an organization’s customer engagement strategy. For
example, banking customers use our video and transaction analytics tools to investigate fraud in branch banking. Our voice
biometrics software is used to authenticate customers in the voice channel to mitigate fraud, and our analytics solutions are
used to identify fraudulent transactions in self-service channels. Verint solutions also help emergency response centers (e.g.,
911) ensure quality and timeliness of response, and effectively dispatch first responders.
We provide many security and compliance capabilities embedded in our Customer Engagement Optimization portfolio. These
include the encryption of voice recording for maximum data security, compliance that supports the Payment Card Industry Data
Security Standard in the contact center, and voice/data capture and analytics for trading compliance and other mandates. Our
Security, Fraud, and Compliance solutions include the following:
Security, Fraud, and Compliance
Solutions
Compliance Recording
Fraud and Identity Analytics
Trading Compliance
Branch Surveillance and
Investigation
Public Safety Compliance
Description
Reliably and securely captures, encrypts, archives, searches, and replays interactions
for compliance and liability protection. Enables organizations and employees to
protect credit card data and personal information (data compliance), adhere to rules for
recording and telemarketing practices (communications compliance), and proactively
address complaints and help prevent identity theft.
Combines recorder-embedded “passive” voice biometrics technology with multifactor
metadata analytics to screen calls against the databases of both customer and known
fraudster voiceprints. Offers “upstream fraud detection” functionality to identify
suspicious caller behavior within voice self-service interactions, and helps improve
experiences by authenticating legitimate customers faster, reducing call handling and
fraud-related losses.
Helps organizations mitigate risk, ensure compliance, enforce regulations, and
proactively identify policy breaches by reliably recording and analyzing 100 percent
of the voice and text interactions related to trading activities. Helps ensure adherence
to company, industry, and government regulations; reduce operational and reputational
risk; and save on the cost, time, and resources required for trade surveillance and
audits.
Helps financial institutions, retailers, and other organizations identify security threats
and vulnerabilities, mitigate risk, ensure operational compliance, and improve fraud
investigations. Offers real-time intelligence and protection, helping enhance the
customer experience, while safeguarding people, property, and assets. Features video
recording and analytics to heighten protection, improve performance, reduce costs,
and provide rapid action/response when required.
Allows emergency services first responders (e.g., police, fire departments, emergency
medical services) to rapidly capture, analyze, manage, and act on public safety data.
Improves emergency preparedness and response, addresses evolving challenges and
threats, reduces liability and risk, and makes the most of budgets and staff. Includes
incident investigation, evidence preparation, and compliance audit trail capabilities.
Cyber Intelligence Solutions
Overview
Verint is a leading provider of security and intelligence data mining software. Our solutions are used for a wide range of
applications, including predictive intelligence, advanced and complex investigations, security threat analysis, and electronic
data and physical assets protection, as well as for generating legal evidence and preventing criminal activity and terrorism. We
deploy our solutions, including software, hardware, and services, globally for governments, critical infrastructure providers and
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enterprise customers. Our vision for security and intelligence data mining solutions is powered by our Actionable Intelligence
platform to generate intelligence and insights from structured and unstructured data.
Trends
We believe that the key trends driving demand for security and intelligence data mining solutions include:
•
•
•
Security Threats Remain Pervasive Globally, and Preventing Crime and Terrorism Is Becoming More
Complex. Governments, critical infrastructure providers, and enterprises face ongoing security threats from criminal
and terrorist organizations, foreign governments, and other groups and individuals looking to do harm. Increasingly,
these security threats come from well-organized and well-funded operations utilizing highly sophisticated methods
and technologies. As a result, detecting, investigating, and responding to security threats is becoming more complex.
Security and intelligence organizations responsible for addressing these increasingly sophisticated threats are seeking
advanced data mining solutions to help them generate Actionable Intelligence. Such solutions often involve
collecting, fusing, and analyzing structured and unstructured data from multiple sources, including from cyber space
and a variety of other data and communications networks. We believe that the increasing complexity and
technological challenges related to preventing crime and terror will drive customer demand for greater intelligence and
for data mining solutions such as ours.
Security Organizations Face Competing Budget Priorities and a Global Shortage of Qualified Intelligence
Analysts and Data Scientists. Security organizations are seeking sophisticated technology to help combat crime and
terror. While security threats are becoming more complex, security spending competes with other spending priorities.
Organizations need to employ a large number of intelligence analysts and data scientists to meet the increasing
complexity of an ever-growing number of security threats. Even with adequate budgets, there is a shortage of such
qualified personnel globally, leading to elongated investigations and increased risk that security threats are not
addressed. We believe that competing budget priorities and the shortage of qualified personnel have made security
and intelligence data mining solutions critical, as they provide customers with automation, drive operational
efficiencies, and improve the quality and speed of investigations.
Security Organizations Seek To Partner With Vendors That Can Bring Both Sophisticated Data Mining
Software and Deep Domain Expertise. Security operations involve people, processes, and technology, including
data mining software. To facilitate the effective deployment of data mining solutions, in many cases security
organizations seek to partner with vendors that can also offer relevant domain expertise and can deliver turnkey
solutions. We believe that security and intelligence data mining solutions that incorporate domain expertise with
advanced analytical technologies better enable customers to achieve their objectives of generating Actionable
Intelligence and of accelerating investigations without major budget increases or the need to employ large numbers of
data scientists and security analysts. We also believe that customers seek turnkey solutions that address their specific
requirements and that are better aligned with their strategic needs and financial constraints, rather than unspecialized
data analysis software that often requires expensive customizations and managed services.
Strategy
Our objective is to be the global leader in security and intelligence data mining software. The key elements of our growth
strategy include:
• Extending Our Market Leadership and Increasing Our Total Addressable Market (“TAM”) by Expanding Our
Portfolio of Data Mining Solutions to Address Evolving Security Threats. Verint has a long history of working
closely with leading security organizations around the world and has created a strong security and intelligence data
mining solution portfolio based on a deep understanding of our customers’ needs. We are well positioned to expand
existing customer relationships, win new customers, and continue to grow our portfolio to address evolving security
threats. Historically, most of our Cyber Intelligence revenue has been generated from government customers. We see
an opportunity to increase our TAM over time by leveraging our strong government experience to introduce new
security and intelligence data mining solutions and domain expertise to critical infrastructure providers and enterprises
that face complex security threats.
• Delivering Advanced Data Mining Solutions with Deep Domain Expertise to Improve the Velocity and
Effectiveness of Our Customers’ Security Operations. Recognizing that security organizations face many evolving
threats, while at the same time experiencing financial constraints and a shortage of intelligence analysts and data
scientists, our strategy is to bring to market security and intelligence data mining solutions that can address specific
customer needs. The design of our solutions is based on our deep knowledge of customers’ operational needs and
advanced analytical technologies in the areas of artificial intelligence, machine learning, predictive analytics, and
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visualization, with the goal of automating the intelligence process and reducing dependency on intelligence analysts
and data scientists. We believe this approach enables our customers to gain Actionable Intelligence quickly and
efficiently with higher quality and a lower total cost of ownership.
• Partnering with our Customers and Offering Flexible Deployment Models. We are a strategic partner to our
customers, providing them with security and intelligence data mining solutions to help address security threats and
ensure the long-term success of their mission. Our strategy is to offer customers multiple options to deploy our
solutions, including working directly with us in a turnkey project or indirectly through systems integrators. Many of
our customers choose Verint to deploy turnkey projects that include software, hardware, and services (including from
third-party vendors), while other customers choose to implement our security and intelligence data mining software in
conjunction with hardware and services provided by others. Regardless of how customers deploy our solutions, we
are constantly working to enhance our products and services to help them stay ahead of evolving security threats.
Our Solutions
Verint offers a broad range of security and intelligence data mining solutions, including:
Solutions
Description
National Security
Law Enforcement
Cyber Security
Critical Infrastructure
Enterprise Security
National security agencies are mandated to prevent terrorism, collect intelligence, and
investigate national security threats. Verint’s National Security data mining solution
enables governments around the world to generate Actionable Intelligence by
collecting, correlating, and analyzing a wide range of structured and unstructured data
from multiple sources to identify and prevent potential threats.
Law enforcement agencies are mandated to fight a wide range of criminal activity,
such as arson, drug trafficking, homicides, human trafficking, identity theft,
kidnapping, anti-poaching, illegal immigration, financial crimes, and other organized
crimes. Verint’s Law Enforcement evidence collection data mining and investigation
solution provides critical intelligence to advance complex investigations for a wide
array of crimes.
Governments, critical infrastructure organizations, and enterprises are facing attacks
from sophisticated malware. Due to the increased sophistication of these attacks they
are becoming more difficult to detect, prevent, and investigate. Verint’s data mining
cyber security solution helps organizations collect network, end-point, and other
information from multiple sources and apply analytics in order to prioritize responses
to attacks, automate part of the investigation process to reduce dependency on cyber
analysts and data scientists, and reduce the critical time from detection to remediation.
Critical infrastructure providers are mandated to protect sensitive assets, such as
airports, bridges, electrical grids, pipelines, ports, nuclear power plants, water
supplies, and government facilities. Given the large size of these types of assets,
critical infrastructure providers seek solutions to help them detect and respond to
threats efficiently and across large distances. Verint’s Critical Infrastructure security
and intelligence data mining solution combines and analyzes data from a range of
sensors and other systems to provide Actionable Intelligence to security personal,
allowing them to centrally monitor and respond to security threats.
Enterprises with significant risk of data loss, intellectual property theft, financial
fraud, or other security risks are interested in data mining solutions to help mitigate
such risks. For example, Verint’s Enterprise Security data mining solution has been
deployed by a global pharmaceutical company to mine the open source web for
counterfeit drugs that may infringe on their patent-protected pharmaceutical products.
Verint’s Enterprise Security data mining solution has also been deployed by a large
retail company to mine data captured in stores to help investigate and mitigate fraud.
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Telecommunications Lawful
Interception Compliance
Border Control
Correctional Facilities
Telecommunication carriers are mandated to comply with certain government
regulations requiring them to assist the government in their evidence and intelligence
collection process. This can involve collecting information from a wide range of
sources across disparate networks. Verint’s Telecommunication Lawful Interception
Compliance solution helps telecommunication providers comply efficiently and
adequately with these regulations.
Governments are mandated to monitor and regulate borders to control the movement
of people and goods into and out of a country. Borders can be very large and
impossible to monitor with people alone. As a result, border control agencies seek
physical security technologies, as well as intelligence gathering technologies, to
adequately protect borders. Verint’s Border Control solution leverages data mining of
machine data, telecommunications, social data, and enterprise systems to identify
suspicious behavior, and help investigate and prevent border control incidents.
Correctional agencies are mandated to safely detain criminals in low, medium, and
high security facilities. They are also required to ensure that criminals do not continue
to conduct illegal activities from inside prisons. Verint’s Correctional Facilities
solution assists prison monitoring through situational awareness and intelligence
gathering capabilities to enhance physical security and help identify illegal activities
from inside the prison.
Our data mining solutions for security and intelligence listed above are delivered using a product, or several products
implemented together, from our Cyber Intelligence portfolio described below:
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Solutions
Description
Network Intelligence Suite
Threat Protection System (TPS)
Situational Awareness Platform
Intelligence Fusion Center (IFC)
Verint’s Network Intelligence Suite generates insights and intelligence by rapidly
uncovering critical information from network traffic. The Network Intelligence suite
can address a wide range of communications networks and can scale to capture and
analyze massive volumes of communications traffic.
Verint’s TPS integrates multiple advanced detection engines and provides unified
workflows for investigation, behavioral analytics, and forensics that analyze cyber-
attack paths, enable remediation, and help protect against future attempts. Its
orchestration and automation capabilities reduce the need for labor-intensive manual
processes and help shorten the period of time between malware detection and
remediation.
Verint’s Situational Intelligence Platform integrates data from multiple systems and
sensors, such as access control, video, intrusion, fire, public safety, weather, traffic,
first responder, and other mobile device systems. It provides a unified visualization
layer and workflow, enabling organizations to fuse, analyze, and report information,
and take action on risks, alarms, and incidents across business and security systems.
Situational awareness helps identify and mitigate risks, improve response times,
increase operational effectiveness, and reduce total cost of ownership.
Verint’s Intelligence Fusion Center provides organizations with a centralized data
mining platform for creating insights, identifying potential threats, and generating
predictive intelligence. It enables a cross-source/cross-format single point of access to
intelligence data sources to facilitate organization-wide investigation, management,
and analysis. In addition to the fusion of data generated by Verint’s products, it
provides capabilities to connect structured and unstructured data originating from
customer-provided databases and other sources.
Web and Social Intelligence
Verint’s Web and Social Intelligence solution helps transform large volumes of web
and open source content into insights, identify suspicious behavioral patterns, and
generate predictive intelligence.
Customer Services
We offer a range of customer services, including implementation and training, consulting and managed services, and
maintenance support, to help our customers maximize their return on investment in our solutions.
Implementation and Training
Our solutions are implemented by our service organizations, authorized partners, resellers, or customers. Our implementation
services include project management, system installation, and commissioning, including integrating our solutions with our
customers’ environments and third-party solutions. Our training programs are designed to enable our customers to use our
solutions effectively and to certify our partners to sell, install, and support our solutions. Customer and partner training is
provided at the customer site, at our training centers around the world, and/or remotely online.
Consulting
Our management consulting capabilities include business strategy, process excellence, performance management, and project
and program management, and are designed to help our customers maximize the value of our solutions in their own
environments.
Managed Services
We also offer a range of managed services to help our customers manage their customer service operations. Our managed
services are designed to help customers effectively maximize business insights and also enable us to create strong relationships
with our customers. Our managed services are recurring in nature and can be delivered in conjunction with Verint’s technology
or on a standalone basis.
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Maintenance Support
We offer a range of customer maintenance support plans to our customers and resellers, which may include phone, web, and
email access to technical personnel up to 24-hours-a-day, seven-days-a-week. Our support programs are designed to help
ensure long-term, successful use of our solutions. We believe that customer support is critical to retaining and expanding our
customer base. Our Customer Engagement solutions are generally sold with a warranty of one year for hardware and 90 days
for software. Our Cyber Intelligence solutions, and certain of our Customer Engagement solutions, are sold with warranties
that typically range from 90 days to three years and, in some cases, longer. In addition, customers are typically provided the
option to purchase maintenance plans that provide a range of services, such as telephone support, advanced replacement,
upgrades when and if available, and on-site repair or replacement. Currently, the majority of our maintenance revenue is
related to our Customer Engagement solutions.
Direct and Indirect Sales
We sell our solutions through our direct sales teams and indirect channels, including distributors, systems integrators, value-
added resellers (“VARs”), and OEM partners. Approximately half of our overall sales are made through partners, distributors,
resellers, and system integrators.
Each of our solutions is sold by trained, dedicated, regionally-organized direct and indirect sales teams. Our direct sales teams
are focused on large and mid-sized customers and, in many cases, co-sell with our other channels and sales agents. Our indirect
sales teams are focused on developing and supporting relationships with our indirect channels, which provide us with broader
market coverage, including access to their customer bases, integration services, and presence in certain geographies and vertical
markets. Our sales teams are supported by business consultants, solutions specialists, and pre-sales engineers who, during the
sales process, help determine customer requirements and develop technical responses to those requirements. We sell directly
and indirectly in both of our segments. See “Risk Factors—Risks Related to Our Business—Competition, Markets, and
Operations—If we are unable to establish and maintain our relationships with third parties that market and sell our products,
our business and ability to grow could be materially adversely affected” under Item 1A of this report for a more detailed
discussion of certain sales and distribution risks that we face.
Customers
Our solutions are used by over 10,000 organizations in more than 180 countries. In the year ended January 31, 2017, we
derived approximately 66% and 34% of our revenue from the sale of our Customer Engagement and Cyber Intelligence
solutions, respectively. In the year ended January 31, 2016, we derived approximately 61% and 39% of our revenue from the
sale of our Customer Engagement and Cyber Intelligence solutions, respectively. In the year ended January 31, 2015, we
derived approximately 63% and 37% of our revenue from the sale of our Customer Engagement and Cyber Intelligence
solutions, respectively. We are party to contracts with customers in both of our segments, the loss of which could have a
material adverse effect on the segment.
In the year ended January 31, 2017, we derived approximately 54%, 30%, and 16% of our revenue from sales to end users in
the Americas, in Europe, the Middle East and Africa (“EMEA”), and in the Asia-Pacific (“APAC”) regions, respectively. In the
year ended January 31, 2016, we derived approximately 51%, 31%, and 18% of our revenue from sales to end users in the
Americas, EMEA, and APAC, respectively. In the year ended January 31, 2015, we derived approximately 52%, 31%, and
17% of our revenue from sales to end users in the Americas, EMEA, and APAC, respectively. See also Note 16, “Segment,
Geographic, and Significant Customer Information” to our consolidated financial statements included under Item 8 of this
report for additional information and financial data about each of our operating segments and geographic regions.
For the year ended January 31, 2017, approximately one third of our business was generated from contracts with various
governments around the world, including local, regional, and national government agencies. Due to the unique nature of the
terms and conditions associated with government contracts generally, our government contracts may be subject to renegotiation
or termination at the election of the government customer. Some of our customer engagements require us to have security
credentials or to participate in projects through an approved legal entity.
Seasonality and Cyclicality
As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most
years, our revenue and operating income are typically highest in the fourth quarter and lowest in the first quarter (prior to the
impact of unusual or nonrecurring items). Moreover, revenue and operating income in the first quarter of a new year may be
lower than in the fourth quarter of the preceding year, in some years, potentially by a significant margin. In addition, we
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generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that
month. We believe that these seasonal and cyclical factors primarily reflect customer spending patterns and budget cycles, as
well as the impact of compensation incentive plans for our sales personnel. While seasonal and cyclical factors such as these
are common in the software and technology industry, this pattern should not be considered a reliable indicator of our future
revenue or financial performance. Many other factors, including general economic conditions, also have an impact on our
business and financial results. See “Risk Factors” under Item 1A of this report for a more detailed discussion of factors which
may affect our business and financial results.
Research and Development
We continue to enhance the features and performance of our existing solutions and to introduce new solutions through
extensive R&D activities, including the development of new solutions, the addition of capabilities to existing solutions, quality
assurance, and advanced technical support for our customer services organization. In certain instances, primarily in our Cyber
Intelligence segment, we may tailor our products to meet the particular requirements of our customers. R&D is performed
primarily in the United States, Israel, the United Kingdom, Ireland, the Netherlands, and Indonesia for our Customer
Engagement segment; and in Israel, Germany, Brazil, Cyprus, Taiwan, the Netherlands, and Bulgaria for our Cyber Intelligence
segment.
To support our research and development efforts, we make significant investments in R&D every year. In the years ended
January 31, 2017, 2016, and 2015, we spent approximately $171.1 million, $177.7 million, and $173.7 million, respectively, on
R&D, net. We allocate our R&D resources in response to market research and customer demand for additional features and
solutions. Our development strategy involves rolling out initial releases of our products and adding features over time. We
incorporate product feedback received from our customers into our product development process. While the majority of our
products are developed internally, in some cases, we also acquire or license technologies, products, and applications from third
parties based on timing and cost considerations. See “Risk Factors—Risks Related to Our Business—Competition, Markets,
and Operations—For certain products, components, or services, we rely on third-party suppliers, manufacturers, and partners
and if these relationships are interrupted, we may not be able to obtain substitute suppliers, manufacturers, or partners on
favorable terms or at all and we may be subject to other adverse effects” under Item 1A of this report.
As noted above, a significant portion of our R&D operations is located outside the United States. We have derived benefits
from participation in certain government-sponsored programs, including those of the Israeli Innovation Authority (“IAA”),
formerly the Office of the Chief Scientist (“OCS”), and in other jurisdictions for the support of R&D activities conducted in
those locations. In the case of Israel, the Israeli law under which our IAA grants are made limits our ability to manufacture
products, or transfer technologies, developed using these grants outside of Israel without permission from the IAA. See “Risk
Factors—Risks Related to Our Business—Competition, Markets, and Operations—Because we have significant foreign
operations and business, we are subject to geopolitical and other risks that could materially adversely affect our results” and
“Risk Factors—Risks Related to Our Business—Competition, Markets, and Operations—Conditions in and our relationship to
Israel may materially adversely affect our operations and personnel and may limit our ability to produce and sell our products
or engage in certain transactions” under Item 1A of this report for a discussion of certain risks associated with our foreign
operations.
Manufacturing, Suppliers, and Service Providers
While Verint is focused on developing enterprise software to accommodate customers’ desire for turnkey solutions, we will
deliver solutions that incorporate third-party hardware components. This applies mainly to our Cyber Intelligence segment, as
the majority of the solutions from our Customer Engagement segment are comprised of software and do not incorporate
hardware components. We utilize both unaffiliated manufacturing subcontractors, as well as our internal operations, to
produce, assemble, and deliver solutions incorporating hardware components. These internal operations consist primarily of
installing our software on externally purchased hardware components, final assembly, repair, and testing, which involves the
application of extensive quality control procedures to materials, components, subassemblies, and systems. We also perform
system integration functions prior to shipping turnkey solutions to our customers. Our internal operations are performed
primarily in our German, Israeli, and Cypriot facilities for solutions in our Cyber Intelligence segment, and in our U.S. facility
for certain solutions in our Customer Engagement segment. Although we have occasionally experienced delays and shortages
in the supply of proprietary components in the past, we have, to date, been able to obtain adequate supplies of all components
in a timely manner from alternative sources, when necessary. We also rely on third parties to provide certain services to us or
to our customers, including hosting providers and providers of other cloud-based services. See “Risk Factors—Risks Related
to Our Business—Competition, Markets, and Operations—For certain products, components, or services, we rely on third-party
suppliers, manufacturers, and partners, and if these relationships are interrupted we may not be able to obtain substitute
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suppliers, manufacturers, or partners on favorable terms or at all and we may be subject to other adverse effects” under Item 1A
of this report for a discussion of risks associated with our manufacturing operations and suppliers.
Employees
As of January 31, 2017, we employed approximately 5,100 professionals, including certain contractors, with approximately
44%, 21%, 23%, and 12% of our employees and contractors located in the Americas, Israel, EMEA (excluding Israel), and
APAC, respectively.
We consider our relationship with our employees to be good and a critical factor in our success. Our employees in the United
States are not covered by any collective bargaining agreements. In some cases, our employees outside the United States are
automatically subject to certain protections negotiated by organized labor in those countries directly with the government or
trade unions, or are automatically entitled to severance or other benefits mandated under local laws. For example, while we are
not a party to any collective bargaining or other agreement with any labor organization in Israel, certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of Laborers in Israel) and the Coordinating Bureau
of Economic Organizations (including the Manufacturers’ Association of Israel) are applicable to our Israeli employees by
virtue of expansion orders of the Israeli Ministry of Industry, Trade and Labor.
Intellectual Property Rights
General
Our success depends to a significant degree on the legal protection of our software and other proprietary technology. We rely
on a combination of patent, trade secret, copyright, and trademark laws, and confidentiality and non-disclosure agreements with
employees and third parties to establish and protect our proprietary rights.
Patents
As of January 31, 2017, we had more than 800 patents and patent applications worldwide, including more than 130 patent
issuances or allowances during the past year. We have accumulated a significant amount of proprietary know-how and
expertise in developing Actionable Intelligence solutions. We regularly review new areas of technology related to our
businesses to determine whether they can and should be patented.
Licenses
While we employ many of our innovations exclusively in our products and services, we also engage in outbound and inbound
licensing of specific patented technologies. Our licenses are designed to prohibit unauthorized use, copying, and disclosure of
our software technology. When we license our software to customers, we require license agreements containing restrictions
and confidentiality terms customary in the industry in order to protect our proprietary rights in the software. These agreements
generally warrant that the software and propriety hardware will materially comply with written documentation and assert that
we own or have sufficient rights in the software we distribute and have not violated the intellectual property rights of others.
We license our products in a format that does not permit users to change the software code. See “Risk Factors—Risks Related
to Our Business—Competition, Markets, and Operations—For certain products, components, or services, we rely on third-party
suppliers, manufacturers, and partners, and if these relationships are interrupted we may not be able to obtain substitute
suppliers, manufacturers, or partners on favorable terms or at all and we may be subject to other adverse effects” under Item 1A
of this report.
We license certain software, technology, and related rights for use in the manufacture and marketing of our products and pay
royalties to third parties under such licenses and other agreements. While it may be necessary in the future to seek or renew
licenses relating to various aspects of our products, we believe, based on industry practice, such licenses generally can be
obtained on commercially reasonable terms.
Trademarks and Service Marks
We use various trademarks and service marks to protect the marks used in our business. We also claim common law
protections for other marks we use in our business. Competitors and other companies could adopt similar marks or try to
prevent us from using our marks, consequently impeding our ability to build brand identity and possibly leading to customer
confusion. See “Risk Factors—Risks Related to Our Business—Information/Product Security and Intellectual Property—Our
intellectual property may not be adequately protected” under Item 1A of this report for a more detailed discussion regarding the
risks associated with the protection of our intellectual property.
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Competition
We face strong competition in all of our markets, and we expect that competition will persist and intensify.
In our Customer Engagement segment, our competitors include Aspect Software, Inc., eGain Corporation, Genesys
Telecommunications, Medallia Inc., NICE Systems Ltd., Pegasystems Inc., and divisions of larger companies, including
Microsoft Corporation, Oracle Corporation, and Salesforce.com, Inc., along with many smaller companies, which can vary
across regions. In our Cyber Intelligence segment, our competitors include BAE Systems plc, Cyberbit Ltd. (a subsidiary of
Elbit Systems Ltd.), FireEye, Inc., IBM Corporation, JSI Telecom, Palantir Technologies, Inc., and Rohde & Schwarz GmbH &
Co. KG, along with a number of smaller companies and divisions of larger companies that compete with us in certain regions
or only with respect to portions of our product portfolio, and many smaller companies, which can vary across regions.
In each of our operating segments, we believe that we compete principally on the basis of:
Product performance and functionality;
Product quality and reliability;
•
•
• Breadth of product portfolio and pre-defined integrations;
• Global presence and high-quality customer service and support;
Specific industry knowledge, vision, and experience; and
•
Price.
•
We believe that our competitive success depends primarily on our ability to provide technologically advanced and cost-
effective solutions and services. Some of our competitors have superior brand recognition and significantly greater financial or
other resources than we do. We expect that competition will increase as other established and emerging companies enter our
markets or we enter theirs, and as new products, services, technologies, and delivery methods are introduced, such as SaaS. In
addition, consolidation is common in our markets and has in the past and may in the future improve the position of our
competitors. See “Risk Factors—Risks Related to Our Business—Competition, Markets, and Operations—Intense competition
in our markets and competitors with greater resources than us may limit our market share, profitability, and growth” under Item
1A of this report for a more detailed discussion of the competitive risks we face.
Export Regulations
We and our subsidiaries are subject to applicable export control regulations in countries from which we export goods and
services. These controls may apply by virtue of the country in which the products are located or by virtue of the origin of the
content contained in the products. If the controls of a particular country apply, the level of control generally depends on the
nature of the goods and services in question. For example, our Cyber Intelligence solutions tend to be more highly controlled
than our Customer Engagement solutions. Where controls apply, the export of our products generally requires an export license
or authorization or that the transaction qualify for a license exception or the equivalent, and may also be subject to
corresponding reporting requirements.
Item 1A. Risk Factors
Many of the factors that affect our business and operations involve risks and uncertainties. The factors described below are
risks that could materially harm our business, financial condition, and results of operations. These are not all the risks we face
and other factors currently considered immaterial or unknown to us may have a material adverse impact on our future
operations.
Risks Related to Our Business
Competition, Markets, and Operations
Our business is impacted by changes in general economic conditions and information technology and government
spending in particular.
Our business is subject to risks arising from adverse changes in domestic and global economic conditions. Slowdowns,
recessions, economic instability, political unrest, armed conflicts, or natural disasters around the world may cause companies
and governments to delay, reduce, or even cancel planned spending. In particular, declines in information technology spending
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and limited or reduced government budgets have affected the markets for our solutions in both the Customer Engagement
market and the Cyber Intelligence market in certain periods and in certain regions. For the year ended January 31, 2017,
approximately one third of our business was generated from contracts with various governments around the world, including
national, regional, and local government agencies. We expect that government contracts will continue to be a significant source
of our revenue for the foreseeable future. Customers or partners who are facing business challenges, reduced budgets, or
liquidity issues are also more likely to defer purchase decisions or cancel or reduce orders, as well as to delay or default on
payments. If customers or partners significantly reduce their spending with us or significantly delay or fail to make payments
to us, our business, results of operations, and financial condition would be materially adversely affected.
The industry in which we operate is characterized by rapid technological changes, evolving industry standards and
challenges, and changing market potential from area to area, and if we cannot anticipate and react to such changes our
results may suffer.
The markets for our products are characterized by rapidly changing technology and evolving industry standards and challenges.
The introduction of products embodying new technology, new delivery platforms such as SaaS, managed services, or other
cloud-based solutions, the commoditization of older technologies, and the emergence of new industry standards and
technological hurdles can exert pricing pressure on existing products and services and/or render them unmarketable or obsolete.
For example, in our Cyber Intelligence business, stronger and more frequent use of encryption has created significantly greater
challenges for our customers and for our solutions to address. In our Customer Engagement business, we see increased interest
in cloud- based solutions as well as pricing pressure on legacy products. Moreover, the market potential and growth rates of
the markets we serve are not uniform and are evolving. It is critical to our success that we are able to anticipate and respond to
changes in technology and industry standards and new customer challenges by consistently developing new, innovative, high-
quality products and services that meet or exceed the changing needs of our customers. We must also successfully identify,
enter, and appropriately prioritize areas of growing market potential, including by launching, successfully executing, and
driving demand for new and enhanced solutions and services, while simultaneously preserving our legacy businesses and
migrating away from areas of commoditization. If we are unable to execute on these strategic priorities, we may lose market
share or experience slower growth, and our profitability and other results of operations may be materially adversely affected.
Intense competition in our markets and competitors with greater resources than us may limit our market share,
profitability, and growth.
We face aggressive competition from numerous and varied competitors in all of our markets, making it difficult to maintain
market share, remain profitable, invest, and grow. We are also encountering new competitors as we expand into new markets
or new competitors expand into ours. Our competitors may be able to more quickly develop or adapt to new or emerging
technologies, better respond to changes in customer needs or preferences, better identify and enter into new areas of growth, or
devote greater resources to the development, promotion, and sale of their products. Some of our competitors have, in relation
to us, longer operating histories, larger customer bases, longer standing relationships with customers, superior brand
recognition, superior margins, and significantly greater financial, technical, marketing, customer service, public relations,
distribution, or other resources, especially in new markets we may enter. Consolidation among our competitors may also
improve their competitive position. We also face competition from solutions developed internally by our customers or partners.
To the extent that we cannot compete effectively, our market share and, therefore, results of operations could be materially
adversely affected.
Because price and related terms are key considerations for many of our customers, we may have to accept less-favorable
payment terms, lower the prices of our products and services, and/or reduce our cost structure, including reducing headcount or
investment in R&D, in order to remain competitive. If we are forced to take these kinds of actions to remain competitive in the
short-term, such actions may adversely impact our ability to execute and compete in the long-term.
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Our future success depends on our ability to enhance our existing operations, execute on our growth strategy, and
properly manage investment in our business and operations.
A key element of our long-term strategy is to continue to invest in, enhance, and secure our business and operations and grow,
both organically and through acquisitions. Investments in, among other things, new markets, new products, solutions, and
technologies, R&D, infrastructure and systems, geographic expansion, and headcount are critical components in achieving this
strategy. However, such investments and efforts may not be successful, especially in new areas or new markets in which we
have little or no experience, and even if successful, may negatively impact our short-term profitability. Our success depends on
our ability to effectively and efficiently enhance our existing operations and execute on our growth strategy, including our
ability to properly allocate limited investment dollars, balance the extent and timing of investments with the associated impact
on expenses and profitability, balance our focus between new areas or new markets and the operation and servicing of our
legacy businesses and customers, capture efficiencies and economies of scale, and compete in the new areas or new markets
and with the new solutions in which we have invested. Moreover, our existing infrastructure, systems, processes, and personnel
may not be adequate for our current or future needs. For example, we are currently in the process of upgrading our enterprise
resource planning system as well as introducing a new revenue recognition system. These implementations are complex, time-
consuming, and expensive and we cannot assure you that we will not experience problems during or following such
implementations, including among others, potential disruptions in our ability to report accurate and timely financial results. If
we are unable to effectively and efficiently enhance our existing operations, execute on our growth strategy, and properly
manage our investments, focus, and expenditures, our results of operations and market share may be materially adversely
affected.
We may not be able to identify suitable targets for acquisition or investment, or complete acquisitions or investments on
terms acceptable to us, which could negatively impact our ability to implement our growth strategy.
As part of our long-term growth strategy, we have made a number of acquisitions and investments and expect to continue to
make acquisitions and investments in the future, subject to the terms of our senior credit agreement (the "Credit Agreement"),
the indenture governing our 1.50% convertible senior notes due June 1, 2021 (the "Notes"), and other restrictions.
In many areas, we have seen the market for acquisitions become more competitive and valuations increase. Our competitors
also continue to make acquisitions in or adjacent to our markets. As a result, it may be more difficult for us to identify suitable
acquisition or investment targets or to consummate acquisitions or investments once identified on acceptable terms or at all. If
we are not able to execute on our acquisition strategy, we may not be able to achieve our long-term growth strategy, may lose
market share, or may lose our leadership position in one or more of our markets.
Our acquisition and investment activity presents certain risks to our business, operations, and financial position.
Acquisitions and investments are an important part of our strategy. Successful execution of a transaction, including the process
of integrating an acquired company's business following the closing of an acquisition or investment, is paramount to achieving
the anticipated benefits of the transaction. If we are unable to execute successfully, we may experience both a loss on the
investment and damage to our legacy business and valuation.
The process of integrating an acquired company's business into our operations and investing in new technologies is challenging
and may result in expected or unexpected operating or compliance challenges, which may require significant expenditures and
a significant amount of our management's attention that would otherwise be focused on the ongoing operation of our business.
The potential difficulties or risks of integrating an acquired company’s business include, among others:
•
the effect of the acquisition on our financial and strategic positions and our reputation;
•
risk that we fail to successfully implement our business plan for the combined business, including plans to accelerate
growth;
•
risk that we are unable to obtain the anticipated benefits of the acquisition, including synergies or economies of scale;
•
risk that the market does not accept the integrated product portfolio;
• challenges in reconciling business practices or in integrating product development activities, logistics, or information
technology and other systems;
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retention risk with respect to key customers, suppliers, and employees and challenges in assimilating and training
new employees;
• challenges in complying with newly applicable laws and regulations, including obtaining or retaining required
approvals, licenses, and permits; and
• potential impact on our internal controls over financial reporting.
Acquisitions and/or investments may also result in potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities, the expenditure of available cash, and amortization expenses or write-downs related to intangible assets
such as goodwill, any of which could have a material adverse effect on our operating results or financial condition.
Investments in immature businesses with unproven track records and technologies have an especially high degree of risk, with
the possibility that we may lose our entire investment or incur unexpected liabilities. Transactions that are not immediately
accretive to earnings may make it more difficult for us to maintain satisfactory profitability levels or compliance with the
maximum leverage ratio covenant under the revolving credit facility under our Credit Agreement. Large or costly acquisitions
or investments may also diminish our capital resources and liquidity or limit our ability to engage in additional transactions for
a period of time.
All of the foregoing risks may be magnified as the cost, size, or complexity of an acquisition or acquired company increases,
where the acquired company’s products, market, or business are materially different from ours, or where more than one
transaction or integration is occurring simultaneously or within a concentrated period of time. There can be no assurance that
we will be successful in making additional acquisitions in the future or in integrating or executing on our business plan for
existing or future acquisitions.
Sales opportunities and sales processes for sophisticated solutions like ours present significant challenges.
We offer our customers a broad solution portfolio with the flexibility to purchase a single point solution, which can be
expanded over time, or a larger more comprehensive system. Regardless of the size of a customer's purchase, many of our
solutions are sophisticated and may represent a significant investment for the customer. As a result, our sales cycles can range
in duration from as little as a few weeks to more than a year. Our larger sales typically require a minimum of a few months to
consummate. As the length or complexity of a sales process increases, so does the risk of successfully closing the sale. Larger
sales are often made by competitive bid, which also increases the time and uncertainty associated with such opportunities.
Customers may also require education on the value and functionality of our solutions as part of the sales process, further
extending the time frame and uncertainty of the process.
Longer sales cycles, competitive bid processes, and the need to educate customers means that:
• There is greater risk of customers deferring, scaling back, or cancelling sales as a result of, among other things, their
receipt of a competitive proposal, changes in budgets and purchasing priorities, or the introduction or anticipated
introduction of new or enhanced products by us or our competitors during the process.
•
We may make a significant investment of time and money in opportunities that do not come to fruition, which
investments may not be usable or recoverable in future projects.
• We may be required to bid on a project in advance of the completion of its design or be required to begin working on
a project in advance of finalizing a sale, in either case, increasing the risk of unforeseen technological difficulties or
cost overruns.
• We face greater downside risks if we do not correctly and efficiently deploy limited personnel and financial resources
and convert such sales opportunities into orders.
Larger solution sales also require greater expertise in sales execution and transaction implementation than more basic product
sales, including in establishing and maintaining appropriate contacts and relationships with customers and partners, product
development, project management, staffing, integration, services, and support. Our ability to sell and support larger solutions
also generally requires greater investment for us, in terms of personnel and other resources, and increases the risk that our
revenue and profitability becomes concentrated in a given period or over time. Additionally, after the completion of a solution
sale or the sale of a more sophisticated product in general, our customers or partners may need assistance from us in making
full use of the functionality of these solutions or products, in realizing all of their benefits, or in implementation generally. If
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we are unable to assist our customers and partners in realizing the benefits they expect from our solutions and products,
demand for our solutions and products may decline and our operating results may suffer.
The extended time frame and uncertainty associated with many of our sales opportunities also makes it difficult for us to
accurately forecast our revenues (and attendant budgeting and guidance decisions) and increases the volatility of our operating
results from period to period. Our ability to forecast and the volatility of our operating results is also impacted by the fact that
pricing, margins, and other deal terms may vary substantially from transaction to transaction, especially across business lines.
The terms of our transactions, including with respect to pricing, future deliverables, delivery model (e.g., perpetual license
versus SaaS), and post-contract customer support, also impact the timing of our ability to recognize revenue. Because these
transaction-specific factors are difficult to predict in advance, this also complicates the forecasting of revenue. The deferral or
loss of one or more significant orders or a delay in a large implementation can also materially adversely affect our operating
results, especially in a given quarter. As with other software-focused companies, a large amount of our quarterly business tends
to come in the last few weeks, or even the last few days, of each quarter. This trend has also complicated the process of
accurately predicting revenue and other operating results, particularly on a quarterly basis. Finally, our business is subject to
seasonal factors that may also cause our results to fluctuate from quarter to quarter.
If we are unable to establish and maintain our relationships with third parties that market and sell our products, our
business and ability to grow could be materially adversely affected.
Approximately half of our sales are made through partners, distributors, resellers, and systems integrators. To remain
successful, we must maintain our existing relationships as well as identify and establish new relationships with such third
parties. We must often compete with other suppliers for these relationships and our competitors often seek to establish
exclusive relationships with these sales channels or to become a preferred partner for them. Our ability to establish and
maintain these relationships is based on, among other things, factors that are similar to those on which we compete for end
customers, including features, functionality, ease of use, installation and maintenance, and price. Even if we are able to secure
such relationships on terms we find acceptable, there is no assurance that we will be able to realize the benefits we anticipate.
Some of our channel partners may also compete with us or have affiliates that compete with us, or may partner with our
competitors or even offer our products and those of our competitors as alternatives when presenting proposals to end
customers. Our ability to achieve our revenue goals and growth depends to a significant extent on maintaining, enabling, and
adding to these sales channels, and if we are unable to do so, our business and ability to grow could be materially adversely
affected.
For certain products, components, or services, we rely on third-party suppliers, manufacturers, and partners, and if
these relationships are interrupted we may not be able to obtain substitute suppliers, manufacturers, or partners on
favorable terms or at all and we may be subject to other adverse effects.
Although we generally use standard parts and components in our products, we do rely on non-affiliated suppliers and OEM
partners for certain non-standard products or components which may be critical to our products, including both hardware and
software, and on manufacturers of assemblies that are incorporated into our products. We also purchase technology, license
intellectual property rights, and oversee third-party development and localization of certain products or components, in some
cases, by or from companies that may compete with us or work with our competitors. While we endeavor to use larger, more
established suppliers, manufacturers, and partners wherever possible, in some cases, these providers may be smaller, less
established companies, particularly in the case of suppliers of new or unique technologies that we have not developed
internally. If these suppliers, manufacturers, or partners experience financial, operational, manufacturing capacity, or quality
assurance difficulties, cease production or sale of the products we buy from them entirely, or there is any other disruption,
including loss of license, OEM, or distribution rights, including as a result of the acquisition of a supplier or partner by a
competitor, we will be required to locate alternative sources of supply or manufacturing, to internally develop the applicable
technologies, to redesign our products, and/or to remove certain features from our products, any of which would be likely to
increase expenses, create delivery delays, and negatively impact our sales. Although we endeavor to put in place contracts with
key providers, including protections such as source code escrows (where needed), warranties, and indemnities, we may not be
successful in obtaining adequate protections, these agreements may be short-term in duration, and the counterparties may be
unwilling or unable to stand behind such protections. Moreover, these types of contractual protections offer limited practical
benefits to us in the event our relationship with a key provider is interrupted.
We also rely on third parties to provide certain services to us or to our customers, including hosting partners and providers of
other cloud-based services. If these third-party providers do not perform as expected, our customers may be adversely affected,
resulting in potential liability and negative exposure for us. If it is necessary to migrate these services to other providers as a
result of poor performance by these third parties, cyber breaches, security considerations, or other financial or operational
factors, it could result in service disruptions to our customers and significant time and expense to us, any of which could
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adversely affect our business.
If we cannot retain and recruit qualified personnel, our ability to operate and grow our business may be impaired.
We depend on the continued services of our management and employees to run and grow our business. To remain successful
and to grow, we need to retain existing employees and attract new employees who understand and/or have experience with our
products, services, and markets, including new markets and growth areas we may enter. As we grow, we must also enhance and
expand our management team to execute on new and larger agendas and challenges. The market for qualified personnel is
competitive in the geographies in which we operate and may be limited especially in areas of emerging technology, and we
may be at a disadvantage to companies with greater brand recognition or financial resources in recruiting. If we are unable to
attract and retain qualified personnel, when and where they are needed, our ability to operate and grow our business could be
impaired. Moreover, if we are not able to properly balance investment in personnel with growth in our business, our
profitability may be adversely affected.
Because we have significant foreign operations and business, we are subject to geopolitical and other risks that could
materially adversely affect our results.
We have significant operations and business outside the United States, including sales, research and development,
manufacturing, customer services and support, and administrative services. The countries in which we have our most
significant foreign operations include Israel, the United Kingdom, India, Cyprus, Indonesia, Australia, Brazil and the
Netherlands. We also generate significant revenue from more than a dozen foreign countries, and smaller amounts of revenue
from many more, including a number of emerging markets. We intend to continue to grow our business internationally.
Our foreign operations are, and any future foreign growth will be, subject to a variety of risks, many of which are beyond our
control, including risks associated with:
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•
foreign currency fluctuations;
political, security, and economic instability or corruption in foreign countries;
changes in and compliance with both international and local laws and regulations, including those related to trade
compliance, anticorruption, data privacy and protection, tax, labor, employee benefits, customs, currency restrictions,
and other requirements;
differences in tax regimes and potentially adverse tax consequences of operating in foreign countries;
product customization or localization issues;
preferences for or policies and procedures that protect local suppliers;
legal uncertainties regarding intellectual property rights or rights and obligations generally;
recruitment and retention of qualified foreign employees; and
challenges or delays in collection of accounts receivable.
Any or all of these factors could materially adversely affect our business or results of operations.
Conditions in and our relationship to Israel may materially adversely affect our operations and personnel and may limit
our ability to produce and sell our products or engage in certain transactions.
We have significant operations in Israel, including R&D, manufacturing, sales, and support. Conflicts and political, economic,
and/or military conditions in Israel and the Middle East region have affected and may in the future affect our operations in
Israel. Violence within Israel or the outbreak of violent conflicts between Israel and its neighbors, including the Palestinians or
Iran, may impede our ability to manufacture, sell, and support our products or engage in R&D, or otherwise adversely affect
our business or operations. Many of our employees in Israel are required to perform annual compulsory military service and
are subject to being called to active duty at any time. Hostilities involving Israel may also result in the interruption or
curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of
Israel and could materially adversely affect our results of operations.
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Restrictive laws, policies, or practices in certain countries directed toward Israel, Israeli goods, or companies having operations
in Israel may also limit our ability to sell some of our products in certain countries.
We receive grants from the IAA for the financing of a portion of our research and development expenditures in Israel. The
availability in any given year of these IAA grants depends on IAA approval of the projects and related budgets that we submit
to the IAA each year. The Israeli law under which these IAA grants are made limits our ability to manufacture products, or
transfer technologies, developed using these grants outside of Israel. This may limit our ability to engage in certain outsourcing
or business combination transactions involving these products or require us to pay significant royalties or fees to the IAA in
order to obtain any IAA consent that may be required in connection with such transactions.
Loss of security clearances or political factors may adversely affect our business.
Some of our subsidiaries maintain security clearances domestically and abroad in connection with the development, marketing,
sale, and support of our Cyber Intelligence solutions. These clearances are reviewed from time to time by these countries and
could be deactivated, including for political reasons unrelated to the merits of our solutions, such as the list of countries we do
business with or the fact that our local entity is controlled by or affiliated with an entity based in another country. If we lose
our security clearances in a particular country, we may be unable to sell our Cyber Intelligence solutions for secure projects in
that country and might also experience greater challenges in selling such solutions even for non-secure projects in that country.
Even if we are able to obtain and maintain applicable security clearances, government customers may decline to purchase our
Cyber Intelligence solutions if they were not developed or manufactured in that country or if they were developed or
manufactured in other countries that are considered disfavored by such country. We may also experience negative publicity or
other adverse impacts on our business if we sell our Cyber Intelligence solutions to countries that are considered disfavored by
the media or political or social rights organizations even though such transactions are permissible under applicable law.
We are subject to complex, evolving regulatory requirements that may be difficult and expensive to comply with and
that could negatively impact our business.
Our business and operations are subject to a variety of regulatory requirements in the United States and abroad, including,
among other things, with respect to government contracts, labor, tax, import and export, anti-corruption, information security,
data privacy, and communications monitoring and interception. Compliance with these regulatory requirements may be
onerous, time-consuming, and expensive, especially where these requirements are inconsistent from jurisdiction to jurisdiction
or where the jurisdictional reach of certain requirements is not clearly defined or seeks to reach across national borders.
Regulatory requirements in one jurisdiction may make it difficult or impossible to do business in another jurisdiction. We may
also be unsuccessful in obtaining permits, licenses, or other authorizations required to operate our business, such as for the
marketing or sale or import or export of our products and services.
While we have implemented policies, procedures, and systems designed to achieve compliance with these regulatory
requirements, we cannot assure you that these policies, procedures, or systems will be adequate or that we or our personnel will
not violate these policies and procedures or applicable laws and regulations. Violations of these laws or regulations may harm
our reputation and deter government agencies and other existing or potential customers or partners from purchasing our
solutions. Furthermore, non-compliance with applicable laws or regulations could result in fines, damages, criminal sanctions
against us, our officers, or our employees, restrictions on the conduct of our business, and damage to our reputation.
Regulatory requirements, such as laws requiring telecommunications providers to facilitate the monitoring of communications
by law enforcement, may also influence market demand for many of our products and/or customer requirements for specific
functionality and performance or technical standards. The domestic and international regulatory environment is subject to
constant change, often based on factors beyond our control or anticipation, including political climate, budgets, and current
events, which could reduce demand for our products or require us to change or redesign products to maintain compliance or
competitiveness.
Regulation of privacy and data security may adversely affect sales of our products and result in increased compliance
costs.
We believe increased regulation is likely with respect to the solicitation, collection, processing or use of personal, financial and
consumer information as regulatory authorities around the world are considering a number of legislative and regulatory
proposals concerning data protection, privacy and data security. In addition, the interpretation and application of consumer and
data protection laws and industry standards in the United States, Europe and elsewhere are often uncertain and in flux. The
application of existing laws to cloud-based solutions is particularly uncertain and cloud-based solutions may be subject to
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further regulation, the impact of which cannot be fully understood at this time. Moreover, it is possible that these laws may be
interpreted and applied in a manner that is inconsistent with our data and privacy practices. If so, in addition to the possibility
of fines, this could result in an order requiring that we change our data and privacy practices, which could have an adverse
effect on our business and results of operations. Complying with these various laws could cause us to incur substantial costs or
require us to change our business practices in a manner adverse to our business.
Information / Product Security and Intellectual Property
The mishandling or the perceived mishandling of sensitive information could harm our business.
Our products are in some cases used by customers to compile and analyze highly sensitive or confidential information and data,
including information or data used in intelligence gathering or law enforcement activities. While our customers' use of our
products in no way affords us access to the customer's sensitive or confidential information or data, we or our partners may
receive or come into contact with such information or data, including personally identifiable information, when we are asked to
perform services or support functions for our customers. We or our partners may also receive or come into contact with such
information or data in connection with our SaaS or other hosted or managed services offerings. We have implemented policies
and procedures, and use information technology systems, to help ensure the proper handling of such information and data,
including background screening of certain services personnel, non-disclosure agreements with employees and partners, access
rules, and controls on our information technology systems. Customers are also increasingly focused on the security of our
products and services and we continuously work to address these concerns, including through the use of encryption, access
rights, and other customary security features, which vary based on the solution in question and customer requirements.
However, these measures are designed to mitigate the risks associated with handling or processing sensitive data and cannot
safeguard against all risks at all times. The improper handling of sensitive data, or even the perception of such mishandling
(whether or not valid), or other security lapses or breaches affecting us, our partners, or our products or services, could reduce
demand for our products or services or otherwise expose us to financial or reputational harm or legal liability.
Our solutions may contain defects or may be vulnerable to cyber-attacks, which could expose us to both financial and
non-financial damages.
Many of our existing solutions are and future solutions are expected to be sophisticated and may develop operational problems.
New products and new product versions, new service models such as hosting, SaaS, and managed services, and the
incorporation of third-party products or services into our solutions, also give rise to the risk of defects or errors. These defects
or errors may relate to the operation or the security of the products. If we do not discover and remedy such defects, errors, or
other operational or security problems until after a product has been released to customers or partners, we may incur significant
costs to correct such problems and/or become liable for substantial damages for product liability claims or other liabilities.
Moreover, even products or services that are well-designed and tested may be vulnerable to cyber-attacks. If one or more of
our products or services, including elements provided by third-party suppliers or partners, are found to have defects or errors,
or if there is a successful cyber-attack on one of our products or services even absent a defect or error, it may also result in
questions regarding the integrity of our products or services generally, which could cause adverse publicity and impair their
market acceptance and could have a material adverse effect on our results or financial condition.
We may be subject to information technology system breaches, failures, or disruptions that could harm our operations,
financial condition, or reputation.
We rely extensively on information technology systems to operate and manage our business and to process, maintain, and
safeguard information, including information belonging to our customers, partners, and personnel. These systems may be
subject to breaches, failures, or disruptions as a result of, among other things, cyber-attacks, computer viruses, physical security
breaches, natural disasters, accidents, power disruptions, telecommunications failures, new system implementations, or acts of
terrorism or war. We have experienced cyber-attacks in the past and may experience them in the future, potentially with greater
frequency. While we are continually working to maintain secure and reliable systems, our security, redundancy, and business
continuity efforts may be ineffective or inadequate. We must continuously improve our design and coordination of security
controls across our business groups and geographies. Despite our efforts, it is possible that our security controls, and other
procedures that we follow, may not prevent system breaches, failures, or disruptions. Such system breaches, failures, or
disruptions could subject us to the loss, compromise, or disclosure of sensitive or confidential information or intellectual
property, the destruction or corruption of data, financial losses from remedial actions, liabilities to customers or other third
parties, damage to our reputation, delays in our ability to process orders, delays in our ability to provide products and services
to customers, including SaaS or other hosted or managed services offerings, R&D or production downtimes, or delays or errors
in financial reporting. Information system breaches or failures at one of our partners, including hosting providers or those who
support other cloud-based offerings, may also result in similar adverse consequences. Any of the foregoing could harm our
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competitive position, result in a loss of customer confidence, and materially and adversely affect our results of operations or
financial condition.
Our intellectual property may not be adequately protected.
While much of our intellectual property is protected by patents or patent applications, we have not and cannot protect all of our
intellectual property with patents or other registrations. There can be no assurance that patents we have applied for will be
issued on the basis of our patent applications or that, if such patents are issued, they will be, or that our existing patents are,
sufficiently broad enough to protect our technologies, products, or services. Our intellectual property rights may not be
successfully asserted in the future or may be invalidated, designed around, or challenged.
In order to safeguard our unpatented proprietary know-how, source code, trade secrets, and technology, we rely primarily upon
trade secret protection and non-disclosure provisions in agreements with employees and other third parties having access to our
confidential information. There can be no assurance that these measures will adequately protect us from improper disclosure or
misappropriation of our proprietary information.
Preventing unauthorized use or infringement of our intellectual property rights is difficult even in jurisdictions with well-
established legal protections for intellectual property such as the United States. It may be even more difficult to protect our
intellectual property in other jurisdictions where legal protections for intellectual property rights are less established. If we are
unable to adequately protect our intellectual property against unauthorized third-party use or infringement, our competitive
position could be adversely affected.
Our products may infringe or may be alleged to infringe on the intellectual property rights of others, which could lead
to costly disputes or disruptions for us and may require us to indemnify our customers and resellers for any damages
they suffer.
The technology industry is characterized by frequent allegations of intellectual property infringement. In the past, third parties
have asserted that certain of our products infringed upon their intellectual property rights and similar claims may be made in
the future. Any allegation of infringement against us could be time consuming and expensive to defend or resolve, result in
substantial diversion of management resources, cause product shipment delays, or force us to enter into royalty or license
agreements. If patent holders or other holders of intellectual property initiate legal proceedings against us, either with respect to
our own intellectual property or intellectual property we license from third parties, we may be forced into protracted and costly
litigation, regardless of the merits of these claims. We may not be successful in defending such litigation, in part due to the
complex technical issues and inherent uncertainties in intellectual property litigation, and may not be able to procure any
required royalty or license agreements on terms acceptable to us, or at all. Third parties may also assert infringement claims
against our customers. Subject to certain limitations, we generally indemnify our customers and resellers with respect to
infringement by our products of the proprietary rights of third parties, which, in some cases, may not be limited to a specified
maximum amount and for which we may not have sufficient insurance coverage or adequate indemnification in the case of
intellectual property licensed from a third party. If any of these claims succeed, we may be forced to pay damages, be required
to obtain licenses for the products our customers or partners use, or incur significant expenses in developing non-infringing
alternatives. If we cannot obtain necessary licenses on commercially reasonable terms, our customers may be forced to stop
using or, in the case of resellers and other partners, stop selling our products.
Use of free or open source software could expose our products to unintended restrictions and could materially adversely
affect our business.
Some of our products contain free or open source software (together, "open source software") and we anticipate making use of
open source software in the future. Open source software is generally covered by license agreements that permit the user to use,
copy, modify, and distribute the software without cost, provided that the users and modifiers abide by certain licensing
requirements. The original developers of the open source software generally provide no warranties on such software or
protections in the event the open source software infringes a third party's intellectual property rights. Although we endeavor to
monitor the use of open source software in our product development, we cannot assure you that past, present, or future products
will not contain open source software elements that impose unfavorable licensing restrictions or other requirements on our
products, including the need to seek licenses from third parties, to re-engineer affected products, to discontinue sales of affected
products, or to release all or portions of the source code of affected products. Any of these developments could materially
adversely affect our business.
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Risks Related to Our Finances and Capital Structure
We have a significant amount of indebtedness, which exposes us to leverage risks and subjects us to covenants which
may adversely affect our operations.
At March 15, 2017, we had total outstanding indebtedness of approximately $808 million under our Credit Agreement and the
Notes, meaning that we are significantly leveraged. In addition, we have the ability to borrow additional amounts under our
Credit Agreement, including the revolving credit facility, for a variety of purposes, including, among others, acquisitions and
stock repurchases. Our leverage position may, among other things:
•
•
•
•
limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions,
or other general corporate purposes;
require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability
of our cash flow for other purposes;
require us to repatriate cash for debt service from our foreign subsidiaries resulting in dividend tax costs or require us
to adopt other disadvantageous tax structures to accommodate debt service payments; or
increase our vulnerability to economic downturns, limit our ability to capitalize on significant business opportunities,
and restrict our flexibility to react to changes in market or industry conditions.
In addition, because the unhedged portion of our indebtedness under our Credit Agreement bears interest at a variable rate, we
are exposed to risk from fluctuations in interest rates in periods where market rates exceed the interest rate floor provided by
our Credit Agreement.
The revolving credit facility under our Credit Agreement contains a financial covenant that requires us to maintain a maximum
consolidated leverage ratio. Our ability to comply with the leverage ratio covenant is dependent upon our ability to continue to
generate sufficient earnings each quarter, or in the alternative, to reduce expenses and/or reduce the level of our outstanding
debt, and we cannot assure that we will be successful in any or all of these regards.
Our Credit Agreement also includes a number of restrictive covenants which limit our ability to, among other things:
•
•
•
•
•
•
incur additional indebtedness or liens or issue preferred stock;
pay dividends or make other distributions or repurchase or redeem our stock or subordinated indebtedness;
engage in transactions with affiliates;
engage in sale-leaseback transactions;
sell certain assets;
change our lines of business;
• make investments, loans, or advances; and
•
engage in consolidations, mergers, liquidations, or dissolutions.
These covenants could limit our ability to plan for or react to market conditions, to meet our capital needs, or to otherwise
engage in transactions that might be considered beneficial to us.
If certain events of default occur under our Credit Agreement, our lenders could declare all amounts outstanding to be
immediately due and payable. An acceleration of indebtedness under our Credit Agreement may also result in an event of
default under the indenture governing the Notes. Additionally, if a change of control as defined in our Credit Agreement were
to occur, the lenders under our credit facilities would have the right to require us to repay all of our outstanding obligations
under the facilities.
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If a fundamental change as defined in the indenture governing the Notes were to occur, the holders may require us to purchase
for cash all or any portion of their Notes at 100% of the principal amount of the Notes, plus accrued and unpaid interest.
Additionally, in the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to
convert their Notes during specified periods of time at their option. If one or more holders elect to convert their Notes, we may
be required to settle all or a portion of our conversion obligation in cash, which could adversely affect our liquidity.
If any of the events described in the foregoing paragraphs were to occur, in order to satisfy our obligations we may be forced to
seek an amendment of and/or waiver under our debt agreements, raise additional capital through securities offerings, asset
sales, or other transactions, or seek to refinance or restructure our debt. In such a case, there can be no assurance that we will
be able to consummate such a transaction on reasonable terms or at all.
We consider other financing and refinancing options from time to time, however, we cannot assure you that such options will
be available to us on reasonable terms or at all. If one or more rating agencies were to downgrade our credit ratings, that could
also impede our ability to refinance our existing debt or secure new debt, increase our future cost of borrowing, and create
third-party concerns about our financial condition or results of operations.
A significant portion of our cash and cash equivalents are held overseas. If we are not able to generate sufficient cash
domestically in order to fund our U.S. operations, stock repurchases and strategic opportunities, and to service our
debt, we may incur a significant tax liability in order to repatriate the overseas cash balances, or we may need to raise
additional capital in the future.
As of January 31, 2017, approximately $336.6 million of our cash, cash equivalents, restricted cash, bank time deposits, and
investments were held in foreign countries. These amounts are not freely available for dividend repatriation to the U.S. without
triggering significant adverse tax consequences in the U.S. As a result, if the cash generated by our domestic operations is not
sufficient to fund our domestic operations, our broader corporate initiatives such as stock repurchases, acquisitions, and other
strategic opportunities, and to service our outstanding indebtedness, we may need to raise additional funds through public or
private debt or equity financings, or we may need to obtain new credit facilities to the extent we choose not to repatriate our
overseas cash. Such additional financing may not be available on terms favorable to us, or at all, and any new equity financings
or offerings would dilute our current stockholders' ownership. Furthermore, lenders may not agree to extend us new, additional
or continuing credit. If adequate funds are not available, or are not available on acceptable terms, we may be forced to
repatriate our foreign sources of liquidity and incur a significant tax expense or we may not be able to take advantage of
strategic opportunities, develop new products, respond to competitive pressures, repurchase outstanding stock or repay our
outstanding indebtedness. In any such case, our business, operating results or financial condition could be adversely impacted.
For further information, please refer to "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
We may be adversely affected by our acquisition of CTI or our historical affiliation with CTI and its former
subsidiaries.
As a result of the February 2013 acquisition of our former parent company, CTI (the "CTI Merger"), CTI's liabilities, including
contingent liabilities, have been consolidated into our financial statements. If CTI's liabilities are greater than represented, if
the contingent liabilities we have assumed become fixed, or if there are obligations of CTI of which we were not aware at the
time of completion of the CTI Merger, we may have exposure for those obligations and our business or financial condition
could be materially and adversely affected. Adjustments to the CTI consolidated group's tax liability for periods prior to the
CTI Merger could also affect the net operating losses ("NOLs") allocated to Verint as a result of the CTI Merger and cause us to
incur additional tax liability in future periods.
As a result of our historical affiliation with CTI and other members of the historical CTI consolidated tax group, we could also
become liable for taxes of other members of the CTI consolidated group for historical periods under certain circumstances.
Adjustments to the historical CTI consolidated group's tax liability for periods prior to Verint’s IPO could also affect the NOLs
allocated to Verint in the IPO and cause us to incur additional tax liability in future periods.
We are entitled to certain rights to indemnification from Xura in connection with the transactions contemplated by our
agreement and plan of merger with CTI (the "CTI Merger Agreement") and the agreements entered into in connection with the
distribution by CTI to its shareholders of substantially all of its assets other than its interest in us (the "Comverse Share
Distribution"). However, there is no assurance that Xura will be willing and able to provide such indemnification if needed. If
we become responsible for liabilities (including tax liabilities) not covered by indemnification or substantially in excess of
amounts covered by indemnification, or if Xura becomes unwilling or unable to stand behind such protections, our financial
condition and results of operations could be materially and adversely affected.
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Our financial results may be significantly impacted by changes in our tax position.
We are subject to taxes in the United States and numerous foreign jurisdictions. Our future effective tax rates could be affected
by changes in the mix of earnings in countries with differing statutory tax rates, changes in valuation allowance on deferred tax
assets (including our NOL carryforwards), changes in unrecognized tax benefits or changes in tax laws or their interpretation.
Any of these changes could have a material adverse effect on our profitability. In addition, the tax authorities in the
jurisdictions in which we operate, including the United States, may from time to time review the pricing arrangements between
us and our foreign subsidiaries or among our foreign subsidiaries. An adverse determination by one or more tax authorities in
this regard may have a material adverse effect on our financial results.
We have significant deferred tax assets which can provide us with significant future cash tax savings if we are able to use them,
including significant NOLs inherited as a result of the CTI Merger. However, the extent to which we will be able to use these
NOLs may be impacted, restricted, or eliminated by a number of factors, including changes in tax rates, laws or regulations,
whether we generate sufficient future taxable income, and possible adjustments to the tax attributes of CTI or its non-Verint
subsidiaries for periods prior to the CTI Merger. To the extent that we are unable to utilize our NOLs or other losses, our
results of operations, liquidity, and financial condition could be materially adversely affected. When we cease to have NOLs
available to us in a particular tax jurisdiction, either through their expiration, disallowance, or utilization, our cash tax liability
will increase in that jurisdiction.
Changes in accounting principles, or interpretations thereof, could adversely impact our financial condition or
operating results.
We prepare our Consolidated Financial Statements in accordance with GAAP. These principles are subject to interpretation by
the SEC and other organizations that develop and interpret accounting principles. Changes in these principles can have a
significant effect on our reported operating results and may even retroactively affect previously reported operating results.
For example, the Financial Accounting Standard Board (“FASB”) has recently issued new, comprehensive accounting standards
for revenue recognition and accounting for leases, and may issue other comprehensive accounting standards in the future,
implementations of which may significantly impact our reported operating results and financial condition or could increase the
volatility of our operating results. In addition, the implementation of new accounting standards may require significant changes
to our customer and vendor contracts, business processes, accounting systems, and internal controls over financial reporting.
The costs and effects of these changes could adversely impact our operating results.
For additional information regarding new accounting standards, please refer to Note 1, “Summary of Significant Accounting
Policies” in the Notes to Consolidated Financial Statements included under Item 8 of this report, under the heading “Recent
Accounting Pronouncements”.
Our internal controls over financial reporting may not prevent misstatements and material weaknesses or deficiencies
could arise in the future which could lead to restatements or filing delays.
Our system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles ("GAAP"). Because of its inherent limitations, internal control
over financial reporting may not prevent or detect every misstatement. An evaluation of effectiveness is subject to the risk that
the controls may become inadequate because of changes in conditions, because the degree of compliance with policies or
procedures decreases over time, or because of unanticipated circumstances or other factors. As a result, although our
management has concluded that our internal controls are effective as of January 31, 2017, we cannot assure you that our
internal controls will prevent or detect every misstatement, that material weaknesses or other deficiencies will not occur or be
identified in the future, that this or future financial reports will not contain material misstatements or omissions, that future
restatements will not be required, or that we will be able to timely comply with our reporting obligations in the future.
If our goodwill or other intangible assets become impaired, our financial condition and results of operations could be
negatively affected.
Because we have historically acquired a significant number of companies, goodwill and other intangible assets have
represented a substantial portion of our assets. Goodwill and other intangible assets totaled approximately $1,500 million, or
approximately 63% of our total assets, as of January 31, 2017. We test our goodwill for impairment at least annually, or more
frequently if an event occurs indicating the potential for impairment, and we assess on an as-needed basis whether there have
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been impairments in our other intangible assets. We make assumptions and estimates in this assessment which are complex and
often subjective. These assumptions and estimates can be affected by a variety of factors, including external factors such as
industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. To the
extent that the factors described above change, we could be required to record additional non-cash impairment charges in the
future, which could negatively affect our financial condition and results of operations.
Our international operations subject us to currency exchange risk.
We earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar,
including the Israeli shekel, euro, British pound sterling, Singapore dollar, and Australia dollar, among others. Because our
consolidated financial statements are presented in U.S. dollars, we must translate revenue, expenses, assets, and liabilities of
entities using non-U.S. dollar functional currencies into U.S. dollars using currency exchange rates in effect during or at the end
of each reporting period, meaning we are exposed to the impact of changes in currency exchange rates. In addition, our net
income is impacted by the revaluation and settlement of monetary assets and liabilities denominated in currencies other than an
entity’s functional currency, gains or losses on which are recorded within other income (expense), net. We attempt to mitigate a
portion of these risks through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk,
opportunity and expense. However, our hedging activities are limited in scope and duration and may not be effective at
reducing the U.S. dollar cost of our global operations.
In addition, our financial outlooks do not assume fluctuations in currency exchange rates. Adverse fluctuations in currency
exchange rates subsequent to providing our financial outlooks could cause our actual results to differ materially from those
anticipated in our outlooks, which could negatively affect our business.
The prices of our common stock and the Notes have been, and may continue to be, volatile and your investment could
lose value.
The prices of our common stock and the Notes have been, and may continue to be, volatile. Those prices could be affected by
any of the risk factors discussed in this Item. In addition, other factors that could impact the prices of our common stock and/or
the Notes include:
•
•
•
•
announcements by us or our competitors regarding, among other things, strategic changes, new products, product
enhancements or technological advances, acquisitions, major transactions, stock repurchases, or management changes;
speculation in the press and the analyst community, including with respect to changes in recommendations or earnings
estimates or growth rates by financial analysts, changes in investors' or analysts' valuation measures for our securities,
our credit ratings, or market trends unrelated to our performance;
stock sales by our directors, officers, or other significant holders, or stock repurchases by us;
hedging or arbitrage trading activity by third parties, including by the counterparties to the note hedge and warrant
transactions that we entered into in connection with the issuance of the Notes; and
•
dilution that may occur upon any conversion of the Notes.
A significant drop in the price of our common stock or the Notes could also expose us to the risk of securities class action
lawsuits, which could result in substantial costs and divert management's attention and resources, which could adversely affect
our business.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following describes our material properties as of the date of this report.
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We lease a total of approximately 1,106,000 square feet of office space covering approximately 66 offices around the world and
we own an aggregate of approximately 89,000 square feet of office space at three sites in Scotland, Germany, and Indonesia.
Other than as described below, these properties are comprised of small and mid-sized facilities that are used to support our
administrative, marketing, manufacturing, product development, sales, training, support, and services needs for our two
operating segments.
Our corporate headquarters is located in a leased facility in Melville, New York, and consists of approximately 49,000 square
feet of space under a lease that we entered into on February 13, 2015 and that expires in 2027. The Melville facility is used
primarily by our executive management and corporate groups, including finance, legal, and human resources, as well as for
customer support and services for our Customer Engagement operations.
We lease approximately 132,700 square feet of space at a facility in Alpharetta, Georgia under a lease that expires in 2026. The
Alpharetta facility is used primarily by the administrative, marketing, product development, support, and sales groups for our
Customer Engagement operations.
We also occupy approximately 176,000 square feet of space at our main facility in Herzliya, Israel under a lease that we
renewed on October 1, 2015 and that expires in 2025. This Herzliya facility is used primarily for manufacturing, storage,
development, sales, marketing, and support related to our Cyber Intelligence operations, as well as for product development
related to our Customer Engagement Solutions. We also lease approximately 76,000 square feet of space at a second facility in
Herzliya under a lease that expires in 2028.
From time to time, we may lease or sublease portions of our owned or leased facilities to third parties based on our operational
needs. For additional information regarding our lease obligations, see Note 15, "Commitments and Contingencies" to our
consolidated financial statements included under Item 8 of this report.
We believe that our leased and owned facilities are in good operating condition and are adequate for our current requirements,
although changes in our business may require us to acquire additional facilities or modify existing facilities. We believe that
alternative locations are available on commercially reasonable terms in all areas where we currently do business.
Item 3. Legal Proceedings
On March 26, 2009, legal actions were commenced by Ms. Orit Deutsch, a former employee of our subsidiary, Verint Systems
Limited ("VSL"), against VSL in the Tel Aviv Regional Labor Court (Case Number 4186/09) (the “Deutsch Labor Action”) and
against CTI in the Tel Aviv District Court (Case Number 1335/09) (the “Deutsch District Action”). In the Deutsch Labor
Action, Ms. Deutsch filed a motion to approve a class action lawsuit on the grounds that she purports to represent a class of our
employees and former employees who were granted Verint and CTI stock options and were allegedly damaged as a result of the
suspension of option exercises during the period from March 2006 through March 2010, during which we did not make
periodic filings with the SEC as a result of certain internal and external investigations and reviews of accounting matters
discussed in our prior public filings. In the Deutsch District Action, in addition to a small amount of individual damages, Ms.
Deutsch is seeking to certify a class of plaintiffs who were allegedly damaged due to their inability to exercise Verint and CTI
stock options as a result of alleged negligence by CTI in its financial reporting. The class certification motions do not specify
an amount of damages. On February 8, 2010, the Deutsch Labor Action was dismissed for lack of material jurisdiction and was
transferred to the Tel Aviv District Court and consolidated with the Deutsch District Action. On March 16, 2009 and March 26,
2009, respectively, legal actions were commenced by Ms. Roni Katriel, a former employee of CTI's former subsidiary,
Comverse Limited, against Comverse Limited in the Tel Aviv Regional Labor Court (Case Number 3444/09) (the “Katriel
Labor Action”) and against CTI in the Tel Aviv District Court (Case Number 1334/09) (the “Katriel District Action”). In the
Katriel Labor Action, Ms. Katriel is seeking to certify a class of plaintiffs who were granted CTI stock options and were
allegedly damaged as a result of the suspension of option exercises during an extended filing delay period affecting CTI's
periodic reporting discussed in CTI's historical SEC filings. In the Katriel District Action, in addition to a small amount of
individual damages, Ms. Katriel is seeking to certify a class of plaintiffs who were allegedly damaged due to their inability to
exercise CTI stock options as a result of alleged negligence by CTI in its financial reporting. The class certification motions do
not specify an amount of damages. On March 2, 2010, the Katriel Labor Action was transferred to the Tel Aviv District Court,
based on an agreed motion filed by the parties requesting such transfer.
On April 4, 2012, Ms. Deutsch and Ms. Katriel filed an uncontested motion to consolidate and amend their claims and on
June 7, 2012, the District Court allowed Ms. Deutsch and Ms. Katriel to file the consolidated class certification motion and an
amended consolidated complaint against VSL, CTI, and Comverse Limited. Following CTI's announcement of its intention to
effect the Comverse Share Distribution, on July 12, 2012, the plaintiffs filed a motion requesting that the District Court order
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CTI to set aside up to $150.0 million in assets to secure any future judgment. The District Court ruled that it would not decide
this motion until the Deutsch and Katriel class certification motion was heard. Plaintiffs initially filed a motion to appeal this
ruling in August 2012, but subsequently withdrew it in July 2014.
Prior to the consummation of the Comverse Share Distribution, CTI either sold or transferred substantially all of its business
operations and assets (other than its equity ownership interests in us and Comverse) to Comverse or unaffiliated third parties.
On October 31, 2012, CTI completed the Comverse Share Distribution, in which it distributed all of the outstanding shares of
common stock of Comverse to CTI's shareholders. As a result of the Comverse Share Distribution, Comverse became an
independent public company and ceased to be a wholly owned subsidiary of CTI, and CTI ceased to have any material assets
other than its equity interest in us. On September 9, 2015, Comverse changed its name to Xura, Inc.
On February 4, 2013, we completed the CTI Merger. As a result of the CTI Merger, we have assumed certain rights and
liabilities of CTI, including any liability of CTI arising out of the Deutsch District Action and the Katriel District Action.
However, under the terms of the Distribution Agreement between CTI and Comverse relating to the Comverse Share
Distribution, we, as successor to CTI, are entitled to indemnification from Comverse (now Xura) for any losses we suffer in our
capacity as successor-in-interest to CTI in connection with the Deutsch District Action and the Katriel District Action.
Following an unsuccessful mediation process, the proceeding before the District Court resumed. On August 28, 2016, the
District Court (i) denied the plaintiffs’ motion to certify the suit as a class action with respect to all claims relating to Verint
stock options and (ii) approved the plaintiffs’ motion to certify the suit as a class action with respect to claims of current or
former employees of Comverse Limited (now Xura) or VSL who held unexercised CTI stock options at the time CTI
suspended option exercises. The court also ruled that the merits of the case and any calculation of damages would be evaluated
under New York law.
On December 15, 2016, CTI filed with the Supreme Court a motion for leave to appeal the District Court’s August 28, 2016
ruling. The plaintiffs filed their response to the motion on February 26, 2017. The plaintiffs did not file an appeal of the
District Court’s August 28, 2016 ruling.
On December 13, 2016, the plaintiffs filed a notice with the District Court regarding the appointment of a new representative
plaintiff, David Vaknin, for the current or former employees of VSL who held unexercised CTI stock options at the time CTI
suspended option exercises. The plaintiffs must now file an amended statement of claims by May 1, 2017.
From time to time we or our subsidiaries may be involved in legal proceedings and/or litigation arising in the ordinary course
of our business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of
any current claims will have a material effect on our consolidated financial position, results of operations, or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Market Information
Our common stock trades on the NASDAQ Global Select Market under the symbol "VRNT".
The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as
reported by the NASDAQ Global Select Market.
Year Ended January 31, 2016:
First quarter
Second quarter
Third quarter
Fourth quarter
Year Ended January 31, 2017:
First quarter
Second quarter
Third quarter
Fourth quarter
Holders
Low
High
52.79
57.05
40.90
35.61
29.76
31.43
33.59
33.40
$
$
$
$
$
$
$
$
64.78
66.45
59.69
49.70
38.00
37.13
39.68
38.95
$
$
$
$
$
$
$
$
There were approximately 2,000 holders of record of our common stock at March 15, 2017. Such record holders include
holders who are nominees for an undetermined number of beneficial owners.
Dividends
We have not declared or paid any cash dividends on our equity securities and have no current plans to pay any dividends on our
equity securities. We intend to retain our earnings to finance the development of our business, repay debt, and for other
corporate purposes. In addition, the terms of our Credit Agreement restrict our ability to pay cash dividends on shares of our
common stock. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources" included under Item 7 of this report and Note 6, "Long-Term Debt" to our consolidated financial statements
included under Item 8 of this report for a more detailed discussion of these limitations.
Any future determination as to the payment of dividends on our common stock will be made by our board of directors at its
discretion, subject to the limitations contained in our Credit Agreement and will depend upon our earnings, financial condition,
capital requirements, and other relevant factors.
Stock Performance Graph
The following table compares the cumulative total stockholder return on our common stock with the cumulative total return on
the NASDAQ Composite Index and the NASDAQ Computer & Data Processing Services Index, assuming an investment of
$100 on January 31, 2012 through January 31, 2017, and the reinvestment of any dividends. The comparisons in the graph
below are based upon the closing sale prices on NASDAQ for our common stock from January 31, 2012 through January 31,
2017. This data is not indicative of, nor intended to forecast, future performance of our common stock.
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January 31,
Verint Systems Inc.
NASDAQ Composite Index
NASDAQ Computer & Data Processing Index
2012
$ 100.00
$ 100.00
$ 100.00
2013
$ 119.52
$ 113.43
$ 108.33
2014
$ 160.68
$ 151.83
$ 159.33
2015
$ 188.76
$ 173.28
$ 166.04
2016
$ 129.46
$ 173.18
$ 201.99
2017
$ 132.07
$ 211.73
$ 238.65
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
On March 29, 2016, we announced that our board of directors had authorized a share repurchase program whereby we may
make up to $150 million in purchases of our outstanding shares of common stock over the two years following the date of
announcement. Under the share repurchase program, purchases can be made from time to time using a variety of methods,
which may include open market purchases. The specific timing, price and size of purchases will depend on prevailing stock
prices, general market and economic conditions, and other considerations, including the amount of cash generated in the U.S.
and other potential uses of cash, such as acquisitions. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-
determined metrics set forth in such plan. The board of directors’ authorization of the share repurchase program does not
obligate us to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time.
We periodically purchase treasury stock from directors, officers, and other employees to facilitate income tax withholding and
payment requirements upon vesting of equity awards during a company-imposed trading blackout or lockup periods. There
was no such activity during the year ended January 31, 2017.
Share repurchase activity during the three months ended January 31, 2017 was as follows:
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Period
November 1, 2016 - November 30, 2016
December 1, 2016 - December 31, 2016
January 1, 2017 - January 31, 2017
Total
Total
Number of
Shares
Purchased
—
306,452
—
306,452
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
(in thousands)
—
306,452
—
306,452
$
—
103,130
—
—
Average
Price Paid
per Share (1)
—
35.89
—
35.89
$
$
(1) Represents the approximate weighted-average price paid per share.
Item 6. Selected Financial Data
The following selected consolidated financial data has been derived from our audited consolidated financial statements. The
data below should be read in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 and our consolidated financial statements and notes thereto included under Item 8 of this report.
Our historical results should not be viewed as indicative of results expected for any future period.
Five-Year Selected Financial Highlights:
Consolidated Statements of Operations Data
Year Ended January 31,
(in thousands, except per share data)
2017
2016
2015
Revenue
Operating income
Net (loss) income
$ 1,062,106
$ 1,130,266
$ 1,128,436
$
$
$
17,366
(26,246) $
67,852
22,228
Net (loss) income attributable to Verint Systems Inc. $
(29,380) $
17,638
Net (loss) income attributable to Verint Systems Inc.
common shares
Net (loss) income per share attributable to Verint
Systems Inc.:
Basic
Diluted
Weighted-average shares:
Basic
Diluted
$
(29,380) $
17,638
$
$
(0.47) $
(0.47) $
0.29
0.28
2014
907,292
122,286
58,776
53,757
53,583
1.01
0.99
$
$
$
$
$
$
$
2013
839,542
99,553
58,804
54,002
38,530
0.97
0.96
$
$
$
$
$
$
$
$
$
$
$
$
$
79,111
36,402
30,931
30,931
0.53
0.52
62,593
62,593
61,813
62,921
58,096
59,374
52,967
53,878
39,748
40,312
We have never declared a cash dividend to common stockholders.
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Consolidated Balance Sheet Data
January 31,
(in thousands)
Total assets
Long-term debt, including current maturities
Preferred stock
Total stockholders' equity
2017
2016
2015
2014
2013
$ 2,362,784
$ 2,355,735
$ 2,340,452
$ 1,768,192
$ 1,556,553
$
$
748,871
$
738,087
$
726,258
$
637,670
$
568,973
— $
— $
— $
— $
285,542
$ 1,015,040
$ 1,068,164
$ 1,004,903
$
633,118
$
229,676
During the five-year period ended January 31, 2017, we acquired a number of businesses, the more significant of which are
identified in the table below. The operating results of acquired businesses have been included in our consolidated financial
statements since their respective acquisition dates.
Our consolidated operating results and consolidated financial condition during the five-year period ended January 31, 2017
included the following notable transactions:
As of and for
the year ended
January 31,
2017
• Completion of the acquisitions of Contact Solutions LLC in February 2016 and OpinionLab, Inc. in
Description
November 2016.
2016
• None
2015
• Completion of the acquisitions of KANA Software, Inc. and its subsidiaries ("KANA") in February 2014
and UTX Technologies Limited ("UTX") in March 2014.
• An income tax benefit of $44.4 million resulting from the reduction of a valuation allowance on our
deferred income tax assets recorded in connection with the acquisition of KANA; and
• Losses on early retirements of debt of $12.5 million, primarily associated with an amendment to our
Credit Agreement and the early partial retirement of our term loans.
2014
• Completion of the CTI Merger on February 4, 2013; and
• Losses on early retirements of debt of $9.9 million, primarily associated with an amendment to our Credit
Agreement.
2013
• Professional fees and related expenses of $16.1 million associated with the CTI Merger.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of our financial condition and results of operations should be read in
conjunction with "Business" under Item 1, "Selected Financial Data" under Item 6, and our consolidated financial statements
and the related notes thereto included under Item 8 of this report. This discussion contains a number of forward-looking
statements, all of which are based on our current expectations and all of which could be affected by uncertainties and risks. Our
actual results may differ materially from the results contemplated in these forward-looking statements as a result of many
factors including, but not limited to, those described in "Risk Factors" under Item 1A of this report.
Overview
Our Business
Verint is a global leader in Actionable Intelligence solutions. Actionable Intelligence is a necessity in a dynamic world of
massive information growth because it empowers organizations with crucial insights and enables decision makers to anticipate,
respond, and take action. With Verint solutions and value-added services, organizations of all sizes and across many industries
can make more informed, timely, and effective decisions. Today, over 10,000 organizations in more than 180 countries,
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including over 80 percent of the Fortune 100, use Verint solutions to optimize customer engagement and make the world a safer
place.
We have established leadership positions in Actionable Intelligence by developing highly-scalable, enterprise-class software
and services with advanced, integrated analytics for both unstructured and structured information. Our innovative solutions are
developed by a large research and development (“R&D”) team comprised of approximately 1,400 professionals and backed by
more than 800 patents and patent applications worldwide.
To help our customers maximize the benefits of our technology over the solution lifecycle and provide a high degree of
flexibility, we offer a broad range of services, such as strategic consulting, managed services, implementation services, training,
maintenance, and 24x7 support. Additionally, we offer a broad range of deployment options, including cloud, on-premises, and
hybrid, and software licensing and delivery models that include perpetual licenses and software as a service (“SaaS”).
Through July 31, 2016, we conducted our business in three operating segments—Enterprise Intelligence Solutions ("Enterprise
Intelligence"), Cyber Intelligence Solutions ("Cyber Intelligence"), and Video and Situation Intelligence Solutions ("Video
Intelligence"), through which we aligned our resources and domain expertise to effectively address Actionable Intelligence
market opportunities. Our Enterprise Intelligence solutions served the Customer Engagement market, while our Cyber
Intelligence solutions and Video Intelligence solutions served the Security Intelligence market. Solutions from all three
operating segments served the Fraud, Risk, and Compliance market.
In August 2016, we reorganized into two businesses, and are now reporting our results in two operating segments, Customer
Engagement Solutions ("Customer Engagement") and Cyber Intelligence Solutions ("Cyber Intelligence").
Over time, our Video Intelligence business had evolved to focus on two use cases: the first is fraud mitigation and loss
prevention, and the second is situational intelligence and incident response. The fraud and loss prevention use case is applicable
to our banking and retail customers, while the situational intelligence and incident response use case is applicable to other
verticals, including our public sector and campus customers. As part of this evolution, in August 2016, we separated our Video
Intelligence team to create better vertical market alignment and growth opportunities. We transitioned the banking and retail
portion of the Video Intelligence team into our Enterprise Intelligence segment, aligning it with our large banking and retail
customer presence in our Enterprise Intelligence segment. This combined segment has been named Customer Engagement
Solutions. We transitioned the situational intelligence portion of the Video Intelligence team into our Cyber Intelligence
segment, reflecting this business’s focus on security and public safety. We believe this change creates two strong businesses of
scale, well positioned for growth in their respective markets, with dedicated management teams, unique product portfolios, and
domain expertise, and aligns with the manner in which our CODM currently receives and uses financial information to allocate
resources and evaluate the performance of our Customer Engagement and Cyber Intelligence businesses.
This change in segment reporting is reflected in the consolidated financial statements as of and for the year ended January 31,
2017 included in this report. Comparative segment financial information provided for prior periods has been recast to conform
to this revised segment structure.
For the years ended January 31, 2017, 2016, and 2015, our Customer Engagement segment represented approximately 66%,
61%, and 63% of our total revenue, respectively, while for those same years, our Cyber Intelligence segment represented
approximately 34%, 39%, and 37% of our total revenue, respectively.
Generally, we make business decisions by evaluating the risks and rewards of the opportunities available to us in the markets
served by each of our segments. We view each operating segment differently and allocate capital, personnel, resources, and
management attention accordingly. In reviewing each operating segment, we also review the performance of that segment by
geography. Our marketing and sales strategies, expansion opportunities, and product offerings may differ materially within a
particular segment geographically, as may our allocation of resources between segments. When making decisions regarding
investment in our business, increasing capital expenditures, or making other decisions that may reduce our profitability, we also
consider the leverage ratio in our revolving credit facility. See "— Liquidity and Capital Resources" for more information.
Key Trends and Factors That May Impact our Performance
We believe that there are many factors that affect our ability to sustain and increase both revenue and profitability, including:
• Market acceptance of Actionable Intelligence solutions. We compete in markets where the value of aspects of our products
and solutions is still in the process of market acceptance. Our future growth depends in part on the continued and
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increasing acceptance and realization of the value of our product offerings. However, we believe that organizations in both
the enterprise and security markets want and need Actionable Intelligence solutions to help achieve their customer
engagement, enhanced security, and risk mitigation goals.
• Evolving technologies and market potential. Our success depends in part on our ability to keep pace with technological
changes, customer challenges, and evolving industry standards in our product offerings, successfully developing,
launching, and driving demand for new, innovative, high-quality products and services that meet or exceed customer
needs, and identifying, entering, and prioritizing areas of growing market potential, while migrating away from areas of
commoditization. For example, in our Cyber Intelligence business, stronger and more frequent use of encryption has
created significantly greater challenges for our customers and for our solutions to address. In our Customer Engagement
business, we see increased interest in cloud-based solutions, as well as pricing pressure on legacy products.
In the enterprise market, we believe that today's customer-centric organizations are increasingly seeking Customer
Engagement Optimization solutions that allow them to collect and analyze intelligence across different service channels to
gain a better understanding of the performance of their workforce, the effectiveness of their service processes, the quality
of their interactions, and changing customer behaviors, as well as to anticipate and prevent information security breaches,
effectively authenticate customers, protect personal information, mitigate risk, prevent fraud, and help ensure compliance
with evolving legal, regulatory, and internal requirements.
In the security market, we believe that terrorism, criminal activities, cyber-attacks, and other security threats, combined
with new and more complex security challenges, including increasingly frequent and sophisticated cyber-attacks and
increasingly complex and secure communication networks, are driving demand for Actionable Intelligence solutions to
help anticipate, prepare, and respond to these threats.
•
Information technology and government spending. Our growth and results depend in part on general economic conditions
and the pace of information technology spending by both commercial and governmental customers. Beginning in the year
ended January 31, 2016, we began experiencing extended sales cycles, particularly for large projects, a reduction in deal
sizes, and pressure in certain areas of our legacy business. We have made adjustments in response to these market trends
and believe that improvements in the economic environment and growing demand for our solutions will drive growth in
both of our segments in the year ending January 31, 2018.
In our Customer Engagement segment, we have aligned our sales strategy to engage more closely with our customers on
their long-term customer engagement optimization strategy and to focus on their near-term priorities and budget
constraints, including by emphasizing the flexible and modular nature of our solution portfolio, in which a customer can
make an initial purchase anywhere in our portfolio and then expand into other areas over time, or can make a larger, more
transformational suite purchase all at once. We have also continued to increase the flexibility of our deployment model,
affording our customers the choice of deploying our solutions on-premises or in the cloud, or a hybrid of both, and we also
offer a menu of managed services.
In our Cyber Intelligence segment, we believe that our solutions have proven to be very effective in fighting terrorism and
crime, which continues to be a high priority around the world. As a result, we have continued to expand our solutions
portfolio to address emerging threats and have designed our solutions to address specific customer needs. We have also
provided additional focus on smaller transactions, achieving a better mix of transaction sizes, for both our leading edge and
legacy solutions, and have continued to expand our security domain expertise. We believe that global economic spending
has stabilized, and with our ongoing investments in our markets, we believe we are well positioned to resume growth.
See Item 1, "Business", of this report for more information on key trends that we believe are driving demand for our solutions
and "Risk Factors" under Item 1A of this report for a more complete description of risks that may impact future revenue and
profitability.
Critical Accounting Policies and Estimates
An appreciation of our critical accounting policies is necessary to understand our financial results. The accounting policies
outlined below are considered to be critical because they can materially affect our operating results and financial condition, as
these policies may require us to make difficult and subjective judgments regarding uncertainties. The accuracy of these
estimates and the likelihood of future changes depend on a range of possible outcomes and a number of underlying variables,
many of which are beyond our control, and there can be no assurance that our estimates are accurate.
Revenue Recognition
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Our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of
accounting rules that require us to make significant judgments and estimates. We derive and report our revenue in two
categories: (a) product revenue, including sale of hardware products (which include software that works together with the
hardware to deliver the product's essential functionality) and licensing of software products, and (b) service and support
revenue, including revenue from installation services, post-contract customer support ("PCS"), project management, hosting
services, SaaS, application managed services, product warranties, business advisory consulting and training services. We follow
the appropriate revenue recognition rules for each of these revenue streams. For additional information, see Note 1, "Summary
of Significant Accounting Policies" to our consolidated financial statements included under Item 8 of this report. Revenue
recognition for a particular arrangement is dependent upon such factors as the level of customization within the solution and the
contractual delivery, acceptance, payment, and support terms with the customer. Significant judgment is required to conclude
on each of these factors, and if we were to change any of these assumptions or judgments, it could cause a material increase or
decrease in the amount of revenue that we report in a particular period.
We generally consider a purchase order or executed sales quote, when combined with a master license agreement, to constitute
evidence of an arrangement. Delivery occurs when the product is shipped or transmitted and title and risk of loss have
transferred to the customers. Our typical customer arrangements do not include substantive product acceptance provisions;
however, if such provisions are provided, delivery is deemed to occur upon acceptance. We consider the fee to be fixed or
determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms. If the fee
due from a customer is not fixed or determinable due to extended payment terms, revenue is recognized when payment
becomes due or upon cash receipt, whichever is earlier.
For multiple-element arrangements comprised only of tangible products containing software components and non-software
components and related services, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The
selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence
(“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. The total
transaction revenue is allocated to the multiple elements based on each element's relative selling price compared to the total
selling price.
We account for multiple-element arrangements that contain only software and software-related elements by allocating a portion
of the total purchase price to the undelivered elements, primarily installation services, PCS, consulting, and training, using
VSOE of fair value of the undelivered elements. The remaining portion of the total transaction value is allocated to the
delivered software, referred to as the residual method. If we are unable to establish VSOE for the undelivered elements of the
arrangement, revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered,
unless the only undelivered element is PCS, in which case we recognize the arrangement fee ratably over the PCS period.
For multiple-element arrangements that are comprised of a combination of software and non-software deliverables, the total
transaction value is bifurcated between the software deliverables and non-software deliverables based on the relative selling
prices of the software and non-software deliverables as a group. Revenue is then recognized for the software and software-
related services following the residual method or ratably over the PCS period if VSOE for PCS does not exist, and for the non-
software deliverables following the revenue recognition methodology outlined above for multiple-element arrangements that
contain tangible products and other non-software related services.
Our policy for establishing VSOE for installation, business advisory consulting, and training is based upon an analysis of
separate sales of services. We utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish
VSOE for our PCS offerings, depending upon the business segment, geographical region, or product line. The timing of
revenue recognition on software licenses and other revenue could be significantly impacted if we are unable to maintain VSOE
on one or more undelivered elements during any quarterly period. Loss of VSOE could result in (i) the complete deferral of all
revenue or (ii) ratable recognition of all revenue under a customer arrangement until such time as VSOE is re-established. If we
are unable to re-establish VSOE on one or more undelivered elements for an extended period of time it would impact our
ability to accurately forecast the timing of quarterly revenue, which could have a material adverse effect on our business,
financial position, results of operations or cash flows.
If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of
allocating the arrangement by considering several external and internal factors including, but not limited to, pricing practices,
similar product offerings, margin objectives, geographies in which we offer our products and services, internal costs,
competition, and product lifecycle. The determination of ESP is made through consultation with and approval by our
management, taking into consideration our go-to-market strategies. We have established processes to update ESP for each
element, when appropriate, to ensure that it reflects recent pricing experience.
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PCS revenue is derived from providing technical software support services and unspecified software updates and upgrades to
customers on a when-and-if-available basis. PCS revenue is recognized ratably over the term of the maintenance period which,
in most cases, is one year. When PCS is included within a multiple-element arrangement, we utilize either the substantive
renewal rate approach or the bell-shaped curve approach to establish VSOE of the PCS, depending upon the business operating
segment, geographical region, or product line.
Under the substantive renewal rate approach, we believe it is necessary to evaluate whether both the support renewal rate and
term are substantive, and whether the renewal rate is being consistently applied to subsequent renewals for a particular
customer. We establish VSOE under this approach through analyzing the renewal rate stated in the customer agreement and
determining whether that rate is above the minimum substantive VSOE renewal rate established for that particular PCS
offering. The minimum substantive VSOE rate is determined based upon an analysis of renewal rates associated with historical
PCS contracts. Typically, renewal rates of 15% for PCS plans that provide when-and-if-available upgrades, and 10% for plans
that do not provide for when-and-if-available upgrades, would be deemed to be minimum substantive renewal rates.
Under the bell-shaped curve approach of establishing VSOE, we perform a VSOE compliance test to ensure that a substantial
majority (75% or over) of our actual PCS renewals are within a narrow range of plus or minus 15% of the median pricing.
Some of our arrangements require significant customization of the product to meet the particular requirements of the customer.
For these arrangements, revenue is recognized under contract accounting methods, typically using the percentage of completion
("POC") method. Under the POC method, revenue recognition is generally based upon the ratio of hours incurred to date to the
total estimated hours required to complete the contract. Profit estimates on long-term contracts are revised periodically based
on changes in circumstances, and any losses on contracts are recognized in the period that such losses become evident.
Generally, the terms of long-term contracts provide for progress billings based on completion of milestones or other defined
phases of work. Significant judgment is often required when estimating total hours and progress to completion on these
arrangements, as well as whether a loss is expected to be incurred on the contract due to several factors including the degree of
customization required and the customer's existing environment. We use historical experience, project plans, and an assessment
of the risks and uncertainties inherent in the arrangement to establish these estimates. Uncertainties in these arrangements
include implementation delays or performance issues that may or may not be within our control.
We extend customary trade payment terms to our customers in the normal course of conducting business. To assess the
probability of collection for purposes of revenue recognition, we have established credit policies that establish prudent credit
limits for our customers. These credit limits are based upon our risk assessment of the customer's ability to pay, their payment
history, geographic risk, and other factors, and are not contingent upon the resale of the product or upon the collection of
payments from their customers. These credit limits are reviewed and revised periodically on the basis of updated customer
financial statement information, payment performance, and other factors. When a customer is not deemed creditworthy,
revenue is recognized when payment is received.
We record provisions for estimated product returns in the same period in which the associated revenue is recognized. We base
these estimates of product returns upon historical levels of sales returns and other known factors. Actual product returns could
be different from our estimates and current or future provisions for product returns may differ from historical provisions.
Concessions granted to customers are recorded as reductions to revenue in the period in which they were granted and have been
minimal in both amount and frequency.
Product revenue derived from shipments to resellers and OEMs who purchase our products for resale are generally recognized
when such products are shipped (on a "sell-in" basis) since we do not expect our resellers or OEMs to carry inventory of our
products. This policy is predicated on our ability to estimate sales returns as well as other criteria regarding these customers.
We are also required to evaluate whether our resellers and OEMs have the ability to honor their commitment to make fixed or
determinable payments regardless of whether they collect payment from their customers. In this regard, we assess whether our
resellers and OEMs are new, poorly capitalized, or experiencing financial difficulty, and whether they have a pattern of not
paying as amounts become due on previous arrangements or seeking payment terms longer than those provided to end
customers. If we were to change any of these assumptions or judgments, it could cause a material change to the revenue
reported in a particular period. We have historically experienced insignificant product returns from resellers and OEMs, and our
payment terms for these customers are similar to those granted to our end-users. Our policy also presumes that we have no
significant performance obligations in connection with the sale of our products by our resellers and OEMs to their customers. If
a reseller or OEM develops a pattern of payment delinquency, or seeks payment terms longer than generally granted to our
resellers or OEMs, we defer the recognition of revenue from transactions with that reseller or OEM until the receipt of cash.
Allowance for Doubtful Accounts
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We estimate the collectability of our accounts receivable balances each accounting period and adjust our allowance for doubtful
accounts accordingly. We exercise a considerable amount of judgment in assessing the collectability of accounts receivable,
including consideration of the creditworthiness of each customer, their collection history, and the related aging of past due
accounts receivable balances. We evaluate specific accounts when we learn that a customer may be experiencing a deterioration
of its financial condition due to lower credit ratings, bankruptcy, or other factors that may affect its ability to render payment.
Accounting for Business Combinations
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired, including in-process
research and development assets, and liabilities assumed, based upon their estimated fair values at the acquisition date. These
fair values are typically estimated with assistance from independent valuation specialists. The purchase price allocation process
requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets,
contractual support obligations assumed, and pre-acquisition contingencies.
Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are
based in part on historical experience and information obtained from the management of the acquired companies and are
inherently uncertain.
Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include
but are not limited to:
•
•
•
•
•
future expected cash flows from software license sales, support agreements, consulting contracts, other customer
contracts, and acquired developed technologies;
expected costs to develop in-process research and development into commercially viable products and estimated cash
flows from the projects when completed;
the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired
brand will continue to be used in the combined company’s product portfolio;
cost of capital and discount rates; and
estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize.
In connection with the purchase price allocations for applicable acquisitions, we estimate the fair value of the contractual
support obligations we are assuming from the acquired business. The estimated fair value of the support obligations is
determined utilizing a cost build-up approach, which determines fair value by estimating the costs related to fulfilling the
obligations plus a reasonable profit margin. The estimated costs to fulfill the support obligations are based on the historical
direct costs related to providing the support services. The sum of these costs and operating profit represents an approximation
of the amount that we would be required to pay a third party to assume the support obligations.
Impairment of Goodwill and Other Intangible Assets
We test goodwill for impairment at the reporting unit level, which can be an operating segment or one level below an operating
segment, on an annual basis as of November 1, or more frequently if changes in facts and circumstances indicate that
impairment in the value of goodwill may exist. As of January 31, 2017, our reporting units are Customer Engagement, Cyber
Intelligence (excluding situational intelligence solutions), and the Situational Intelligence business of our former Video
Intelligence segment, which is now a component of our Cyber Intelligence operating segment.
We review goodwill for impairment utilizing either a qualitative assessment or a two-step process. If we decide that it is
appropriate to perform a qualitative assessment and conclude that the fair value of a reporting unit more likely than not exceeds
its carrying value, no further evaluation is necessary. For reporting units where we perform the two-step process, the first step
requires us to estimate the fair value of each reporting unit and compare that fair value to the respective carrying value, which
includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired and
no further evaluation is necessary. If the carrying value is higher than the estimated fair value, there is an indication that
impairment may exist and the second step is required. In the second step, the implied fair value of goodwill is calculated as the
excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of
goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment charge.
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For reporting units where we decide to perform a qualitative assessment, we assess and make judgments regarding a variety of
factors which potentially impact the fair value of a reporting unit, including general economic conditions, industry and market-
specific conditions, customer behavior, cost factors, our financial performance and trends, our strategies and business plans,
capital requirements, management and personnel issues, and our stock price, among others. We then consider the totality of
these and other factors, placing more weight on the events and circumstances that are judged to most affect a reporting unit’s
fair value or the carrying amount of its net assets, to reach a qualitative conclusion regarding whether it is more likely than not
that the fair value of a reporting unit exceeds its carrying amount.
For reporting units where we perform the two-step process, we utilize some or all of three primary approaches to assess fair
value: (a) an income-based approach, using projected discounted cash flows, (b) a market-based approach, using multiples of
comparable companies, and (c) a transaction-based approach, using multiples for recent acquisitions of similar businesses made
in the marketplace.
Our estimate of fair value of each reporting unit is based on a number of subjective factors, including: (a) appropriate
consideration of valuation approaches (income approach, comparable public company approach, and comparable transaction
approach), (b) estimates of future growth rates, (c) estimates of our future cost structure, (d) discount rates for our estimated
cash flows, (e) selection of peer group companies for the comparable public company and the comparable transaction
approaches, (f) required levels of working capital, (g) assumed terminal value, and (h) time horizon of cash flow forecasts.
The determination of reporting units also requires judgment. We assess whether a reporting unit exists within a reportable
segment by identifying the unit, determining whether the unit qualifies as a business under GAAP, and assessing the
availability and regular review by segment management of discrete financial information for the unit.
We review intangible assets that have finite useful lives and other long-lived assets when an event occurs indicating the
potential for impairment. If any indicators are present, we perform a recoverability test by comparing the sum of the estimated
undiscounted future cash flows attributable to the assets in question to their carrying amounts. If the undiscounted cash flows
used in the test for recoverability are less than the long-lived assets carrying amount, we determine the fair value of the long-
lived asset and recognize an impairment loss if the carrying amount of the long-lived asset exceeds its fair value. The
impairment loss recognized is the amount by which the carrying amount of the long-lived asset exceeds its fair value.
For all of our goodwill and other intangible asset impairment reviews, the assumptions and estimates used in the process are
complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and
economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the
assumptions, judgments, and estimates we have used in our assessments are reasonable and appropriate, a material change in
any of our assumptions or external factors could lead to future goodwill or other intangible asset impairment charges.
Based upon our November 1, 2016 goodwill impairment reviews, we concluded that the estimated fair values of our Customer
Engagement, Cyber Intelligence, and Situational Intelligence reporting units significantly exceeded their carrying values.
Our Customer Engagement, Cyber Intelligence, and Situational Intelligence reporting units carried goodwill of $1.1 billion,
$121.6 million, and $11.3 million, respectively, at January 31, 2017.
We did not record any impairments of goodwill for the years ended January 31, 2017, 2016, or 2015.
Income Taxes
We account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements.
Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts
of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the
current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our
assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future
changes in income tax laws or rates are not anticipated.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our tax provision
involves the application of complex tax laws and requires significant judgment and estimates.
We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and we
establish a valuation allowance when it is more likely than not that all or a portion of our deferred tax assets will not be
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realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same
character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment,
including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more
likely than not realizable, we establish a valuation allowance.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions
taken or expected to be taken in a tax return by assessing whether they are more likely than not sustainable, based solely on
their technical merits, upon examination, and including resolution of any related appeals or litigation process. The second step
is to measure the associated tax benefit of each position as the largest amount that we believe is more likely than not realizable.
Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax
benefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a
liability or as a reduction of deferred tax assets. Our policy is to include interest (expense and/or income) and penalties related
to unrecognized income tax benefits as a component of the provision for income taxes.
Contingencies
We recognize an estimated loss from a claim or loss contingency when and if information available prior to issuance of the
financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the
financial statements and the amount of the loss can be reasonably estimated. Accounting for claims and contingencies requires
the use of significant judgment and estimates. One notable potential source of loss contingencies is pending or threatened
litigation. Legal counsel and other advisors and experts are consulted on issues related to litigation as well as on matters related
to contingencies occurring in the ordinary course of business.
Accounting for Stock-Based Compensation
We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair
value of the award.
During the three-year period ended January 31, 2017, restricted stock units were our predominant stock-based payment award.
The fair value of these awards is equivalent to the market value of our common stock on the grant date. In the past, we have
also awarded stock options, the fair value of which is estimated on the date of grant using an option-pricing model. We use the
Black-Scholes option-pricing model for this purpose, which requires the input of significant assumptions including an estimate
of the average period of time employees will retain stock options before exercising them, the estimated volatility of our
common stock price over the expected term, the number of options that will ultimately be forfeited before completing vesting
requirements, and the risk-free interest rate.
We periodically award restricted stock units that vest upon the achievement of specified performance goals. Our estimate of the
fair value of these performance-based awards requires an assessment of the probability that the specified performance criteria
will be achieved. At each reporting date, we update our assessment of the probability that the specified performance criteria
will be achieved and adjust our estimate of the fair value of the award, if necessary.
Changes in assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the
related expense recognized. The assumptions we use in calculating the fair value of stock-based payment awards represent our
best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors change and we use
different assumptions, our stock-based compensation expense could be materially different in the future.
Cost of Revenue
We have made an accounting policy election whereby certain costs of product revenue, including hardware and third-party
software license fees, are capitalized and amortized over the same period that product revenue is recognized, while installation
and other service costs are generally expensed as incurred, except for certain contracts recognized according to contract
accounting.
For example, in a multiple-element arrangement where revenue is recognized over the PCS support period, the cost of revenue
associated with the product is capitalized upon product delivery and amortized over that same period. However, the cost of
revenue associated with the services is expensed as incurred in the period in which the services are performed. In addition, we
expense customer acquisition and origination costs to selling, general and administrative expenses, including sales
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commissions, as incurred, with the exception of certain sales referral fees in our Cyber Intelligence segment which are
capitalized and amortized ratably over the revenue recognition period.
Results of Operations
Seasonality and Cyclicality
As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most
years, our revenue and operating income are typically highest in the fourth quarter and lowest in the first quarter (prior to the
impact of unusual or nonrecurring items). Moreover, revenue and operating income in the first quarter of a new year may be
lower than in the fourth quarter of the preceding year, in some years, by a significant margin. In addition, we generally receive
a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that month. We believe that
these seasonal and cyclical factors primarily reflect customer spending patterns and budget cycles, as well as the impact of
incentive compensation plans for our sales personnel. While seasonal and cyclical factors such as these are common in the
software and technology industry, this pattern should not be considered a reliable indicator of our future revenue or financial
performance. Many other factors, including general economic conditions, may also have an impact on our business and
financial results.
Overview of Operating Results
The following table sets forth a summary of certain key financial information for the years ended January 31, 2017, 2016, and
2015:
(in thousands, except per share data)
Revenue
Operating income
Net (loss) income attributable to Verint Systems Inc.
Net (loss) income per common share attributable to Verint Systems Inc.:
Basic
Diluted
$
$
$
$
$
Year Ended January 31,
2016
1,130,266
67,852
17,638
2017
$
1,062,106
17,366
$
(29,380) $
$
$
$
2015
1,128,436
79,111
30,931
(0.47) $
(0.47) $
0.29
0.28
$
$
0.53
0.52
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Our revenue decreased approximately $68.2 million
to $1,062.1 million in the year ended January 31, 2017 from $1,130.3 million in the year ended January 31, 2016. The decrease
consisted of a $76.9 million decrease in product revenue, partially offset by a $8.7 million increase in service and support
revenue. In our Cyber Intelligence segment, revenue decreased approximately $79.2 million, or 18%, from $435.4 million in
the year ended January 31, 2016 to $356.2 million in the year ended January 31, 2017. The decrease consisted of a $55.8
million decrease in product revenue and a $23.4 million decrease in service and support revenue. In our Customer Engagement
segment, revenue increased approximately $11.0 million, or 2%, to $705.9 million in the year ended January 31, 2017 from
$694.9 million in the year ended January 31, 2016. The increase consisted of a $32.1 million increase in service and support
revenue, partially offset by a $21.1 million decrease in product revenue. For additional details on our revenue by segment, see
"—Revenue by Operating Segment". Revenue in the Americas, EMEA, and APAC represented approximately 54%, 30%, and
16% of our total revenue, respectively, in the year ended January 31, 2017, compared to approximately 51%, 31%, and 18%,
respectively, in the year ended January 31, 2016. Further details of changes in revenue are provided below.
Operating income was $17.4 million in the year ended January 31, 2017 compared to $67.9 million in the year ended
January 31, 2016. This decrease in operating income was primarily due to a $61.9 million decrease in gross profit primarily
due to decreased gross profit in our Cyber Intelligence segment, partially offset by an $11.4 million decrease in operating
expenses, which primarily consisted of a $6.6 million decrease in net research and development expenses and a $5.7 million
decrease in selling, general and administrative expenses. Further details of changes in operating income are provided below.
Net loss attributable to Verint Systems Inc. was $29.4 million, and diluted net loss per common share was $0.47 in the year
ended January 31, 2017, compared to net income attributable to Verint Systems Inc. of $17.6 million, and diluted net income
per common share of $0.28, in the year ended January 31, 2016. The decrease in net income attributable to Verint Systems Inc.
and diluted net income per common share in the year ended January 31, 2017 was primarily due to decreased operating income,
as described above, a $1.5 million decrease net income attributable to our noncontrolling interest, a $1.1 million increase in
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interest expense, and a $1.8 million increase in our provision for income taxes. These increases were partially offset by a $5.3
million decrease in net foreign currency losses.
A portion of our business is conducted in currencies other than the U.S. dollar, and therefore our revenue and operating
expenses are affected by fluctuations in applicable foreign currency exchange rates. When comparing average exchange rates
for the year ended January 31, 2017 to average exchange rates for the year ended January 31, 2016, the U.S. dollar
strengthened relative to the British pound sterling and our hedged Israeli shekel rate, resulting in an overall decrease in our
revenue, cost of revenue, and operating expenses on a U.S. dollar-denominated basis. For the year ended January 31, 2017, had
foreign exchange rates remained unchanged from rates in effect for the year ended January 31, 2016, our revenue would have
been approximately $10.2 million higher and our cost of revenue and operating expenses on a combined basis would have been
approximately $17.1 million higher, which would have resulted in a $6.9 million decrease in operating income.
As of January 31, 2017, we employed approximately 5,100 professionals, including part-time employees and certain
contractors, as compared to approximately 5,000 at January 31, 2016.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Our revenue increased approximately $1.9 million to
$1,130.3 million in the year ended January 31, 2016 from $1,128.4 million in the year ended January 31, 2015. The increase
consisted of a $34.1 million increase in service and support revenue, partially offset by a $32.2 million decrease in product
revenue. In our Cyber Intelligence segment, revenue increased approximately $20.5 million, or 5%, from $414.9 million in the
year ended January 31, 2015 to $435.4 million in the year ended January 31, 2016. The increase consisted of a $31.8 million
increase in service and support revenue, partially offset by an $11.3 million decrease in product revenue. In our Customer
Engagement segment, revenue decreased approximately $18.6 million, or 3%, to $694.9 million in the year ended January 31,
2016 from $713.5 million in the year ended January 31, 2015 due to a decrease in product revenue. For additional details on
our revenue by segment, see "—Revenue by Operating Segment". Revenue in the Americas, EMEA, and APAC represented
approximately 51%, 31%, and 18% of our total revenue, respectively, in the year ended January 31, 2016, compared to
approximately 52%, 31%, and 17%, respectively, in the year ended January 31, 2015. Further details of changes in revenue are
provided below.
Operating income was $67.9 million in the year ended January 31, 2016 compared to $79.1 million in the year ended
January 31, 2015. This decrease in operating income was primarily due to an $11.9 million decrease in gross profit primarily
due to decreased gross profit in our Customer Engagement segment and a $0.7 million decrease in operating expenses, which
consisted of a $2.6 million decrease in selling, general and administrative expenses and a $2.1 million decrease in amortization
of other acquired intangible assets, partially offset by a $4.0 million increase in net research and development expenses. Further
details of changes in operating income are provided below.
Net income attributable to Verint Systems Inc. was $17.6 million, and diluted net income per common share was $0.28, in the
year ended January 31, 2016 compared to net income attributable to Verint Systems Inc. of $30.9 million, and diluted net
income per common share of $0.52, in the year ended January 31, 2015. The decrease in net income attributable to Verint
Systems Inc. and diluted net income per common share in the year ended January 31, 2016 was primarily due to a $16.0 million
decrease in our benefit for income taxes, from a benefit of $15.0 million in the year ended January 31, 2015 to an expense of
$1.0 million in the year ended January 31, 2016, and decreased operating income, as described above. These decreases to net
income attributable to Verint Systems Inc. common shares were partially offset by a $13.0 million decrease in other expense,
net, primarily due to losses upon early retirement of debt recorded during the year ended January 31, 2015, with no comparable
losses during the year ended January 31, 2016. Further details of changes in total other expense, net, are provided below.
When comparing average exchange rates for the year ended January 31, 2016 to average exchange rates for the year ended
January 31, 2015, the U.S. dollar strengthened relative to the British pound sterling, euro, Israeli shekel (both hedged and
unhedged), Australian dollar, Brazilian real, and Singapore dollar, resulting in an overall decrease in our revenue (primarily in
our Customer Engagement and Cyber Intelligence segments), cost of revenue, and operating expenses on a U.S. dollar-
denominated basis. For the year ended January 31, 2016, had foreign exchange rates remained unchanged from rates in effect
for the year ended January 31, 2015, our revenue would have been approximately $40.0 million higher and our cost of revenue
and operating expenses on a combined basis would have been approximately $44.6 million higher, which would have resulted
in a $4.6 million decrease in operating income.
As of January 31, 2016, we employed approximately 5,000 employees, including part-time employees and certain contractors,
as compared to approximately 4,800 at January 31, 2015.
Revenue by Operating Segment
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The following table sets forth revenue for each of our two operating segments for the years ended January 31, 2017, 2016, and
2015:
(in thousands)
Customer Engagement
Cyber Intelligence
Total revenue
Customer Engagement Segment
2017
705,897
356,209
$ 1,062,106
Year Ended January 31,
2016
694,857
435,409
$ 1,130,266
2015
713,505
414,931
$ 1,128,436
$
$
$
% Change
2017 - 2016
2%
(18)%
(6)%
2016 - 2015
(3)%
5%
—%
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Customer Engagement revenue increased
approximately $11.0 million, or 2%, from $694.9 million in the year ended January 31, 2016 to $705.9 million in the year
ended January 31, 2017. The increase consisted of a $32.1 million increase in service and support revenue, partially offset by a
$21.1 million decrease in product revenue. We continue to experience a shift in our revenue mix from product revenue to
service and support revenue as a result of several factors, including a higher component of service offerings in our standard
arrangements (including licenses sold through cloud deployment), an increase in services associated with customer product
upgrades, and growth in our customer install base. The increase in Customer Engagement revenue reflects the implementation
of our product strategy of expanding our portfolio of Customer Engagement Solutions, through both internal development and
acquisitions, and our go-to-market strategy of offering customers the ability to purchase our best-of-breed solutions
individually or part of a more comprehensive deployment.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Customer Engagement revenue decreased
approximately $18.6 million, or 3%, from $713.5 million in the year ended January 31, 2015 to $694.9 million in the year
ended January 31, 2016. The decrease consisted of a $20.9 million decrease in product revenue, partially offset by a $2.3
million increase in service and support revenue. The decrease in product revenue reflects a $31.9 million decrease in our
former Enterprise Intelligence segment that reflects a lower aggregate value of executed license arrangements, which comprises
the majority of our product revenue and which can fluctuate from period to period. This was partially offset by an $11.0 million
increase in product revenue from the banking and retail portion of our former Video Intelligence segment due to an increase in
product deliveries to these customers during the year ended January 31, 2016 as compared to the year ended January 31, 2015.
The decrease in service and support revenue was primarily due to a decrease in revenue from professional services and
consulting projects in the year ended January 31, 2016, partially offset by an increase in support revenue. Our revenue during
the year ended January 31, 2016 was also adversely affected by the impact of the strengthening of the U.S dollar relative to the
currencies used in the foreign locations where we conduct business.
Cyber Intelligence Segment
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Cyber Intelligence revenue decreased approximately
$79.2 million, or 18%, from $435.4 million in the year ended January 31, 2016 to $356.2 million in the year ended January 31,
2017. The decrease consisted of a $55.8 million decrease in product revenue and a $23.4 million decrease in service and
support revenue. The decrease in product revenue was primarily due to a decrease in product deliveries and, to a lesser extent,
a decrease in progress realized during the current year on projects with revenue recognized using the percentage of completion
("POC") method, some of which commenced in previous years. The decrease in service and support revenue was primarily
attributable to a decrease in progress realized during the current year on projects with revenue recognized using the POC
method, some of which commenced in previous years, partially offset by an increase in support and other value-added services
revenue from new and existing customers.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Cyber Intelligence revenue increased approximately
$20.5 million, or 5%, from $414.9 million in the year ended January 31, 2015 to $435.4 million in the year ended January 31,
2016. The increase consisted of a $31.8 million increase in service and support revenue, partially offset by a $11.3 million
decrease in product revenue. The increase in service and support revenue was primarily attributable to an increase in progress
realized during the current year on projects with revenue recognized using the POC method, some of which commenced in the
previous year, and an increase in support revenue from new and existing customers. The decrease in product revenue was
primarily due to a decrease in product deliveries to customers, partially offset by an increase in progress realized during the
current year on projects with revenue recognized using the POC method, some of which commenced in the previous year. Our
revenue during the year ended January 31, 2016 was also adversely affected by the impact of the strengthening of the U.S
dollar relative to the currencies used in the foreign locations where we conduct business.
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Volume and Price
We sell products in multiple configurations, and the price of any particular product varies depending on the configuration of the
product sold. Due to the variety of customized configurations for each product we sell, we are unable to quantify the amount of
any revenue increase attributable to a change in the price of any particular product and/or a change in the number of products
sold.
Product Revenue and Service and Support Revenue
We derive and report our revenue in two categories: (a) product revenue, including licensing of software products and sale of
hardware products (which include software that works together with the hardware to deliver the product's essential
functionality), and (b) service and support revenue, including revenue from installation services, post-contract customer
support, project management, hosting services, SaaS, application managed services, product warranties, and business advisory
consulting and training services.
The following table sets forth product revenue and service and support revenue for the years ended January 31, 2017, 2016, and
2015:
(in thousands)
Product revenue
Service and support revenue
Total revenue
Product Revenue
2017
378,504
683,602
$ 1,062,106
Year Ended January 31,
2016
455,406
674,860
$ 1,130,266
2015
487,617
640,819
$ 1,128,436
$
$
$
% Change
2017 - 2016
(17)%
1%
(6)%
2016 - 2015
(7)%
5%
—%
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Product revenue decreased approximately $76.9
million, or 17%, from $455.4 million for the year ended January 31, 2016 to $378.5 million for the year ended January 31,
2017, resulting from a $55.8 million decrease in our Cyber Intelligence segment and a $21.1 million decrease in our Customer
Engagement segment.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Product revenue decreased approximately $32.2
million, or 7%, from $487.6 million for the year ended January 31, 2015 to $455.4 million for the year ended January 31, 2016,
resulting from a $20.9 million decrease in our Customer Engagement segment and a $11.3 million decrease in our Cyber
Intelligence segment.
For additional information see "—Revenue by Operating Segment".
Service and Support Revenue
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Service and support revenue increased approximately
$8.7 million, or 1%, from $674.9 million for the year ended January 31, 2016 to $683.6 million for the year ended January 31,
2017, resulting from a $32.1 million increase in our Customer Engagement segment, partially offset by a decrease of $23.4
million in our Cyber Intelligence segment.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Service and support revenue increased approximately
$34.1 million, or 5%, from $640.8 million for the year ended January 31, 2015 to $674.9 million for the year ended January 31,
2016. This increase was primarily attributable to increases of $31.8 million and $2.3 million in our Cyber Intelligence and
Customer Engagement segments, respectively.
For additional information see "— Revenue by Operating Segment".
Cost of Revenue
The following table sets forth cost of revenue by product and service and support, as well as amortization of acquired
technology and backlog for the years ended January 31, 2017, 2016, and 2015:
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(in thousands)
Cost of product revenue
Cost of service and support revenue
Amortization of acquired technology and
backlog
Total cost of revenue
$
$
Year Ended January 31,
2016
145,071
248,061
2017
123,279
261,978
$
$
% Change
2015
144,870
239,274
2017 - 2016
(15)%
6%
2016 - 2015
—%
4%
37,372
422,629
$
35,774
428,906
$
31,004
415,148
4%
(1)%
15%
3%
We exclude certain costs of both product revenue and service and support revenue, including shared support costs, stock-based
compensation, and asset impairment charges, among others, when calculating our operating segment gross margins.
Cost of Product Revenue
Cost of product revenue primarily consists of hardware material costs and royalties due to third parties for software
components that are embedded in our software solutions. When revenue is deferred, we also defer hardware material costs and
third-party software royalties and recognize those costs over the same period that the product revenue is recognized. Cost of
product revenue also includes amortization of capitalized software development costs, employee compensation and related
expenses associated with our global operations, facility costs, and other allocated overhead expenses. In our Cyber Intelligence
segment, cost of product revenue also includes employee compensation and related expenses, contractor and consulting
expenses, and travel expenses, in each case for resources dedicated to project management and associated product delivery.
Our product gross margins are impacted by the mix of products that we sell from period to period. As with many other
technology companies, our software products tend to have higher gross margins than our hardware products.
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Cost of product revenue decreased approximately
15% from $145.1 million for the year ended January 31, 2016 to $123.3 million for the year ended January 31, 2017 primarily
due to decreased cost of product revenue in our Cyber Intelligence segment as a result of decreased Cyber Intelligence product
revenue discussed above. Our overall product gross margins decreased to 67% in the year ended January 31, 2017 from 68% in
the year ended January 31, 2016. Product gross margins in our Customer Engagement segment were 82% in each of the years
ended January 31, 2017 and 2016. Product gross margins in our Cyber Intelligence segment decreased from 62% in the year
ended January 31, 2016 to 57% in the year ended January 31, 2017 primarily due to a change in product mix and decreased
product revenue, resulting in decreased absorption of fixed overhead costs during in the year ended January 31, 2017 compared
to the year ended January 31, 2016.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Cost of product revenue remained relatively
unchanged at $145.1 million for the year ended January 31, 2016 compared to $144.9 million for the year ended January 31,
2015. For the year ended January 31, 2016, we recorded a $3.2 million charge for the impairment of certain technology assets
associated with a prior business combination in our Cyber Intelligence segment. For the year ended January 31, 2015, we
recorded a $2.6 million charge for the impairment of certain capitalized software development costs, reflecting strategy changes
in certain product development initiatives in our Cyber Intelligence segment as a result of the UTX acquisition. Our overall
product gross margins decreased to 68% in the year ended January 31, 2016 from 70% in the year ended January 31, 2015. As
noted above, certain costs are not allocated to our operating segments when we calculate product gross margins by operating
segment. Product gross margins in our Customer Engagement segment decreased to 82% in the year ended January 31, 2016
from 85% in the year ended January 31, 2015. Product gross margins in our Cyber Intelligence segment increased from 61% in
the year ended January 31, 2015 to 62% in the year ended January 31, 2016. The above changes in product gross margins are
primarily attributable to changes in product mix in the year ended January 31, 2016 compared to the year ended January 31,
2015.
Cost of Service and Support Revenue
Cost of service and support revenue primarily consists of employee compensation and related expenses, contractor costs,
hosting infrastructure costs, and travel expenses relating to installation, training, application managed services, consulting, and
maintenance services. Cost of service and support revenue also includes stock-based compensation expenses, facility costs, and
other overhead expenses. In accordance with GAAP and our accounting policy, the cost of service and support revenue is
generally expensed as incurred in the period in which the services are performed, with the exception of certain transactions
accounted for using the POC method.
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Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Cost of service and support revenue increased
approximately 6% from $248.1 million in the year ended January 31, 2016 to $262.0 million in the year ended January 31,
2017. Cost of service and support revenue increased in our Customer Engagement segment primarily due to increased
employee compensation and related expense in our Customer Engagement segment as a result of additional services employee
headcount in connection with business combinations that closed in the year ended January 31, 2017. This increase was partially
offset primarily by decreased cost of service and support revenue in our Cyber Intelligence segment primarily due to decreased
employee compensation and related expense. Our overall service and support gross margins decreased from 63% in the year
ended January 31, 2016 to 62% in the year ended January 31, 2017.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Cost of service and support revenue increased
approximately 4% from $239.3 million in the year ended January 31, 2015 to $248.1 million in the year ended January 31,
2016. The increase is primarily attributable to an $11.3 million increase in employee compensation and related expenses due
primarily to increased services and support employee headcount chiefly in our Cyber Intelligence segment, and a $3.4 million
increase in contractor costs due to increase use of contractors in our Cyber Intelligence and Customer Engagement segments
during the year ended January 31, 2016 compared to the year ended January 31, 2015. These increases were partially offset by
a $2.4 million decrease in travel expenses primarily in our Customer Engagement segment and a $1.3 million decrease in
materials expense incurred to provide services primarily in our Customer Engagement segment. Our overall service and support
gross margins were 63% in each of the years ended January 31, 2016 and 2015.
Amortization of Acquired Technology and Backlog
Amortization of acquired technology and backlog consists of amortization of technology assets and customer backlog acquired
in connection with business combinations.
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Amortization of acquired technology and backlog
increased approximately 4% from $35.8 million in the year ended January 31, 2016 to $37.4 million in the year ended
January 31, 2017. The increase was attributable to amortization expense of acquired technology-based intangible assets
associated with business combinations that closed during the year ended January 31, 2017, partially offset by a decrease in
amortization expense as a result of acquired technology intangibles from historical business combinations becoming fully
amortized.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Amortization of acquired technology and backlog
increased approximately 15% from $31.0 million in the year ended January 31, 2015 to $35.8 million in the year ended
January 31, 2016 primarily due to an increase in amortization expense of acquired technology-based intangible assets
associated with business combinations that closed during the year ended January 31, 2016.
Further discussion regarding our business combinations appears in Note 4, "Business Combinations" to our consolidated
financial statements included under Item 8 of this report.
Research and Development, Net
Research and development expenses consist primarily of personnel and subcontracting expenses, facility costs, and other
allocated overhead, net of certain software development costs that are capitalized, as well as reimbursements under government
programs. Software development costs are capitalized upon the establishment of technological feasibility and continue to be
capitalized through the general release of the related software product.
The following table sets forth research and development, net for the years ended January 31, 2017, 2016, and 2015:
(in thousands)
Research and development, net
$
Year Ended January 31,
2016
177,650
$
$
2017
171,070
% Change
2015
173,748
2017 - 2016
(4)%
2016 - 2015
2%
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Research and development, net decreased
approximately $6.6 million, or 4%, from $177.7 million in the year ended January 31, 2016 to $171.1 million in the year ended
January 31, 2017. The decrease is primarily due to decreased employee compensation and related expenses as a result of
decreased research and development employee headcount in both of our operating segments.
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Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Research and development, net increased
approximately $4.0 million, or 2%, from $173.7 million in the year ended January 31, 2015 to $177.7 million in the year ended
January 31, 2016. The increase was primarily attributable to a $2.8 million increase in stock-based compensation expense due
to a combination of an increase in the number of outstanding RSUs, higher expenses associated with performance-based RSUs,
and higher grant-date stock prices during the year ended January 31, 2016 (which are used to determine the grant-date fair
value of an RSU), and our bonus share program, further details for which appear in Note 13, "Stock-Based Compensation and
Other Benefit Plans" to our consolidated financial statements included under Item 8 of this report. Research and development
reimbursements received from government programs decreased $1.1 million during the year ended January 31, 2016, primarily
in our Customer Engagement segment, resulting in an increase in research and development expense compared to the year
ended January 31, 2015.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs and related expenses, professional fees, sales
and marketing expenses, including travel, sales commissions and sales referral fees, facility costs, communication expenses,
and other administrative expenses.
The following table sets forth selling, general and administrative expenses for the years ended January 31, 2017, 2016, and
2015:
(in thousands)
Selling, general and administrative
$
Year Ended January 31,
2016
412,728
$
$
2017
406,952
% Change
2015
415,266
2017 - 2016
(1)%
2016 - 2015
(1)%
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Selling, general and administrative expenses
decreased approximately $5.7 million, or 1%, from $412.7 million in the year ended January 31, 2016 to $407.0 million in the
year ended January 31, 2017. This decrease was primarily attributable to the following:
•
•
•
$4.2 million decrease as a result of increased capitalized software development costs compared to the year ended
January 31, 2016;
$3.3 million decrease in employee compensation and related expenses due primarily to a decrease in headcount of general
and administrative employees; and
$5.3 million decrease in agent commissions in our Cyber Intelligence segment.
These decreases were partially offset by an $8.2 million increase in selling, general, and administrative expenses due to the
change in fair value of our obligations under contingent consideration arrangements from a net benefit of $0.9 million during
the year ended January 31, 2016 to net expense of $7.3 million in the year ended January 31, 2017.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Selling, general and administrative expenses
decreased approximately $2.6 million, or 1%, from $415.3 million in the year ended January 31, 2015 to $412.7 million in the
year ended January 31, 2016. This decrease was primarily attributable to the following:
•
•
•
•
•
$3.8 million decrease in sales commissions expense due primarily to decreased product bookings in our Customer
Engagement segment;
$2.8 million decrease in employee compensation and related expenses due primarily to a decrease in headcount of general
and administrative employees in our Customer Engagement segment;
$2.3 million decrease in accounting, legal, and other professional service fees primarily due to higher use of such services
during the year ended January 31, 2015 as a result of services provided in connection with the KANA and UTX
acquisitions;
$2.1 million decrease in travel expenses due primarily to decreased travel expenses in our Customer Engagement segment;
and
$1.8 million decrease in selling, general, and administrative expenses resulting from the change in fair value of our
obligations under contingent consideration arrangements from a $0.9 million net expense during the year ended January
31, 2015 to $0.9 million net benefit during the year ended January 31, 2016.
These decreases were partially offset by increases of $6.4 million and $2.5 million in stock-based compensation expense and
facilities expenses, respectively. Stock-based compensation expense increased primarily due to a combination of an increase in
the number of outstanding RSUs, higher expenses associated with performance-based RSUs, and higher grant-date stock prices
during the year ended January 31, 2016 (which are used to determine the grant-date fair value of an RSU), and our bonus share
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program, further details for which appear in Note 13, "Stock-Based Compensation and Other Benefit Plans" to our consolidated
financial statements included under Item 8 of this report. Facilities expenses increased due primarily to the early termination of
a facility lease in the Americas region, and costs associated with entering our new headquarters in Melville, New York.
Amortization of Other Acquired Intangible Assets
Amortization of other acquired intangible assets consists of amortization of certain intangible assets acquired in connection
with business combinations, including customer relationships, distribution networks, trade names and non-compete agreements.
The following table sets forth amortization of other acquired intangible assets for the years ended January 31, 2017, 2016, and
2015:
(in thousands)
Amortization of other acquired intangible
assets
Year Ended January 31,
2016
2015
2017
% Change
2017 - 2016
2016 - 2015
$
44,089
$
43,130
$
45,163
2%
(5)%
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Amortization of other acquired intangible assets
increased approximately $1.0 million, or 2%, from $43.1 million in the year ended January 31, 2016 to $44.1 million in the
year ended January 31, 2017 primarily due to amortization expense from acquired intangible assets from business combinations
that closed during the year ended January 31, 2017, partially offset by a decrease in amortization expense as a result of acquired
other intangibles from historical business combinations becoming fully amortized.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Amortization of other acquired intangible assets
decreased approximately $2.1 million, or 5%, from $45.2 million in the year ended January 31, 2015 to $43.1 million in the
year ended January 31, 2016 primarily due to acquired intangible assets from historical business combinations becoming fully
amortized during the year ended January 31, 2016, resulting in decreased amortization on those intangibles compared to the
year ended January 31, 2015. This decrease was partially offset by amortization associated with business combinations that
closed during the year ended January 31, 2016.
Further discussion regarding our business combinations appears in Note 4, "Business Combinations" to our consolidated
financial statements included under Item 8 of this report.
Other Expense, Net
The following table sets forth total other expense, net for the years ended January 31, 2017, 2016, and 2015:
(in thousands)
Interest income
Interest expense
Losses on early retirements of debt
Other (expense) income:
Foreign currency losses
(Losses) gains on derivatives
Other, net
Total other expense
Total other expense, net
* Percentage is not meaningful.
Year Ended January 31,
2016
2015
2017
$
1,048
(34,962)
—
$
1,490
(33,885)
—
(2,743)
(322)
(3,861)
(6,926)
(40,840) $
(8,037)
394
(4,634)
(12,277)
(44,672) $
1,070
(36,661)
(12,546)
(13,402)
3,986
(155)
(9,571)
(57,708)
$
$
% Change
2017 - 2016
(30)%
3%
—%
2016 - 2015
39%
(8)%
(100)%
(66)%
*
(17)%
(44)%
(9)%
(40)%
*
*
28%
(23)%
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Total other expense, net, decreased by $3.9 million
from $44.7 million in the year ended January 31, 2016 to $40.8 million in the year ended January 31, 2017.
Interest expense increased to $35.0 million in the year ended January 31, 2017 from $33.9 million in the year ended January 31,
2016 primarily due to higher interest rates on outstanding borrowings during the year ended January 31, 2017.
We recorded $2.7 million of net foreign currency losses in the year ended January 31, 2017 compared to $8.0 million of net
losses in the year ended January 31, 2016. Foreign currency losses in the year ended January 31, 2017 resulted primarily from
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the strengthening of the U.S. dollar against the British pound sterling, resulting in foreign currency losses on U.S dollar-
denominated net liabilities in certain entities which use the British pound sterling functional currency, and the weakening of the
U.S. dollar against the Brazilian real, resulting in foreign currency losses on U.S dollar-denominated net assets in certain
entities which use the Brazilian real function currency.
In the year ended January 31, 2017, there were net losses on derivative financial instruments (not designated as hedging
instruments) of $0.3 million, compared to net gains of $0.4 million on such instruments for the year ended January 31, 2016.
The net losses in the current year reflected losses on contracts executed to hedge movements in the exchange rate between the
U.S. dollar and the Brazilian real.
Other net expenses decreased to $3.9 million in the year ended January 31, 2017 from $4.6 million in the year ended
January 31, 2016. In the year ended January 31, 2017, we recorded a write-off of a $2.4 million cost-basis investment in our
Cyber Intelligence segment. In the year ended January 31, 2016, other, net expense consisted primarily of write-offs of
indemnification assets associated with tax liabilities recorded in connection with prior business combinations.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Total other expense, net, decreased by $13.0 million
from $57.7 million in the year ended January 31, 2015 to $44.7 million in the year ended January 31, 2016.
During the year ended January 31, 2015, we recorded a $12.5 million loss upon early retirements of debt. Of this amount, $7.1
million was recorded in connection with the extinguishment of previously outstanding amounts under our Credit Agreement,
and $5.5 million was recorded in connection with the retirement of $530.0 million of the February 2014 Term Loans and March
2014 Term Loans (defined below). Further discussion regarding our credit facilities appears in Note 6, “Long-Term Debt” to
our consolidated financial statements included under Item 8 of this report.
Interest expense decreased to $33.9 million in the year ended January 31, 2016 from $36.7 million in the year ended
January 31, 2015 primarily due to lower interest rates on outstanding borrowings during the year ended January 31, 2016.
We recorded $8.0 million of net foreign currency losses in the year ended January 31, 2016 compared to $13.4 million of net
losses in the year ended January 31, 2015. Foreign currency losses in the year ended January 31, 2016 resulted primarily from
the strengthening of the U.S. dollar against the Singapore dollar, euro, and Canadian dollar resulting in foreign currency losses
on our Singapore dollar, euro, and Canadian dollar-denominated net assets, respectively, in certain entities which use a U.S.
dollar functional currency. Also contributing to the net foreign currency loss was the strengthening of the U.S dollar against the
British pound sterling, resulting in foreign currency losses on U.S dollar-denominated net liabilities in certain entities which
use a British pound sterling functional currency, and the strengthening of the U.S dollar against the Brazilian real, resulting in
foreign currency losses on U.S dollar denominated net liabilities in certain entities which use a Brazilian real functional
currency.
In the year ended January 31, 2016, there were net gains on derivative financial instruments (not designated as hedging
instruments) of $0.4 million, compared to net gains of $4.0 million on such instruments for the year ended January 31, 2015.
The net gains in the current year reflected gains on contracts executed to hedge movements in the exchange rate between the
U.S. dollar and the euro.
Other net expenses increased to $4.6 million in the year ended January 31, 2016 from $0.2 million in the year ended
January 31, 2015. Other, net, expense in the year ended January 31, 2016 consisted primarily of write-offs of indemnification
assets associated with tax liabilities recorded in connection with prior business combinations.
Provision (Benefit) for Income Taxes
The following table sets forth our provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and 2015:
(in thousands)
Provision (benefit) for income taxes
* Percentage is not meaningful.
Year Ended January 31,
2016
2015
2017
$
2,772
$
952
$
(14,999)
% Change
2017 - 2016
*
2016 - 2015
*
Year Ended January 31, 2017 compared to Year Ended January 31, 2016. Our effective income tax rate was negative 11.8%
for the year ended January 31, 2017, compared to an effective income tax rate of 4.1% for the year ended January 31, 2016. For
the year ended January 31, 2017, our effective income tax rate was lower than the U.S. federal statutory income tax rate of 35%
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due to the release of $10.4 million of Verint valuation allowances, and the mix and levels of income and losses among taxing
jurisdictions, offset by changes in unrecognized income tax benefits. We maintain valuation allowances on our net U.S.
deferred income tax assets related to federal and certain state jurisdictions. In connection with acquisitions during the fourth
quarter of the year ended January 31, 2017 (OpinionLab and an acquisition deemed immaterial in our Customer Engagement
segment), we recorded deferred income tax liabilities primarily attributable to acquired intangible assets to the extent the
amortization will not be deductible for income tax purposes. Under accounting guidelines, because the amortization of the
intangible assets in future periods provides a source of taxable income, we expect to realize a portion of our existing deferred
income tax assets. As such, we reduced the valuation allowance recorded on our deferred income tax assets to the extent of the
deferred income tax liabilities recorded. Because the valuation allowance related to existing Verint deferred income tax assets,
the impact of the release was reflected as a discrete income tax benefit and not as a component of the acquisition accounting.
In addition, pre-tax income in our profitable jurisdictions, where we recorded income tax provisions at rates lower than the U.S.
federal statutory income tax rate, was lower than the pre-tax losses in our domestic and foreign jurisdictions where we maintain
valuation allowances and did not record the related income tax benefits. The result was an income tax provision of $2.8 million
on a pre-tax loss of $23.5 million, which represented a negative effective income tax rate of 11.8%. For the year ended January
31, 2016, our effective income tax rate was lower than the U.S. federal statutory income tax rate of 35% primarily due to mix
and levels of income and losses among taxing jurisdictions and changes in unrecognized income tax benefits. We recorded tax
benefits of $20.2 million as a result of audit settlements and statute of limitation lapses related to domestic and foreign
jurisdictions. Pre-tax income in our profitable jurisdictions, where we recorded income tax provisions at rates lower than the
U.S. federal statutory income tax rate, was substantially offset by our domestic losses where we maintain valuation allowances
and did not record the related income tax benefits. The result was an income tax provision of $1.0 million on $23.2 million of
pre-tax income, which represented an effective income tax rate of 4.1%.
Year Ended January 31, 2016 compared to Year Ended January 31, 2015. Our effective income tax rate was 4.1% for the year
ended January 31, 2016, compared to a negative effective income tax rate of 70.1% for the year ended January 31, 2015. For
the year ended January 31, 2016, our effective income tax rate was lower than the U.S. federal statutory income tax rate of 35%
primarily due to mix and levels of income and losses among taxing jurisdictions and changes in unrecognized income tax
benefits. We recorded tax benefits of $20.2 million related to changes in unrecognized income tax benefits as a result of audit
settlements and statute of limitation lapses related to domestic and foreign jurisdictions. Pre-tax income in our profitable
jurisdictions, where we recorded income tax provisions at rates lower than the U.S. federal statutory income tax rate, was
substantially offset by our domestic losses where we maintain valuation allowances and did not record the related income tax
benefits. The result was an income tax provision of $1.0 million on $23.2 million of pre-tax income, which represented an
effective income tax rate of 4.1%. For the year ended January 31, 2015, our effective income tax rate was lower than the U.S.
federal statutory income tax rate of 35% primarily due to the release of $44.4 million of Verint valuation allowances. We
maintain valuation allowances on our net U.S. deferred income tax assets related to federal and certain state jurisdictions. In
connection with the acquisition of KANA on February 3, 2014, we recorded deferred income tax liabilities primarily
attributable to acquired intangible assets to the extent the amortization will not be deductible for income tax purposes. Under
accounting guidelines, because the amortization of the intangible assets in future periods provides a source of taxable income,
we expect to realize a portion of our existing deferred income tax assets. As such, we reduced the valuation allowance recorded
on our deferred income tax assets to the extent of the deferred income tax liabilities recorded. Because the valuation allowance
related to existing Verint deferred income tax assets, the impact of the release was reflected as a discrete income tax benefit and
not as a component of the KANA acquisition accounting. The effective income tax rate was also affected by the mix and levels
of income and losses among taxing jurisdictions, changes in unrecognized income tax benefits, and the recording of valuation
allowance on certain income tax attributes of a foreign subsidiary where we do not expect to realize the benefits. Pre-tax
income in our profitable jurisdictions, where we recorded income tax provisions at rates lower than the U.S. federal statutory
income tax rate, was substantially offset by our domestic losses where we maintain valuation allowances and did not record the
related income tax benefits. The result was an income tax benefit of $15.0 million on $21.4 million of pre-tax income, which
represented a negative effective income tax rate of 70.1%.
The comparison of our effective income tax rates between periods is significantly impacted by the level and mix of earnings
and losses by tax jurisdiction, foreign income tax rate differentials, amount of permanent book to tax differences, the impact of
unrecognized tax benefits, and the effects of valuation allowances on certain loss jurisdictions.
Backlog
For most of our transactions, delivery generally occurs within several months following receipt of the order. However, certain
projects, particularly in our Cyber Intelligence segment, can extend over longer periods of time, delivery under which, for
various reasons, may be delayed, modified, or canceled. As a result, we believe that our backlog at any particular time is not
meaningful because it is not necessarily indicative of future revenue.
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Liquidity and Capital Resources
Overview
Our primary recurring source of cash is the collection of proceeds from the sale of products and services to our customers,
including cash periodically collected in advance of delivery or performance.
Our primary recurring use of cash is payment of our operating costs, which consist primarily of employee-related expenses,
such as compensation and benefits, as well as general operating expenses for marketing, facilities and overhead costs, and
capital expenditures. We also utilize cash for debt service under our Credit Agreement and our Notes, and periodically for
business acquisitions. Cash generated from operations, along with our existing cash, cash equivalents, and short-term
investments, are our primary sources of operating liquidity, and we believe that our operating liquidity is sufficient to support
our current business operations, including debt service and capital expenditure requirements.
We have historically expanded our business in part by investing in strategic growth initiatives, including acquisitions of
products, technologies, and businesses. We have used cash as consideration for substantially all of our historical business
acquisitions, including approximately $142 million of net cash expended for business acquisitions during the year ended
January 31, 2017.
We continually examine our options with respect to terms and sources of existing and future short-term and long-term capital
resources to enhance our operating results and to ensure that we retain financial flexibility, and may from time to time elect to
raise additional equity or debt capital in the capital markets.
A considerable portion of our operating income is earned outside the United States. Cash, cash equivalents, short-term
investments, and restricted cash and bank time deposits (excluding any long-term portions) held by our subsidiaries outside of
the United States were $282.1 million and $306.1 million as of January 31, 2017 and 2016, respectively, and are generally used
to fund the subsidiaries’ operating requirements and to invest in growth initiatives, including business acquisitions. These
subsidiaries also held long-term restricted cash and bank time deposits of $54.5 million and $15.4 million at January 31, 2017
and January 31, 2016, respectively. We currently do not anticipate that we will need funds generated from foreign operations to
fund our domestic operations for the next 12 months or for the foreseeable future.
Should other circumstances arise whereby we require more capital in the United States than is generated by our domestic
operations, or should we otherwise consider it in our best interests, we could repatriate future earnings from foreign
jurisdictions, which could result in higher effective tax rates. If available, our NOLs, particularly those in the United States,
could reduce potential income tax liabilities that may result from repatriated earnings from foreign jurisdictions to the United
States. We generally have not provided for deferred income taxes on the excess of the amount for financial reporting over the
tax basis of investments in our foreign subsidiaries because we currently plan to indefinitely reinvest such earnings outside the
United States.
The following table sets forth our cash and cash equivalents, restricted cash and bank time deposits, short-term investments and
long-term debt as of January 31, 2017 and 2016:
(in thousands)
Cash and cash equivalents
Restricted cash and bank time deposits (excluding long term portions)
Short-term investments
Total cash, cash equivalents, restricted cash and bank time deposits, and short-term
investments
Total debt, including current maturities
January 31,
2017
2016
307,363
9,198
3,184
319,745
748,871
$
$
$
352,105
11,820
55,982
419,907
738,087
$
$
$
The principal activities comprising the net decrease in cash, cash equivalents, restricted cash and bank time deposits, and short-
term investments during the year ended January 31, 2017 were expenditures of $142 million for business acquisitions, $47
million for stock repurchases, $30 million for investments in property, equipment, and capitalized software development costs,
and a $37 million increase in restrictions on the use of certain existing cash balances, which are required to secure contractual
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performance obligations, resulting in such restricted cash being classified within other assets on our consolidated balance sheet.
These uses of cash were partially offset by $172 million of cash generated from operating activities.
Consolidated Cash Flow Activity
The following table summarizes selected items from our consolidated statements of cash flows for the years ended January 31,
2017, 2016 and 2015:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
$
$
$
Year Ended January 31,
2016
156,903
(75,600)
(10,204)
(4,066)
67,033
2017
172,415
(156,028)
(56,919)
(4,210)
(44,742) $
$
$
2015
193,725
(676,835)
395,713
(6,149)
(93,546)
Our operating activities generated $172.4 million of cash during the year ended January 31, 2017, which was offset by $212.9
million of net cash used in combined investing and financing activities during this period. Further discussion of these items
appears below.
Net Cash Provided by Operating Activities
Net cash provided by operating activities is driven primarily by our net income or loss, as adjusted for non-cash items, and
working capital changes. Operating activities generated $172.4 million of net cash during the year ended January 31, 2017,
compared to $156.9 million generated during the year ended January 31, 2016. Our operating cash flow improved, despite
reporting a net loss in the year ended January 31, 2017 compared to net income in the prior year, and despite $12.4 million of
higher net income tax payments.
Operating activities generated $156.9 million of net cash during the year ended January 31, 2016, compared to $193.7 million
generated during the year ended January 31, 2015 primarily due to lower net income.
Our cash flow from operating activities can fluctuate from period to period due to several factors, including the timing of our
billings and collections, the timing and amounts of interest, income tax and other payments, and our operating results.
Net Cash Used in Investing Activities
During the year ended January 31, 2017, our investing activities used $156.0 million of net cash, including $141.8 million of
net cash utilized for business acquisitions, $29.9 million of payments for property, equipment, and capitalized software
development costs, and a $36.6 million increase in restricted cash and bank time deposits during the period. Restricted cash and
bank time deposits are typically short-term deposits used to secure bank guarantees in connection with sales contracts, the
amounts of which will fluctuate from period to period. The increase in restricted cash and bank time deposits during the year
ended January 31, 2017 reflected increased restricted cash associated with several large sales contracts. Partially offsetting
those uses were $52.6 million of net proceeds from sales, maturities, and purchases of short-term investments.
During the year ended January 31, 2016, our investing activities used $75.6 million of net cash, the primary components of
which were $31.4 million of net cash utilized for business acquisitions, $30.3 million of payments for property, equipment, and
capitalized software development costs, and $21.4 million of net purchases of short-term investments during the year. Partially
offsetting those uses was $7.5 million of net cash provided by other investing activities, consisting primarily of decreases in
restricted cash and bank time deposits during the period.
During the year ended January 31, 2015, our investing activities used $676.8 million of net cash, the primary component of
which was $605.3 million of net cash utilized for business acquisitions, including the acquisitions of KANA in February 2014
and UTX in March 2014. We also had a $36.3 million increase in restricted cash and bank time deposits during this period. The
increase in restricted cash and bank time deposits during the year reflected deposits associated with several large sales
contracts. In addition, during the year we made $29.2 million of payments for property, equipment, and capitalized software
development costs, and made $7.5 million of net purchases of short-term investments.
We had no significant commitments for capital expenditures at January 31, 2017.
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Net Cash (Used in) Provided by Financing Activities
For the year ended January 31, 2017, our financing activities used $56.9 million of net cash, the most significant portions of
which were payments of $46.9 million for stock repurchases under our share repurchase program, $3.3 million for repayments
of borrowings and other financing obligations, $3.2 million for the financing portion of payments under contingent
consideration arrangements related to prior business combinations, and dividend payments of $2.4 million to the noncontrolling
interest holders in a joint venture which serves as a systems integrator for certain Asian markets.
For the year ended January 31, 2016, our financing activities used $10.2 million of net cash, including payments of $7.2 million
for the financing portion of payments under contingent consideration arrangements related to prior business combinations, and
dividend payments of $3.2 million to the noncontrolling interest holders in our joint venture.
For the year ended January 31, 2015, our financing activities provided $395.7 million of net cash. In connection with the
February 2014 acquisition of KANA, we incurred $300.0 million of incremental term loans and borrowed $125.0 million under
the revolving credit facility under our Credit Agreement (defined below). Additionally, in March 2014, we incurred $643.5
million of new term loans, the proceeds of which were used to repay $643.5 million of prior term loans. In June 2014, we
completed concurrent public offerings of 5,750,000 shares of our common stock, gross proceeds from which were $274.6
million, and $400.0 million in aggregate principal amount of 1.50% convertible senior notes. We used $15.6 million of the net
proceeds from these offerings to pay the net costs of an arrangement consisting of the purchase of call options and the sale of
warrants to purchase our common stock, the intent of which is to reduce the potential dilution to our common stock upon
conversion of the Notes. We used the majority of the remainder of the net proceeds to retire $530.0 million of the February
2014 Term Loans and March 2014 Term Loans, and all $106.0 million of then-outstanding borrowings under the revolving
credit facility under our Credit Agreement. In connection with these various financing activities, we paid $29.2 million of debt
and equity issuance costs, including underwriting discounts and commissions associated with the public offerings. Other
financing activities during the year ended January 31, 2015 included payments of $10.4 million for the financing portion of
payments under contingent consideration arrangements related to prior business combinations, and the receipt of $17.6 million
of proceeds from exercises of stock options.
Liquidity and Capital Resources Requirements
Based on past performance and current expectations, we believe that our cash, cash equivalents, short-term investments and
cash generated from operations will be sufficient to meet anticipated operating costs, required payments of principal and
interest, working capital needs, ordinary course capital expenditures, research and development spending, and other
commitments for at least the next 12 months. Currently, we have no plans to pay any cash dividends on our common stock,
which are not permitted under our Credit Agreement.
Our liquidity could be negatively impacted by a decrease in demand for our products and service and support, including the
impact of changes in customer buying behavior due to circumstances over which we have no control. If we determine to make
additional business acquisitions or otherwise require additional funds, we may need to raise additional capital, which could
involve the issuance of additional equity or debt securities.
On March 29, 2016, we announced that our board of directors had authorized a share repurchase program whereby we may
make up to $150 million in purchases of our outstanding shares of common stock over the two years following the date of
announcement. Under the share repurchase program, purchases can be made from time to time using a variety of methods,
which may include open market purchases. The specific timing, price and size of purchases will depend on prevailing stock
prices, general market and economic conditions, and other considerations, including the amount of cash generated in the U.S.
and other potential uses of cash, such as acquisitions. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-
determined metrics set forth in such plan. The board of directors’ authorization of the share repurchase program does not
obligate us to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time.
During the year ended January 31, 2017, we acquired 1,306,000 shares of treasury stock at a cost of $46.9 million under this
program.
Financing Arrangements
1.50% Convertible Senior Notes
On June 18, 2014, we issued $400.0 million in aggregate principal amount of 1.50% convertible senior notes due June 1, 2021,
unless earlier converted by the holders pursuant to their terms. The Notes pay interest in cash semiannually in arrears at a rate
of 1.50% per annum.
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The Notes were issued concurrently with our issuance of 5,750,000 shares of common stock, the majority of the combined net
proceeds of which were used to partially repay certain indebtedness under our Credit Agreement, as further described below.
The Notes are unsecured and rank senior in right of payment to our indebtedness that is expressly subordinated in right of
payment to the Notes; equal in right of payment to our indebtedness that is not so subordinated; effectively subordinated in
right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and
structurally subordinated to indebtedness and other liabilities of our subsidiaries.
The Notes are convertible into, at our election, cash, shares of common stock, or a combination of both, subject to satisfaction
of specified conditions and during specified periods, as described below. If converted, we currently intend to pay cash in
respect of the principal amount.
The conversion price of the Notes at any time is equal to $1,000 divided by the then-applicable conversion rate. The Notes have
an initial conversion rate of 15.5129 shares of common stock per $1,000 principal amount of Notes, which represents an initial
effective conversion price of approximately $64.46 per share of common stock and would result in the issuance of
approximately 6,205,000 shares if all of the Notes were converted. Throughout the term of the Notes, the conversion rate may
be adjusted upon the occurrence of certain events.
Holders may surrender their Notes for conversion at any time prior to the close of business on the business day immediately
preceding December 1, 2020, only under the following circumstances:
•
•
•
during any calendar quarter commencing after the calendar quarter ending on September 30, 2014, if the closing sale
price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive
trading days ending on the last trading day of the immediately preceding calendar quarter, is more than 130% of the
conversion price of the Notes in effect on each applicable trading day;
during the ten consecutive trading-day period following any five consecutive trading-day period in which the trading
price for the Notes for each such trading day was less than 98% of the closing sale price of our common stock on such
date multiplied by the then-current conversion rate; or
upon the occurrence of specified corporate events, as described in the indenture governing the Notes, such as a
consolidation, merger, or binding share exchange.
On or after December 1, 2020 until the close of business on the second scheduled trading day immediately preceding the
maturity date, holders may surrender their Notes for conversion regardless of whether any of the foregoing conditions have
been satisfied. Holders of the Notes may require us to purchase for cash all or any portion of their Notes upon the occurrence of
a “fundamental change” at a price equal to 100% of the principal amount of the Notes being purchased, plus accrued and
unpaid interest.
As of January 31, 2017, the Notes were not convertible.
Note Hedges and Warrants
Concurrently with the issuance of the Notes, we entered into convertible note hedge transactions (the “Note Hedges”) and sold
warrants (the “Warrants”). The combination of the Note Hedges and the Warrants serves to increase the effective initial
conversion price for the Notes to $75.00 per share. The Note Hedges and Warrants are each separate instruments from the
Notes.
Note Hedges
Pursuant to the Note Hedges, we purchased call options on our common stock, under which we have the right to acquire from
the counterparties up to approximately 6,205,000 shares of our common stock, subject to customary anti-dilution adjustments,
at a price of $64.46, which equals the initial conversion price of the Notes. Our exercise rights under the Note Hedges generally
trigger upon conversion of the Notes and the Note Hedges terminate upon maturity of the Notes, or the first day the Notes are
no longer outstanding. The Note Hedges may be settled in cash, shares of our common stock, or a combination thereof, at our
option, and are intended to reduce our exposure to potential dilution upon conversion of the Notes. We paid $60.8 million for
the Note Hedges, which was recorded as a reduction to additional paid-in capital. As of January 31, 2017, we had not purchased
any shares under the Note Hedges.
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Warrants
We sold the Warrants to several counterparties. The Warrants provide the counterparties rights to acquire from us up to
approximately 6,205,000 shares of our common stock at a price of $75.00 per share. The Warrants expire incrementally on a
series of expiration dates beginning in August 2021. At expiration, if the market price per share of our common stock exceeds
the strike price of the Warrants, we will be obligated to issue shares of our common stock having a value equal to such excess.
The proceeds from the sale of the Warrants were $45.2 million and were recorded as additional paid-in capital. As of January
31, 2017, no Warrants had been exercised and all Warrants remained outstanding.
Credit Agreement
In April 2011, we entered into a credit agreement with our lenders, which was amended and restated in March 2013, and further
amended in February 2014, March 2014, and June 2014 (the "Credit Agreement"). The Credit Agreement, as amended and
restated, provides for senior secured credit facilities, comprised of $943.5 million of term loans, of which $300.0 million was
borrowed in February 2014 (the "February 2014 Term Loans") and of which $643.5 million was borrowed in March 2014 (the
"March 2014 Term Loans"), all of which mature in September 2019, and a $300.0 million revolving credit facility maturing in
September 2018, subject to increase and reduction from time to time, as described in the Credit Agreement.
The February 2014 Term Loans were borrowed in connection with our acquisition of Kana. The March 2014 Term Loans were
borrowed as part of a refinancing of previously outstanding amounts under the Credit Agreement. In June 2014, we utilized the
majority of the combined net proceeds from the issuance of the Notes and the concurrent issuance of 5,750,000 shares of
common stock to retire $530.0 million of the February 2014 Term Loans and March 2014 Term Loans, and all $106.0 million
of then-outstanding borrowings under the Revolving Credit Facility.
As of January 31, 2017, there were $409.0 million of combined borrowings outstanding under our February 2014 Term Loans
and March 2014 Term Loans, bearing interest at a weighted-average annual rate of 3.58%, and no borrowings outstanding
under our revolving credit facility.
On February 11, 2016, we executed a pay-fixed, receive-variable interest rate swap with a multinational financial institution to
partially mitigate risks associated with the variable interest rate on our term loans under which we will pay interest at a fixed
rate of 4.143% and receive variable interest of three-month LIBOR (subject to a minimum of 0.75%), plus a spread of 2.75%,
on a notional amount of $200.0 million. The effective date of the agreement is November 1, 2016, and settlements with the
counterparty will occur on a quarterly basis, beginning on February 1, 2017. The agreement will terminate on September 6,
2019. Assuming that we elect three-month LIBOR at the term loans' interest rate reset dates, beginning on November 1, 2016
and throughout the term of the interest rate swap agreement, the annual interest rate on $200.0 million of our term loans will be
fixed at 4.143% during that period.
Beginning in the three months ending October 31, 2016, we are required to make quarterly principal payments of
approximately $1.1 million on our term loans. The vast majority of the term loan balances are due upon maturity in September
2019.
The revolving credit facility contains a financial covenant that currently requires us to maintain a ratio of Consolidated Total
Debt to Consolidated EBITDA (each as defined in the Credit Agreement) of no greater than 4.50 to 1 (the "Leverage Ratio
Covenant"). At January 31, 2017, our consolidated leverage ratio was approximately 2.9 to 1 compared to a permitted
consolidated leverage ratio of 4.50 to 1, and our EBITDA for the twelve-month period then ended exceeded by at least $80
million the minimum EBITDA required to satisfy the Leverage Ratio Covenant given our outstanding debt as of such date.
Contractual Obligations
At January 31, 2017, our contractual obligations were as follows:
(in thousands)
Long-term debt obligations, including interest
Operating lease obligations
Purchase obligations
Other long-term obligations
Total contractual obligations
$
Total
878,545
154,190
83,560
1,333
$ 1,117,628
$
$
57
Payments Due by Period
1-3 years
< 1 year
3-5 years
> 5 years
25,282
25,447
73,839
448
125,016
$
$
444,263
42,003
9,655
646
496,567
$
$
409,000
29,795
66
94
438,955
$
$
—
56,945
—
145
57,090
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The long-term debt obligations reflected above include projected interest payments over the term of our outstanding debt as of
January 31, 2017, assuming interest rates in effect for our term loan borrowings as of January 31, 2017.
Operating lease obligations reflected above exclude future sublease income from certain space we have subleased to third
parties. As of January 31, 2017, total expected future sublease income was $0.6 million and will range from $0.2 million to
$0.4 million on an annual basis through August 2018.
Our purchase obligations are associated with agreements for purchases of goods or services generally including agreements that
are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be
purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transactions. Agreements to
purchase goods or services that have cancellation provisions with no penalties are excluded from these purchase obligations.
Our consolidated balance sheet at January 31, 2017 included $28.2 million of non-current tax reserves, net of related benefits
(including interest and penalties of $3.9 million) for uncertain tax positions. However, these amounts are not included in the
table above because it is not possible to predict or estimate the timing of payments for these obligations. We do not expect to
make any significant payments for these uncertain tax positions within the next 12 months.
Contingent Payments Associated with Business Combinations
In connection with certain of our business combinations, we have agreed to make contingent cash payments to the former
owners of the acquired companies based upon achievement of performance targets following the acquisition dates.
For the year ended January 31, 2017, we made $3.3 million of payments under contingent consideration arrangements. As of
January 31, 2017, potential future cash payments and earned consideration expected to be paid subsequent to January 31, 2017
under contingent consideration arrangements total $100.2 million, the estimated fair value of which was $52.7 million,
including $10.0 million reported in accrued expenses and other current liabilities, and $42.7 million reported in other liabilities.
The performance periods associated with these potential payments extend through January 2021.
Off-Balance Sheet Arrangements
As of January 31, 2017, we did not have any off-balance sheet arrangements that we believe have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources that are material to investors.
Recent Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
None
New Accounting Pronouncements Not Yet Ef
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, and ASU No. 2017-04, Intangibles—
Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.
ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business
affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for
annual periods beginning after December 15, 2017, including interim periods within those periods. While we are still assessing
the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated
financial statements.
ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the
amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.
The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
58
While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a
material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This update
requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. This update also requires an entity to disclose the nature
of restrictions on its cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years with early adoption permitted, including adoption in an interim period. We typically have restrictions on certain amounts
of cash and cash equivalents, primarily consisting of amounts used to secure bank guarantees in connection with sales contract
performance obligations, and expect to continue to have similar restrictions in the future. We currently report changes in such
restricted amounts as cash flows from investing activities on our consolidated statement of cash flows. This standard will
change that presentation. We are currently reviewing this standard to assess other potential impacts on our future consolidated
financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15,
2017. Early adoption is permitted as of the beginning of an annual reporting period. The new standard must be adopted using a
modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. We are
currently reviewing this standard to assess the impact on our future consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments, which provides guidance with the intent of reducing diversity in practice in how certain cash
receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years with early adoption permitted,
including adoption in an interim period. We are currently reviewing this standard to assess the impact on our future
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). This new standard
changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model
that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt
securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be
recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for
annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption
permitted. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718), which amends the
accounting for stock-based compensation and requires excess tax benefits and deficiencies to be recognized as a component of
income tax expense rather than stockholders' equity. This guidance also requires excess tax benefits to be presented as an
operating activity on the statement of cash flows and allows an entity to make an accounting policy election to either estimate
expected forfeitures or to account for them as they occur. ASU No. 2016-09 is effective for reporting periods beginning after
December 15, 2016, with early adoption permitted. The most significant impact of the pending adoption of this guidance on our
future consolidated financial statements, will largely be dependent upon the intrinsic value of our stock-based compensation
awards at the time of vesting and may result in more variability in our effective tax rates and net (loss) income, and may also
impact the calculation of common stock equivalents, which are used in calculating diluted net income per share. In addition,
upon adoption of the new guidance, we will classify excess tax benefits or deficits as operating activities in the consolidated
statements of cash flows rather than as financing activities.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require lessees to recognize assets and
liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a
finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance
sheet, the new guidance will require both types of leases to be recognized on the balance sheet. The new guidance is effective
for all periods beginning after December 15, 2018 and we are currently evaluating the effects that the adoption of ASU No.
2016-02 will have on our consolidated financial statements, but anticipate that the new guidance will significantly impact our
consolidated financial statements given our significant number of leases.
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In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09
supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue
recognition guidance throughout the Industry Topics of the Accounting Standards Codification. Additionally, this update
supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type
Contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. As originally issued, this guidance was effective for interim and annual reporting periods
beginning after December 15, 2016, and early adoption was not permitted. In July 2015, the FASB deferred the effective date
by one year, to interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not
before the original effective date of December 15, 2016. The standard allows entities to apply the standard retrospectively to
each prior reporting period presented (“full retrospective adoption”) or retrospectively with the cumulative effect of initially
applying the standard recognized at the date of initial application (“modified retrospective adoption”). We currently expect to
adopt ASU No. 2014-09 using the modified retrospective option.
We are continuing to review the impacts of adopting ASU No. 2014-09 to our consolidated financial statements. Based upon
our preliminary assessments, we currently do not expect the new standard to materially impact the amount or timing of the
majority of revenue recognized in our consolidated financial statements. We are still assessing the impact on the timing of
revenue recognized under certain contracts under which customized solutions are delivered over extended periods of time.
In addition, the timing of cost of revenue recognition for certain customer contracts requiring significant customization will
change, because unlike current guidance, the new guidance precludes the deferral of costs simply to obtain an even profit
margin over the contract term. We are also assessing the new standard’s requirement to capitalize costs associated with
obtaining customer contracts, including commission payments, which are currently expensed as incurred. Under the new
standard, these costs will be deferred on our consolidated balance sheet. We are evaluating the period over which to amortize
these capitalized costs. In addition, for sales transactions that have been billed, but for which the recognition of revenue has
been deferred and the related account receivable has not been collected, we currently do not recognize deferred revenue or the
related accounts receivable on our consolidated balance sheet. Under the new standard, we will record accounts receivable and
related contract liabilities for noncancelable contracts with customers when the right to consideration is unconditional, which
we currently expect will result in increases in accounts receivable and contract liabilities (currently presented as deferred
revenue) on our consolidated balance sheet, compared to our current presentation. Our preliminary assessments of the impacts
to our consolidated financial statements of adopting this new standard are subject to change.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial condition due to adverse changes in financial market prices
and rates. We are exposed to market risk related to changes in interest rates and foreign currency exchange rate fluctuations. To
manage the volatility relating to interest rate and foreign currency risks, we periodically enter into derivative instruments
including foreign currency forward exchange contracts and interest rate swap agreements. It is our policy to enter into
derivative transactions only to the extent considered necessary to meet our risk management objectives. We use derivative
instruments solely to reduce the financial impact of these risks and do not use derivative instruments for speculative purposes.
Interest Rate Risk on Our Debt
In June 2014, we issued $400.0 million in aggregate principal amount of 1.50% convertible senior notes due June 1, 2021.
Holders may convert the Notes prior to maturity upon the occurrence of certain conditions. Upon conversion, we would be
required to pay the holders, at our election, cash, shares of common stock, or a combination of both. Concurrent with the
issuance of the Notes, we entered into the Note Hedges and sold the Warrants. These separate transactions were completed to
reduce our exposure to potential dilution upon conversion of the Notes.
The Notes have a fixed annual interest rate of 1.50% and therefore do not have interest rate exposure. However, the fair values
of the Notes are subject to interest rate risk, market risk and other factors due to the convertible feature. The fair values of the
Notes are also affected by our common stock price. Generally, the fair values of Notes will increase as interest rates fall and/or
our common stock price increases, and decrease as interest rates rise and/or our common stock price decreases. Changes in the
fair values of the Notes do not impact our financial position, cash flows, or results of operations due to the fixed nature of the
debt obligations. We do not carry the Notes at fair value on our consolidated balance sheet, but we report the fair value of the
Notes for disclosure purposes.
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As of January 31, 2017, we have $409.0 million of outstanding term loan borrowings maturing in September 2019 under our
Credit Agreement, which also includes a $300.0 million revolving credit facility maturing in September 2018, under which
there were no outstanding borrowings at January 31, 2017. Borrowings under the Credit Agreement bear interest at our option
at either a base rate plus a spread of 1.75% or an Adjusted LIBOR Rate, as defined in the Credit Agreement, plus a spread
of 2.75%. As of January 31, 2017, the weighted-average annual interest rate on our term loan borrowings was 3.58%.
Because the interest rates applicable to borrowings under our Credit Agreement are variable, we are exposed to market risk
from changes in the underlying index rates, which affect our cost of borrowing. To partially mitigate risks associated with the
variable interest rate on our term loans, in February 2016, we executed a pay-fixed, receive-variable interest rate swap
agreement with a multinational financial institution under which we pay interest at a fixed rate of 4.143% and receive variable
interest of three-month LIBOR (subject to a minimum of 0.75%), plus a spread of 2.75%, on a notional amount of
$200.0 million. The effective date of the agreement was November 1, 2016, and settlements with the counterparty occur on a
quarterly basis, beginning on February 1, 2017. The agreement will terminate on September 6, 2019. Throughout the term of
the interest rate swap agreement, if we elect three-month LIBOR at the term loans' periodic interest rate reset dates for at least
$200.0 million of our term loans, as we did on November 1, 2016 and February 1, 2017, the annual interest rate on $200.0
million of our term loans will be fixed at 4.143% for the applicable three-month interest rate period. As of January 31, 2017,
the fair value of the interest rate swap agreement was a gain of $1.0 million.
The periodic interest rates on unhedged borrowings under the Credit Agreement are currently a function of several factors, the
most important of which is LIBOR. However, borrowings are subject to either a 0.75% (Eurodollar loans) or 1.00% (Base Rate
loans) LIBOR floor in the interest rate calculation, which reduces the variability in the periodic interest rate when short-term
LIBOR rates are below 0.75%. During the year ended January 31, 2017, short-term LIBOR rates increased above 0.75%, which
has increased the periodic interest rate on unhedged borrowings under the Credit Agreement above 3.50% (the effective interest
rate floor on Eurodollar loans), to 3.52% at January 31, 2017.
Excluding the impact of the interest swap agreement, upon our borrowings as of January 31, 2017, for each 1.00% increase in
the applicable LIBOR Rate above the interest rate floor, our annual interest payments would increase by approximately $4.1
million.
Interest Rate Risk on Our Investments
We invest in cash, cash equivalents, bank time deposits, and marketable debt securities. Interest rate changes could result in an
increase or decrease in interest income we generate from these interest-bearing assets. Our cash, cash equivalents, and bank
time deposits are primarily maintained at high credit-quality financial institutions around the world, and our marketable debt
investments are restricted to highly rated corporate debt securities. We have not invested in marketable debt securities with
remaining maturities in excess of twelve months or in marketable equity securities during the three-year period ended January
31, 2017.
The primary objective of our investment activities is the preservation of principal while maximizing investment income and
minimizing risk. We have investment guidelines relative to diversification and maturities designed to maintain safety and
liquidity.
As of January 31, 2017 and 2016, we had cash and cash equivalents totaling approximately $307.4 million and $352.1 million,
respectively, consisting of demand deposits, bank time deposits with maturities of 90 days or less, money market accounts, and
marketable debt securities with remaining maturities of 90 days or less. At such dates we also held $63.8 million and $27.2
million, respectively, of restricted cash and restricted bank time deposits (including long-term portions) which were not
available for general operating use. These restricted balances primarily represent deposits to secure bank guarantees in
connection with customer sales contracts. The amounts of these deposits can vary depending upon the terms of the underlying
contracts. We also had short-term investments of $3.2 million and $56.0 million at January 31, 2017 and 2016, respectively,
consisting of bank time deposits and marketable debt securities of corporations, all with remaining maturities in excess of 90
days, but less than one year, at the time of purchase.
To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a
sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio
assuming, during the year ending January 31, 2017, average short-term interest rates increase or decrease by 50 basis points
relative to average rates realized during the year ended January 31, 2016. Such a change would cause our projected interest
income from cash, cash equivalents, restricted cash and bank time deposits, and short-term investments to increase or decrease
by approximately $1.9 million, assuming a similar level of investments in the year ending January 31, 2018 as in the year
ended January 31, 2017.
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Due to the short-term nature of our cash and cash equivalents, time deposits, money market accounts, and marketable debt
securities, their carrying values approximate their market values and are not generally subject to price risk due to fluctuations in
interest rates.
Foreign Currency Exchange Risk
The functional currency for most of our foreign subsidiaries is the applicable local currency, although we have several
subsidiaries with functional currencies that differ from their local currency, of which the most notable exceptions are our
subsidiaries in Israel, whose functional currencies are the U.S. dollar. We are exposed to foreign exchange rate fluctuations as
we convert the financial statements of our foreign subsidiaries into U.S. dollars for consolidated reporting purposes. If there are
changes in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars
results in a gain or loss which is recorded as a component of accumulated other comprehensive income (loss) within
stockholders’ equity.
For the year ended January 31, 2017, a significant portion of our operating expenses, primarily labor expenses, were
denominated in the local currencies where our foreign operations are located, primarily Israel, the United Kingdom, Germany,
certain other European countries whose functional currency is the euro, Australia, and Singapore. We also generate some
portion of our revenue in foreign currencies, mainly the British pound sterling, euro, Singapore dollar, and Australian dollar. As
a result, our consolidated U.S. dollar operating results are subject to the potentially material adverse impact of fluctuations in
foreign currency exchange rates between the U.S. dollar and the other currencies in which we transact.
In addition, we have certain monetary assets and liabilities that are denominated in currencies other than the respective entity’s
functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that result in
gains or losses. We recorded net foreign currency losses of $2.7 million, $8.0 million, and $13.4 million for the years ended
January 31, 2017, 2016, and 2015, respectively, which are reported in other expense, net.
From time to time, we enter into foreign currency forward contracts in an effort to reduce the volatility of cash flows primarily
related to forecasted payroll and payroll-related expenses denominated in Israeli shekels and Canadian dollars. Our 50% owned
joint venture in Singapore periodically enters into foreign currency forward contracts in an effort to reduce the volatility of cash
flows primarily related to forecasted U.S. dollar payments to its suppliers. These contracts are generally limited to durations of
approximately 12 months or less. We have also periodically entered into foreign currency forward contracts to manage
exposures resulting from forecasted customer collections denominated in currencies other than the respective entity’s functional
currency and exposures from cash, cash equivalents and short-term investments denominated in currencies other than the
applicable functional currency.
During the year ended January 31, 2017, we recorded net losses of $0.3 million on foreign currency forward contracts not
designated as hedges for accounting purposes, and net gains on such contracts of $0.4 million, and $4.0 million for the years
ended January 31, 2016 and 2015, respectively. We had $0.4 million of net unrealized gains on outstanding foreign currency
forward contracts as of January 31, 2017, with notional amounts totaling $144.0 million. We had $2.3 million of net unrealized
losses on outstanding foreign currency forward contracts as of January 31, 2016, with notional amounts totaling $136.4 million.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of January 31, 2017. This sensitivity analysis
was based on a modeling technique that measures the hypothetical market value resulting from a 10% shift in the value of
exchange rates relative to the U.S. dollar, and assumes no changes in interest rates. A 10% increase in the relative value of the
U.S. dollar would decrease the estimated fair value of our foreign exchange derivatives by approximately $6.3 million.
Conversely, a 10% decrease in the relative value of the U.S. dollar would increase the estimated the fair value of these financial
instruments by approximately $7.7 million.
The counterparties to these foreign currency forward contracts are multinational commercial banks. While we believe the risk
of counterparty nonperformance is not material, past disruptions in the global financial markets have impacted some of the
financial institutions with which we do business. A sustained decline in the financial stability of financial institutions as a result
of disruption in the financial markets could affect our ability to secure creditworthy counterparties for our foreign currency
hedging programs.
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Item 8. Financial Statements and Supplementary Data
VERINT SYSTEMS INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of January 31, 2017 and 2016
Consolidated Statements of Operations for the Years Ended January 31, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Loss for the Years Ended January 31, 2017, 2016, and 2015
Consolidated Statements of Stockholders’ Equity for the Years Ended January 31, 2017, 2016, and 2015
Consolidated Statements of Cash Flows for the Years Ended January 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
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Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Verint Systems Inc.
Melville, New York
We have audited the accompanying consolidated balance sheets of Verint Systems Inc. and subsidiaries (the "Company") as of
January 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity,
and cash flows for each of the three years in the period ended January 31, 2017. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Verint
Systems Inc. and subsidiaries as of January 31, 2017 and 2016, and the results of their operations and their cash flows for each
of the three years in the period ended January 31, 2017, in conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of January 31, 2017, based on the criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 28, 2017 expressed an unqualified opinion on the Company’s internal control over financial
reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 28, 2017
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VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current Assets:
Cash and cash equivalents
Restricted cash and bank time deposits
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1.8 million and $1.2 million,
respectively
Inventories
Deferred cost of revenue
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Capitalized software development costs, net
Long-term deferred cost of revenue
Deferred income taxes
Other assets
Total assets
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current maturities of long-term debt
Deferred revenue
Total current liabilities
Long-term debt
Long-term deferred revenue
Deferred income taxes
Other liabilities
Total liabilities
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - $0.001 par value; authorized 2,207,000 shares at January 31, 2017 and 2016,
respectively; none issued.
Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 64,073,000 and 62,614,000
shares; outstanding 62,419,000 and 62,266,000 shares at January 31, 2017 and 2016, respectively.
Additional paid-in capital
Treasury stock, at cost - 1,654,000 and 348,000 shares at January 31, 2017 and 2016, respectively.
Accumulated deficit
Accumulated other comprehensive loss
Total Verint Systems Inc. stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to consolidated financial statements.
January 31,
2017
2016
$
307,363
9,198
3,184
266,590
17,537
3,621
64,561
672,054
77,551
1,264,818
235,259
9,509
5,463
21,510
76,620
2,362,784
62,049
213,224
4,611
182,515
462,399
744,260
20,912
25,814
94,359
1,347,744
$
$
352,105
11,820
55,982
256,419
18,312
1,876
57,598
754,112
68,904
1,207,176
246,682
11,992
13,117
17,528
36,224
2,355,735
65,447
206,967
2,104
167,912
442,430
735,983
20,488
27,042
61,628
1,287,571
—
—
64
1,449,335
(57,147)
(230,816)
(154,856)
1,006,580
8,460
1,015,040
2,362,784
$
63
1,387,955
(10,251)
(201,436)
(116,194)
1,060,137
8,027
1,068,164
2,355,735
$
$
$
$
65
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VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Revenue:
Product
Service and support
Total revenue
Cost of revenue:
Product
Service and support
Amortization of acquired technology and backlog
Total cost of revenue
Gross profit
Operating expenses:
Research and development, net
Selling, general and administrative
Amortization of other acquired intangible assets
Total operating expenses
Operating income
Other income (expense), net:
Interest income
Interest expense
Losses on early retirements of debt
Other expense, net
Total other expense, net
(Loss) income before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net (loss) income
Net income attributable to noncontrolling interest
Net (loss) income attributable to Verint Systems Inc.
Net (loss) income per common share attributable to Verint Systems Inc.:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
Year Ended January 31,
2016
2015
2017
$
$
378,504
683,602
1,062,106
$
455,406
674,860
1,130,266
487,617
640,819
1,128,436
123,279
261,978
37,372
422,629
639,477
171,070
406,952
44,089
622,111
17,366
1,048
(34,962)
—
(6,926)
(40,840)
(23,474)
2,772
(26,246)
3,134
(29,380) $
145,071
248,061
35,774
428,906
701,360
177,650
412,728
43,130
633,508
67,852
1,490
(33,885)
—
(12,277)
(44,672)
23,180
952
22,228
4,590
17,638
(0.47) $
(0.47) $
0.29
0.28
62,593
62,593
61,813
62,921
$
$
$
144,870
239,274
31,004
415,148
713,288
173,748
415,266
45,163
634,177
79,111
1,070
(36,661)
(12,546)
(9,571)
(57,708)
21,403
(14,999)
36,402
5,471
30,931
0.53
0.52
58,096
59,374
$
$
$
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VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(in thousands)
Net (loss) income
Other comprehensive loss, net of reclassification adjustments:
Foreign currency translation adjustments
Net unrealized gains (losses) on available-for-sale securities
Net unrealized gains (losses) on derivative financial instruments designated as
hedges
Net unrealized gains on interest rate swap designated as a hedge
(Provision) benefit for income taxes on net unrealized gains (losses) on
derivative financial instruments and interest rate swap designated as hedges
Other comprehensive loss
Comprehensive loss
Comprehensive income attributable to noncontrolling interest
Comprehensive loss attributable to Verint Systems Inc.
See notes to consolidated financial statements.
Year Ended January 31,
2016
2015
2017
$
(26,246) $
22,228
$
36,402
(42,130)
110
2,750
1,021
(693)
(38,942)
(65,188)
2,854
(68,042) $
(28,180)
(211)
6,919
—
(798)
(22,270)
(42)
4,179
(4,221) $
(45,600)
92
(10,547)
—
1,070
(54,985)
(18,583)
5,096
(23,679)
$
67
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Verint Systems Inc. Stockholders’ Equity
(in thousands)
Common Stock
Shares
Par
Value
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total Verint
Systems Inc.
Stockholders'
Equity
Non-
controlling
Interest
Total
Stockholders'
Equity
Balances as of January 31, 2014
53,605
$ 54
$ 924,663
$ (8,013) $ (250,005) $
(39,725) $
626,974
$
Net income
Other comprehensive loss
Common stock issued in public
offering, net of issuance costs
Equity component of convertible
notes, net of issuance costs
Purchase of convertible note
hedges
Issuance of warrants
Stock-based compensation -
equity portion
Exercises of stock options
Common stock issued for stock
awards and stock bonuses
Purchases of treasury stock
Dividends to noncontrolling
interest
Tax effects from stock award
plans
—
—
5,750
—
—
—
—
505
1,091
(46)
—
—
Balances as of January 31, 2015
60,905
Net income
Other comprehensive loss
Stock-based compensation -
equity portion
Exercises of stock options
Common stock issued for stock
awards and stock bonuses
Dividends to noncontrolling
interest
Tax effects from stock award
plans
—
—
—
6
1,355
—
—
Balances as of January 31, 2016
62,266
Net (loss) income
Other comprehensive loss
Stock-based compensation -
equity portion
Exercises of stock options
Common stock issued for stock
awards and stock bonuses
Purchases of treasury stock
Dividends to noncontrolling
interest
Tax effects from stock award
plans
—
—
—
1
1,458
(1,306)
—
—
—
—
6
—
—
—
—
—
1
—
—
—
61
—
—
—
—
2
—
—
63
—
—
—
—
1
—
—
—
—
—
264,927
78,209
(60,800)
45,188
46,963
17,520
4,531
—
—
254
—
—
—
—
—
—
—
—
—
(2,238)
—
—
30,931
—
—
—
—
—
—
—
—
—
—
—
—
(54,610)
—
—
—
—
—
—
—
—
—
—
1,321,455
(10,251)
(219,074)
(94,335)
—
—
58,028
232
7,743
—
497
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
55,123
7
6,952
—
—
—
—
—
— (46,896)
—
(702)
—
—
(29,380)
—
—
—
—
—
—
—
—
(38,662)
—
—
—
—
—
—
—
(4,193)
(4,193)
30,931
(54,610)
264,933
78,209
(60,800)
45,188
46,963
17,520
4,532
(2,238)
254
997,856
17,638
58,028
232
7,745
497
(29,380)
(38,662)
55,123
7
6,953
(46,896)
6,144
5,471
(375)
—
—
—
—
—
—
—
—
$
633,118
36,402
(54,985)
264,933
78,209
(60,800)
45,188
46,963
17,520
4,532
(2,238)
—
7,047
4,590
(411)
—
—
—
254
1,004,903
22,228
(22,270)
58,028
232
7,745
—
8,027
3,134
(280)
497
1,068,164
(26,246)
(38,942)
—
—
—
—
55,123
7
6,953
(46,896)
—
(3,199)
(3,199)
—
(2,421)
(2,421)
(702)
—
(702)
17,638
—
(21,859)
(21,859)
1,387,955
(10,251)
(201,436)
(116,194)
1,060,137
Balances as of January 31, 2017
62,419
$ 64
$1,449,335
$(57,147) $ (230,816) $ (154,856) $ 1,006,580
$
8,460
$ 1,015,040
See notes to consolidated financial statements.
68
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VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
Provision for doubtful accounts
Stock-based compensation, excluding cash-settled awards
Amortization of discount on convertible notes
Benefit for deferred income taxes
Excess tax benefits from stock award plans
Non-cash losses (gains) on derivative financial instruments, net
Losses on early retirements of debt
Other non-cash items, net
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable
Inventories
Deferred cost of revenue
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue
Other liabilities
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Cash paid for business combinations, including adjustments, net of cash acquired
Purchases of property and equipment
Purchases of investments
Maturities and sales of investments
Settlements of derivative financial instruments not designated as hedges
Cash paid for capitalized software development costs
Change in restricted cash and bank time deposits, including long-term portion
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings, net of original issuance discount
Repayments of borrowings and other financing obligations
Proceeds from public issuance of common stock
Proceeds from issuance of warrants
Payments for convertible note hedges
Payments of equity issuance, debt issuance and other debt-related costs
Proceeds from exercises of stock options
Dividends paid to noncontrolling interest
Purchases of treasury stock
Excess tax benefits from stock award plans
Payments of contingent consideration for business combinations (financing portion) and
other financing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
See notes to consolidated financial statements.
69
Year Ended January 31,
2016
2015
2017
$
(26,246) $
22,228
$
36,402
114,257
1,791
65,421
10,668
(16,941)
(6)
323
—
7,666
(353)
(286)
7,124
4,941
(9,521)
8,705
4,987
(115)
172,415
(141,803)
(27,540)
(36,761)
89,342
(349)
(2,338)
(36,579)
—
(156,028)
—
(3,308)
—
—
—
(249)
7
(2,421)
(46,896)
6
(4,058)
(56,919)
(4,210)
(44,742)
352,105
307,363
106,300
669
64,387
10,123
(5,640)
(523)
(394)
—
12,343
3,433
(3,258)
6,187
(2,886)
(15,260)
(12,364)
(28,515)
73
156,903
(31,358)
(25,265)
(92,808)
71,457
766
(5,027)
11,133
(4,498)
(75,600)
—
(309)
—
—
—
(239)
232
(3,199)
—
523
99,464
423
54,314
6,014
(47,331)
(298)
(3,986)
12,546
8,928
(54,921)
(4,223)
(677)
21,412
33,412
24,057
8,356
(167)
193,725
(605,279)
(23,134)
(21,175)
13,653
3,858
(6,083)
(36,291)
(2,384)
(676,835)
1,526,750
(1,361,852)
274,563
45,188
(60,800)
(29,164)
17,606
(4,193)
(2,238)
298
(7,212)
(10,204)
(4,066)
67,033
285,072
352,105
$
(10,445)
395,713
(6,149)
(93,546)
378,618
285,072
$
Table of Contents
VERINT SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Unless the context otherwise requires, the terms "Verint", "we", "us", and "our" in these notes to consolidated financial
statements refer to Verint Systems Inc. and its consolidated subsidiaries.
Verint is a global leader in Actionable Intelligence solutions. Actionable Intelligence is a necessity in a dynamic world of
massive information growth because it empowers organizations with crucial insights and enables decision makers to anticipate,
respond, and take action. With Verint solutions and value-added services, organizations of all sizes and across many industries
can make more informed, timely, and effective decisions. Today, over 10,000 organizations in more than 180 countries,
including over 80 percent of the Fortune 100, use Verint solutions to optimize customer engagement and make the world a safer
place.
Verint delivers its Actionable Intelligence solutions through two operating segments: Customer Engagement Solutions and
Cyber Intelligence Solutions.
We have established leadership positions in Actionable Intelligence by developing highly-scalable, enterprise-class software
and services with advanced, integrated analytics for both unstructured and structured information. Our innovative solutions are
developed by a large research and development (“R&D”) team comprised of approximately 1,400 professionals and backed by
more than 800 patents and patent applications worldwide.
To help our customers maximize the benefits of our technology over the solution lifecycle and provide a high degree of
flexibility, we offer a broad range of services, such as strategic consulting, managed services, implementation services, training,
maintenance, and 24x7 support. Additionally, we offer a broad range of deployment options, including cloud, on-premises, and
hybrid, and software licensing and delivery models that include perpetual licenses and software as a service (“SaaS”).
Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of
selling and support partners.
Recasting of Historical Segment
Through July 31, 2016, we were organized and had reported our operating results in three operating segments. In August 2016,
we reorganized into two businesses and now report our results in two operating segments, as further discussed in Note 16,
"Segment, Geographic, and Customer Information". Comparative segment financial information for prior periods appearing in
Note 5, "Intangible Assets and Goodwill" and Note 16, "Segment, Geographic, and Customer Information", has been recast to
conform to this revised segment structure.
Reclassification Within Consolidated Statements of Cash Flows
Certain amounts within the presentation of net cash provided by operating activities in our consolidated statement of cash flows
for the years ended January 31, 2016 and 2015 have been reclassified to conform to the current year's presentation. These
reclassifications had no effect on net cash provided by operating activities.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Verint Systems Inc., our wholly owned or
otherwise controlled subsidiaries, and a joint venture in which we hold a 50% equity interest. The joint venture is a variable
interest entity in which we are the primary beneficiary. The noncontrolling interest in this joint venture is reflected within
stockholders’ equity on our consolidated balance sheet, but separately from our equity. We have two majority owned
subsidiaries for which we hold an option to acquire the noncontrolling interests. We account for the option as an in-substance
investment in the noncontrolling common stock of each such subsidiary. We include the fair value of the option within other
liabilities and do not recognize noncontrolling interests in these subsidiaries.
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We include the results of operations of acquired companies from the date of acquisition. All significant intercompany
transactions and balances are eliminated.
Investments in companies in which we have less than a 20% ownership interest and can not exercise significant influence are
accounted for at cost.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires
our management to make estimates and assumptions, which may affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates.
Restricted Cash and Restricted Bank Time Deposits
Restricted cash and restricted bank time deposits are pledged as collateral or otherwise restricted as to use for vendor payables,
general liability insurance, workers’ compensation insurance, warranty programs, and other obligations.
Investments
Our investments generally consist of bank time deposits, and marketable debt securities of corporations, the U.S. government,
and agencies of the U.S. government, all with remaining maturities in excess of 90 days at the time of purchase. As of January
31, 2017, we held no marketable debt securities. As of January 31, 2016, all of our marketable debt securities were classified as
“available-for-sale” and were reported at fair value, with unrealized gains and losses reported in stockholders’ equity until
disposition or maturity. Investments with maturities in excess of one year are included in other assets.
Accounts Receivable, Net
Trade accounts receivable are recorded at the invoiced amount and are not interest-bearing.
Accounts receivable, net, includes unbilled accounts receivable on arrangements recognized under contract accounting
methods, representing revenue recognized on contracts for which billing will occur in subsequent periods, in accordance with
the terms of the contracts. Unbilled accounts receivable on such contracts were $39.7 million and $46.6 million at January 31,
2017 and 2016, respectively. Substantially all unbilled accounts receivable at January 31, 2017 are expected to be collected
during the year ending January 31, 2018. Under most contracts, unbilled accounts receivable are typically billed and collected
within one year of revenue recognition. However, as of January 31 2017, we had unbilled accounts receivable on certain
complex projects with a long-standing customer for which the underlying billing milestones are still in progress and have
remained unbilled for periods in excess of one year, and in some cases, for several years. We have no history of uncollectible
accounts with this customer and believe that collection of such amounts is still reasonably assured. We expect billing and
collection of these unbilled accounts receivable to occur within the next year.
The application of our revenue recognition policies sometimes results in circumstances for which we are unable to recognize
revenue relating to sales transactions that have been billed, but the related account receivable has not been collected. For
consolidated balance sheet presentation purposes, we do not recognize the deferred revenue or the related account receivable
and no amounts appear in our consolidated balance sheets for such transactions. Only to the extent that we have received cash
for a given deferred revenue transaction is the amount included in deferred revenue on the consolidated balance sheets.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents,
bank time deposits, short-term investments, and trade accounts receivable. We invest our cash in bank accounts, certificates of
deposit, and money market accounts with major financial institutions, in U.S. government and agency obligations, and in debt
securities of corporations. By policy, we seek to limit credit exposure on investments through diversification and by restricting
our investments to highly rated securities.
We grant credit terms to our customers in the ordinary course of business. Concentrations of credit risk with respect to trade
accounts receivable are generally limited due to the large number of customers comprising our customer base and their
dispersion across different industries and geographic areas. One customer accounted for $63.5 million and $70.9 million of our
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accounts receivable (including both billed and unbilled amounts), at January 31, 2017 and 2016, respectively. This customer is
a governmental agency outside of the U.S. which we believe presents insignificant credit risk.
Allowance for Doubtful Accounts
We estimate the collectability of our accounts receivable balances each accounting period and adjust our allowance for doubtful
accounts accordingly. Considerable judgment is required in assessing the collectability of accounts receivable, including
consideration of the creditworthiness of each customer, their collection history, and the related aging of past due accounts
receivable balances. We evaluate specific accounts when we learn that a customer may be experiencing a deteriorating financial
condition due to lower credit ratings, bankruptcy, or other factors that may affect its ability to render payment. We write-off an
account receivable and charge it against its recorded allowance at the point when it is considered uncollectible.
The following table summarizes the activity in our allowance for doubtful accounts for the years ended January 31, 2017, 2016,
and 2015:
(in thousands)
Allowance for doubtful accounts, beginning of year
Provisions charged to expense
Amounts written off
Other, including fluctuations in foreign exchange rates
Allowance for doubtful accounts, end of year
Inventories
Year Ended January 31,
2016
2015
2017
$
$
1,170
1,791
(1,484)
365
1,842
$
$
1,099
669
(933)
335
1,170
$
$
1,187
423
(461)
(50)
1,099
Inventories are stated at the lower of cost or market. Cost is determined using the weighted-average method of inventory
accounting. The valuation of our inventories requires us to make estimates regarding excess or obsolete inventories, including
making estimates of the future demand for our products. Although we make every effort to ensure the accuracy of our forecasts
of future product demand, any significant unanticipated changes in demand, price, or technological developments could have a
significant impact on the value of our inventory and reported operating results. Charges for excess and obsolete inventories are
included within cost of revenue.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using
the straight-line method based over the estimated useful lives of the assets. The vast majority of equipment, furniture and other
is depreciated over periods ranging from three to seven years. Software is depreciated over periods ranging from three to four
years. Buildings are depreciated over periods ranging from ten to twenty-five years. Leasehold improvements are amortized
over the shorter of their estimated useful lives or the related lease term.
The cost of maintenance and repairs of property and equipment is charged to operations as incurred. When assets are retired or
disposed of, the cost and accumulated depreciation or amortization thereon are removed from the consolidated balance sheet
and any resulting gain or loss is recognized in the consolidated statement of operations.
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is
regularly evaluated by the enterprise’s chief operating decision maker ("CODM"), or decision making group, in deciding how
to allocate resources and in assessing performance.
We conduct our business through two operating segments, which are also our reportable segments, Customer Engagement
Solutions ("Customer Engagement") and Cyber Intelligence Solutions ("Cyber Intelligence"). Organizing our business through
two operating segments allows us to align our resources and domain expertise to effectively address the Actionable Intelligence
market. We determine our reportable segments based on a number of factors our management uses to evaluate and run our
business operations, including similarities of customers, products and technology. Our Chief Executive Officer is our CODM,
who regularly reviews segment revenue and segment operating contribution when assessing financial results of segments and
allocating resources.
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We measure the performance of our operating segments based upon segment revenue and segment contribution. Segment
contribution includes segment revenue and expenses incurred directly by the segment, including material costs, service costs,
research and development and selling, marketing, and administrative expenses. We do not allocate certain expenses, which
include the majority of general and administrative expenses, facilities and communication expenses, purchasing expenses,
manufacturing support and logistic expenses, depreciation and amortization, amortization of capitalized software development
costs, stock-based compensation, and special charges such as restructuring costs when calculating segment contribution. These
expenses are included within unallocated expenses in our presentation of segment operating results. Revenue from transactions
between our operating segments is not material.
Goodwill, Other Acquired Intangible Assets, and Long-Lived Assets
For business combinations, the purchase prices are allocated to the tangible assets and intangible assets acquired and liabilities
assumed based on their estimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded
as goodwill. Goodwill is assigned, at the acquisition date, to those reporting units expected to benefit from the synergies of the
combination.
We test goodwill for impairment at the reporting unit level, which can be an operating segment or one level below an operating
segment, on an annual basis as of November 1, or more frequently if changes in facts and circumstances indicate that
impairment in the value of goodwill may exist. As of January 31, 2017, our reporting units are Customer Engagement, Cyber
Intelligence (excluding situational intelligence solutions), and the Situational Intelligence business of our former Video
Intelligence segment, which is now a component of our Cyber Intelligence operating segment.
In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If our qualitative assessment indicates that goodwill
impairment is more likely than not, we perform a two-step impairment test. We test goodwill for impairment under the two-step
impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is
determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired,
a second step is performed to compute the amount of impairment as the difference.
For reporting units where we perform the two-step process, we utilize some or all of three primary approaches to assess fair
value: (a) an income-based approach, using projected discounted cash flows, (b) a market-based approach, using multiples of
comparable companies, and (c) a transaction-based approach, using multiples for recent acquisitions of similar businesses made
in the marketplace. Our estimate of fair value of each reporting unit is based on a number of subjective factors, including: (a)
appropriate consideration of valuation approaches (income approach, comparable public company approach, and comparable
transaction approach), (b) estimates of future growth rates, (c) estimates of our future cost structure, (d) discount rates for our
estimated cash flows, (e) selection of peer group companies for the public company and the market transaction approaches, (f)
required levels of working capital, (g) assumed terminal value, and (h) time horizon of cash flow forecasts.
Acquired identifiable intangible assets include identifiable acquired technologies, customer relationships, trade names,
distribution networks, non-competition agreements, sales backlog, and in-process research and development. We amortize the
cost of finite-lived identifiable intangible assets over their estimated useful lives, which are periods of ten years or less.
Amortization is based on the pattern in which the economic benefits of the intangible asset are expected to be realized, which
typically is on a straight-line basis. The fair values assigned to identifiable intangible assets acquired in business combinations
are determined primarily by using the income approach, which discounts expected future cash flows attributable to these assets
to present value using estimates and assumptions determined by management. The acquired identifiable finite-lived intangible
assets are being amortized primarily on a straight-line basis, which we believe approximates the pattern in which the assets are
utilized, over their estimated useful lives.
Fair Value Measurements
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. An instrument’s categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This fair value hierarchy
consists of three levels of inputs that may be used to measure fair value:
• Level 1: quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active
markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not
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active, or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities; or
• Level 3: unobservable inputs that are supported by little or no market activity.
We review the fair value hierarchy classification of our applicable assets and liabilities at each reporting period. Changes in the
observability of valuation inputs may result in transfers within the fair value measurement hierarchy. We did not identify any
transfers between levels of the fair value measurement hierarchy during the years ended January 31, 2017 and 2016.
Fair Values of Financial Instruments
Our recorded amounts of cash and cash equivalents, restricted cash and restricted bank time deposits, accounts receivable,
investments, and accounts payable approximate fair value, due to the short-term nature of these instruments. We measure
certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants.
Derivative Financial Instruments
As part of our risk management strategy, when considered appropriate, we use derivative financial instruments including
foreign currency forward contracts and interest rate swap agreements to hedge against certain foreign currency and interest rate
exposures. Our intent is to mitigate gains and losses caused by the underlying exposures with offsetting gains and losses on the
derivative contracts. By policy, we do not enter into speculative positions with derivative instruments.
We record all derivatives as assets or liabilities on our consolidated balance sheets at their fair values. Gains and losses from the
changes in values of these derivatives are accounted for based on the use of the derivative and whether it qualifies for hedge
accounting.
The counterparties to our derivative financial instruments consist of several major international financial institutions. We
regularly monitor the financial strength of these institutions. While the counterparties to these contracts expose us to credit-
related losses in the event of a counterparty’s non-performance, the risk would be limited to the unrealized gains on such
affected contracts. We do not anticipate any such losses.
Revenue Recognition
We derive and report our revenue in two categories: (a) product revenue, including sale of hardware products (which include
software that works together with the hardware to deliver the product's essential functionality) and licensing of software
products, and (b) service and support revenue, including revenue from installation services, post-contract customer support
("PCS"), project management, hosting services, software-as-a-service ("SaaS"), application managed services, product
warranties, business advisory consulting and training services.
Our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of
accounting rules that require us to make significant judgments and estimates. Our customer arrangements typically include
several elements, including products, services, and support. Revenue recognition for a particular arrangement is dependent
upon such factors as the level of customization within the solution and the contractual delivery, acceptance, payment, and
support terms with the customer. Significant judgment is required to conclude whether collectability of fees is reasonably
assured and whether fees are fixed or determinable.
For arrangements that do not require significant modification or customization of the underlying products, we recognize
revenue when we have persuasive evidence of an arrangement, the product has been delivered or the services have been
provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured. In addition, our
multiple-element arrangements must be carefully reviewed to determine the selling price of each element.
Our multiple-element arrangements consist of a combination of our product and service offerings that may be delivered at
various points in time. For arrangements within the scope of the multiple-deliverable accounting guidance, a deliverable
constitutes a separate unit of accounting when it has stand-alone value and there are no customer-negotiated refunds or return
rights for the delivered elements. For multiple-element arrangements comprised only of hardware products containing software
components and non-software components and related services, we allocate revenue to each element in an arrangement based
on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE") if
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available, third-party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is
available. The total transaction revenue is allocated to the multiple elements based on each element's relative selling price
compared to the total selling price. We limit the amount of revenue recognized for delivered elements to an amount that is not
contingent upon future delivery of additional products or services or meeting of any specified performance conditions.
Our policy for establishing VSOE for installation, consulting, and training is based upon an analysis of separate sales of
services. We utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish VSOE for our
PCS offerings, depending upon the business segment, geographical region, or product line.
TPE of selling price is established by evaluating largely similar and interchangeable competitor products or services in stand-
alone sales to similarly situated customers. However, as most of our products contain a significant element of proprietary
technology offering substantially different features and functionality, the comparable pricing of products with similar
functionality typically cannot be obtained. Additionally, as we are unable to reliably determine what competitors products'
selling prices are on a stand-alone basis, we are typically not able to determine TPE.
If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of
allocating the arrangement's revenue by considering several external and internal factors including, but not limited to, pricing
practices, similar product offerings, margin objectives, geographies in which we offer our products and services, internal costs,
competition, and product life cycle. The determination of ESP is made through consultation with and approval by our
management, taking into consideration our go-to-market strategies. We have established processes to update ESP for each
element, when appropriate, to ensure that it reflects recent pricing experience.
For multiple-element arrangements comprised only of software products and related services, a portion of the total purchase
price is allocated to the undelivered elements, primarily installation services, PCS, application managed services, business
advisory consulting and training services, using VSOE of fair value of the undelivered elements. The remaining portion of the
total transaction value is allocated to the delivered software, referred to as the residual method. If we are unable to establish
VSOE for the undelivered elements of the arrangement, revenue recognition is deferred for the entire arrangement until all
elements of the arrangement are delivered, unless the only undelivered element is PCS, in which case, we recognize the
arrangement fee ratably over the PCS period.
For multiple-element arrangements that contain software and software-related elements for which we are unable to establish
VSOE of one or more elements, we use various available indicators of fair value and apply our best judgment to reasonably
classify the arrangement's revenue into product revenue and service revenue for financial reporting purposes.
For multiple-element arrangements that are comprised of a combination of software and non-software deliverables, the total
transaction value is bifurcated between the software deliverables and non-software deliverables based on the relative selling
prices of the software and non-software deliverables as a group. Revenue is then recognized for the software and software-
related services following the residual method or ratably over the PCS period if VSOE for PCS does not exist, and for the non-
software deliverables following the revenue recognition methodology outlined above for multiple-element arrangements that
contain tangible products and other non-software related services.
PCS revenue is derived from providing technical software support services and unspecified software updates and upgrades to
customers on a when-and-if-available basis. PCS revenue is recognized ratably over the term of the maintenance period, which
in most cases is one year.
Under the substantive renewal rate approach, we believe it is necessary to evaluate whether both the support renewal rate and
term are substantive and whether the renewal rate is being consistently applied to subsequent renewals for a particular
customer. We establish VSOE under this approach through analyzing the renewal rate stated in the customer agreement and
determining whether that rate is above the minimum substantive VSOE renewal rate established for that particular PCS
offering. The minimum substantive VSOE rate is determined based upon an analysis of renewal rates associated with historical
PCS contracts. For multiple-element software arrangements that do not contain a stated renewal rate, revenue associated with
the entire bundled arrangement is recognized ratably over the PCS term. Multiple-element software arrangements that have a
renewal rate below the minimum substantive VSOE rate are deemed to contain a more than insignificant discount element, for
which VSOE cannot be established. We recognize aggregate contractual revenue for these arrangements over the period that the
customer is entitled to renew its PCS at the discounted rate, but not to exceed the estimated economic life of the product. We
evaluate many factors in determining the estimated economic life of our products, including the support period of the product,
technological obsolescence, and customer expectations. We have concluded that our software products have estimated
economic lives ranging from five to seven years.
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Under the bell-shaped curve approach of establishing VSOE, we perform VSOE compliance tests to ensure that a substantial
majority of our actual PCS renewals are within a narrow range of pricing.
Some of our arrangements require significant customization of the product to meet the particular requirements of the customer.
For these arrangements, revenue is recognized under contract accounting principles, typically using the percentage-of-
completion ("POC") method. Under the POC method, revenue recognition is generally based upon the ratio of hours incurred to
date to the total estimated hours required to complete the contract. Profit estimates on long-term contracts are revised
periodically based on changes in circumstances, and any losses on contracts are recognized in the period that such losses
become evident. If the range of profitability cannot be estimated, but some level of profit is assured, revenue is recognized to
the extent of costs incurred, until such time that the project's profitability can be estimated or the services have been completed.
In the event some level of profitability on a contract cannot be assured, the completed-contract method of revenue recognition
is applied.
Our SaaS multiple-element arrangements are typically comprised of subscription and support fees from customers accessing
our software, set-up fees, and fees for consultation services. We do not provide the customer the contractual right to take
possession of the software at any time during the hosting period under these arrangements. We recognize revenue for
subscription and support services over the contract period originating when the subscription service is made available to the
customer and the contractual hosting period has commenced. The initial set-up fees are recognized over the longer of the initial
contract period or the period the customer is expected to benefit from payment of the up-front fees. Revenue from consultation
services is generally recognized as services are completed.
Our application managed services revenue is derived from providing services that enhance our customers IT processes and
maximize the business benefits of our solutions. Application managed services revenue is recognized ratably over the
applicable term which, in most cases, is at least one year. When application managed services is included within a multiple-
element arrangement, we utilize the substantive renewal rate approach to establish VSOE. In addition, we perform a budget
versus actual time analysis to support our initial estimate of effort required to provide these services.
If an arrangement includes customer acceptance criteria, revenue is not recognized until we can objectively demonstrate that
the software or services meet the acceptance criteria, or the acceptance period lapses, whichever occurs earlier. If an
arrangement containing software elements obligates us to deliver specified future software products or upgrades, revenue
related to the software elements under the arrangement is initially deferred and is recognized only when the specified future
software products or upgrades are delivered, or when the obligation to deliver specified future software products expires,
whichever occurs earlier.
We record provisions for estimated product returns in the same period in which the associated revenue is recognized. We base
these estimates of product returns upon historical levels of sales returns and other known factors. Actual product returns could
be different from our estimates, and current or future provisions for product returns may differ from historical provisions.
Concessions granted to customers are recorded as reductions to revenue in the period in which they were granted. The vast
majority of our contracts are successfully completed, and concessions granted to customers are minimal in both dollar value
and frequency.
Product revenue derived from shipments to resellers and original equipment manufacturers ("OEMs") who purchase our
products for resale are generally recognized when such products are shipped (on a "sell-in" basis) since we do not expect our
resellers or OEMs to carry inventory of our products. We have historically experienced insignificant product returns from
resellers and OEMs, and our payment terms for these customers are similar to those granted to our end-users. If a reseller or
OEM develops a pattern of payment delinquency, or seeks payment terms longer than generally accepted, we defer the
recognition of revenue until the receipt of cash. Our arrangements with resellers and OEMs are periodically reviewed as our
business and products change.
In instances where revenue is derived from sale of third-party vendor services and we are a principal in the transaction, we
record revenue on a gross basis and record costs related to a sale within cost of revenue. Though uncommon, in cases where we
act as an agent between the customer and the vendor, revenue is recorded net of costs.
Multiple contracts with a single counterparty executed within close proximity of each other are evaluated to determine if the
contracts should be combined and accounted for as a single arrangement. We record reimbursements from customers for out-of-
pocket expenses as revenue. Shipping and handling fees and expenses that are billed to customers are recognized in revenue
and the costs associated with such fees and expenses are recorded in cost of revenue. Historically, these fees and expenses have
not been material. Taxes collected from customers and remitted to government authorities are excluded from revenue.
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Cost of Revenue
Our cost of revenue includes costs of materials, compensation and benefit costs for operations and service personnel,
subcontractor costs, royalties and license fees, depreciation of equipment used in operations and service, amortization of
capitalized software development costs and certain purchased intangible assets, and related overhead costs.
Where revenue is recognized over multiple periods in accordance with our revenue recognition policies, we have made an
accounting policy election whereby cost of product revenue, including hardware and third-party software license fees, are
capitalized and recognized in the same period that product revenue is recognized, while installation and other service costs are
generally expensed as incurred, except for certain contracts that are accounted for using contract accounting principles.
Deferred cost of revenue is classified in its entirety as current or long-term based on whether the related revenue will be
recognized within twelve months of the origination date of the arrangement.
For certain contracts accounted for using contract accounting principles, revisions in estimates of costs and profits are reflected
in the accounting period in which the facts that require the revision become known, if such facts become known subsequent to
the issuance of the consolidated financial statements. If such facts become known before the issuance of the consolidated
financial statements, the requisite revisions in estimates of costs and profits are reflected in the consolidated financial
statements. At the time a loss on a contract becomes evident, the entire amount of the estimated loss is accrued. Related
contract costs include all direct material and labor costs and those indirect costs related to contract performance.
Customer acquisition and origination costs, including sales commissions, are recorded in selling, general and administrative
expenses. These costs are expensed as incurred, with the exception of certain sales referral fees in our Cyber Intelligence
segment which are capitalized and amortized ratably over the revenue recognition period.
Research and Development, net
With the exception of certain software development costs, all research and development costs are expensed as incurred, and
consist primarily of personnel and consulting costs, travel, depreciation of research and development equipment, and related
overhead and other costs associated with research and development activities.
We receive non-refundable grants from the Israel Office of the Chief Scientist ("OCS") that fund a portion of our research and
development expenditures. We currently only enter into non-royalty-bearing arrangements with the OCS which do not require
us to pay royalties. Funds received from the OCS are recorded as a reduction to research and development expense. Royalties,
to the extent paid, are recorded as part of our cost of revenue.
We also periodically derive benefits from participation in certain government-sponsored programs in other jurisdictions, for the
support of research and development activities conducted in those locations.
Software Development Costs
Costs incurred to acquire or develop software to be sold, leased or otherwise marketed are capitalized after technological
feasibility is established, and continue to be capitalized through the general release of the related software product.
Amortization of capitalized costs begins in the period in which the related product is available for general release to customers
and is recorded on a straight-line basis, which approximates the pattern in which the economic benefits of the capitalized costs
are expected to be realized, over the estimated economic lives of the related software products, generally four years.
Internal-Use Software
We capitalize costs associated with internal-use software systems that have reached the application development stage. These
capitalized costs include external direct costs utilized in developing or obtaining the applications and expenses for employees
who are directly associated with the development of the applications. Capitalization of such costs begins when the preliminary
project stage is complete and continues until the project is substantially complete and is ready for its intended purpose.
Capitalized costs of computer software developed for internal use are amortized over estimates useful lives of four years on a
straight-line basis, which best represents the pattern of the software’s use.
Income Taxes
We account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements.
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Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts
of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the
current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our
assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future
changes in income tax laws or rates are not anticipated.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our tax provision
involves the application of complex tax laws and requires significant judgment and estimates.
We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and
establish valuation allowances when it is more likely than not that all or a portion of our deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character
and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but
not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In
circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more-likely-than-not
realizable, we establish a valuation allowance.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions
taken or expected to be taken in a tax return by assessing whether they are more-likely-than-not sustainable, based solely on
their technical merits, upon examination and including resolution of any related appeals or litigation process. The second step is
to measure the associated tax benefit of each position as the largest amount that we believe is more-likely-than-not realizable.
Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax
benefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a
liability or as a reduction of deferred tax assets. Our policy is to include interest (expense and/or income) and penalties related
to unrecognized income tax benefits as a component of income tax expense.
Functional Currencies and Foreign Currency Transaction Gains and Losses
The functional currency for most of our foreign subsidiaries is the applicable local currency, although we have several
subsidiaries with functional currencies that differ from their local currency, of which the most notable exceptions are our
subsidiaries in Israel, whose functional currencies are the U.S. dollar.
Transactions denominated in currencies other than a functional currency are converted to the functional currency on the
transaction date, and any resulting assets or liabilities are further translated at each reporting date and at settlement. Gains and
losses recognized upon such translations are included within other income (expense), net in the consolidated statements of
operations. We recorded net foreign currency losses of $2.7 million, $8.0 million, and $13.4 million for the years ended January
31, 2017, 2016, and 2015, respectively.
For consolidated reporting purposes, in those instances where a foreign subsidiary has a functional currency other than the U.S.
dollar, revenue and expenses are translated into U.S. dollars using average exchange rates for the reporting period, while assets
and liabilities are translated into U.S. dollars using period-end rates. The effects of foreign currency translation adjustments are
included in stockholders’ equity as a component of accumulated other comprehensive (loss) income in the accompanying
consolidated balance sheets.
Stock-Based Compensation
We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair
value of the award. We recognize the fair value of the award as compensation expense over the period during which an
employee is required to provide service in exchange for the award.
When stock options are awarded, the fair value of the option is estimated on the date of grant using the Black-Scholes option-
pricing model. Expected volatility and expected term are input factors to that model that can require significant management
judgment. Expected volatility is estimated utilizing daily historical volatility over a period that equates to the expected life of
the option. The expected life (estimated period of time outstanding) is estimated using the historical exercise behavior of
employees. The risk-free interest rate is the implied daily yield currently available on U.S. Treasury issues with a remaining
term closely approximating the expected term used as the input to the Black-Scholes option pricing model.
Net (Loss) Income Per Common Share Attributable to Verint Systems Inc.
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Shares used in the calculation of basic net (loss) income per common share are based on the weighted-average number of
common shares outstanding during the accounting period. Shares used in the calculation of basic net income per common share
include vested but unissued shares underlying awards of restricted stock units when all necessary conditions for earning those
shares have been satisfied at the award's vesting date, but exclude unvested shares of restricted stock because they are
contingent upon future service
We have the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon
conversion of our 1.50% convertible senior notes due June 1, 2021 (the “Notes”), further details for which appear in Note 6,
“Long-Term Debt”. We currently intend to settle the principal amount of the Notes in cash upon conversion and as a result,
only the amounts payable in excess of the principal amounts of the Notes, if any, are assumed to be settled with shares of
common stock for purposes of computing diluted net income per share.
In periods for which we report a net loss, basic net loss per common share and diluted net loss per common share are identical
since the effect of potential common shares is anti-dilutive and therefore excluded.
Recent Accounting Pronouncements
New Accounting Pronouncements Not Yet Effective
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, and ASU No. 2017-04, Intangibles—
Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.
ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business
affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for
annual periods beginning after December 15, 2017, including interim periods within those periods. While we are still assessing
the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated
financial statements.
ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the
amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.
The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a
material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This update
requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. This update also requires an entity to disclose the nature
of restrictions on its cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years with early adoption permitted, including adoption in an interim period. We typically have restrictions on certain amounts
of cash and cash equivalents, primarily consisting of amounts used to secure bank guarantees in connection with sales contract
performance obligations, and expect to continue to have similar restrictions in the future. We currently report changes in such
restricted amounts as cash flows from investing activities on our consolidated statement of cash flows. This standard will
change that presentation. We are currently reviewing this standard to assess other potential impacts on our future consolidated
financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15,
2017. Early adoption is permitted as of the beginning of an annual reporting period. The new standard must be adopted using a
modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. We are
currently reviewing this standard to assess the impact on our future consolidated financial statements.
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In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments, which provides guidance with the intent of reducing diversity in practice in how certain cash
receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 is effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years with early adoption permitted,
including adoption in an interim period. We are currently reviewing this standard to assess the impact on our future
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). This new standard
changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model
that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt
securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be
recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for
annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption
permitted. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718), which amends the
accounting for stock-based compensation and requires excess tax benefits and deficiencies to be recognized as a component of
income tax expense rather than stockholders' equity. This guidance also requires excess tax benefits to be presented as an
operating activity on the statement of cash flows and allows an entity to make an accounting policy election to either estimate
expected forfeitures or to account for them as they occur. ASU No. 2016-09 is effective for reporting periods beginning after
December 15, 2016, with early adoption permitted. The most significant impact of the pending adoption of this guidance on our
future consolidated financial statements, will largely be dependent upon the intrinsic value of our stock-based compensation
awards at the time of vesting and may result in more variability in our effective tax rates and net (loss) income, and may also
impact the calculation of common stock equivalents, which are used in calculating diluted net income per share. In addition,
upon adoption of the new guidance, we will classify excess tax benefits or deficits as operating activities in the consolidated
statements of cash flows rather than as financing activities.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require lessees to recognize assets and
liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement,
and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a
finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance
sheet, the new guidance will require both types of leases to be recognized on the balance sheet. The new guidance is effective
for all periods beginning after December 15, 2018 and we are currently evaluating the effects that the adoption of ASU No.
2016-02 will have on our consolidated financial statements, but anticipate that the new guidance will significantly impact our
consolidated financial statements given our significant number of leases.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09
supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue
recognition guidance throughout the Industry Topics of the Accounting Standards Codification. Additionally, this update
supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type
Contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. As originally issued, this guidance was effective for interim and annual reporting periods
beginning after December 15, 2016, and early adoption was not permitted. In July 2015, the FASB deferred the effective date
by one year, to interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not
before the original effective date of December 15, 2016. The standard allows entities to apply the standard retrospectively to
each prior reporting period presented (“full retrospective adoption”) or retrospectively with the cumulative effect of initially
applying the standard recognized at the date of initial application (“modified retrospective adoption”). We currently expect to
adopt ASU No. 2014-09 using the modified retrospective option.
We are continuing to review the impacts of adopting ASU No. 2014-09 to our consolidated financial statements. Based upon
our preliminary assessments, we currently do not expect the new standard to materially impact the amount or timing of the
majority of revenue recognized in our consolidated financial statements. We are still assessing the impact on the timing of
revenue recognized under certain contracts under which customized solutions are delivered over extended periods of time.
In addition, the timing of cost of revenue recognition for certain customer contracts requiring significant customization will
change, because unlike current guidance, the new guidance precludes the deferral of costs simply to obtain an even profit
margin over the contract term. We are also assessing the new standard’s requirement to capitalize costs associated with
obtaining customer contracts, including commission payments, which are currently expensed as incurred. Under the new
standard, these costs will be deferred on our consolidated balance sheet. We are evaluating the period over which to amortize
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these capitalized costs. In addition, for sales transactions that have been billed, but for which the recognition of revenue has
been deferred and the related account receivable has not been collected, we currently do not recognize deferred revenue or the
related accounts receivable on our consolidated balance sheet. Under the new standard, we will record accounts receivable and
related contract liabilities for noncancelable contracts with customers when the right to consideration is unconditional, which
we currently expect will result in increases in accounts receivable and contract liabilities (currently presented as deferred
revenue) on our consolidated balance sheet, compared to our current presentation. Our preliminary assessments of the impacts
to our consolidated financial statements of adopting this new standard are subject to change.
2. NET (LOSS) INCOME PER COMMON SHARE ATTRIBUTABLE TO VERINT SYSTEMS INC.
The following table summarizes the calculation of basic and diluted net (loss) income per common share attributable to Verint
Systems Inc. for the years ended January 31, 2017, 2016, and 2015:
(in thousands, except per share amounts)
Net (loss) income
Net income attributable to noncontrolling interest
Net (loss) income attributable to Verint Systems Inc.
Weighted-average shares outstanding:
Basic
Dilutive effect of employee equity award plans
Dilutive effect of 1.50% convertible senior notes
Dilutive effect of warrants
Diluted
Net (loss) income per common share attributable to Verint Systems Inc.:
Basic
Diluted
$
$
$
$
Year Ended January 31,
2016
2015
2017
(26,246) $
3,134
(29,380) $
62,593
—
—
—
62,593
22,228
4,590
17,638
$
$
61,813
1,108
—
—
62,921
36,402
5,471
30,931
58,096
1,278
—
—
59,374
(0.47) $
(0.47) $
0.29
0.28
$
$
0.53
0.52
We excluded the following weighted-average potential common shares from the calculations of diluted net (loss) income per
common share during the applicable periods because their inclusion would have been anti-dilutive:
(in thousands)
Stock options and restricted stock-based awards
1.50% convertible senior notes
Warrants
Year Ended January 31,
2016
2015
2017
1,097
6,205
6,205
596
6,205
6,205
226
3,876
3,876
In periods for which we report a net loss attributable to Verint Systems Inc., basic net loss per common share and diluted net
loss per common share are identical since the effect of all potential common shares is anti-dilutive and therefore excluded.
Our 1.50% convertible senior notes will not impact the calculation of diluted net income per share unless the average price of
our common stock, as calculated in accordance with the terms of the indenture governing the Notes, exceeds the conversion
price of $64.46 per share. Likewise, diluted net income per share will not include any effect from the Warrants (as defined in
Note 6, "Long-Term Debt") unless the average price of our common stock, as calculated under the terms of the Warrants,
exceeds the exercise price of $75.00 per share.
Our Note Hedges (as defined in Note 6, "Long-Term Debt") do not impact the calculation of diluted net income per share under
the treasury stock method, because their effect would be anti-dilutive. However, in the event of an actual conversion of any or
all of the Notes, the common shares that would be delivered to us under the Note Hedges would neutralize the dilutive effect of
the common shares that we would issue under the Notes. As a result, actual conversion of any or all of the Notes would not
increase our outstanding common stock. Up to 6,205,000 common shares could be issued upon exercise of the Warrants.
Further details regarding the Notes, Note Hedges, and the Warrants appear in Note 6, "Long-Term Debt".
3. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
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The following tables summarize our cash, cash equivalents, and short-term investments as of January 31, 2017 and 2016:
(in thousands)
Cash and cash equivalents:
Cash and bank time deposits
Money market funds
Total cash and cash equivalents
Short-term investments:
Bank time deposits
Total short-term investments
(in thousands)
Cash and cash equivalents:
Cash and bank time deposits
Money market funds
Commercial paper and corporate debt securities
Total cash and cash equivalents
Short-term investments:
Commercial paper and corporate debt securities (available-
for-sale)
Bank time deposits
Total short-term investments
January 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Cost Basis
$
$
$
$
307,188
175
307,363
3,184
3,184
$
$
$
$
— $
—
— $
— $
— $
— $
—
— $
307,188
175
307,363
— $
— $
3,184
3,184
January 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Cost Basis
$
$
$
$
334,938
12,137
5,054
352,129
53,018
3,050
56,068
$
$
$
$
— $
—
—
— $
— $
—
— $
— $
—
(24)
(24) $
334,938
12,137
5,030
352,105
(86) $
—
(86) $
52,932
3,050
55,982
Bank time deposits which are reported within short-term investments consist of deposits held outside of the U.S. with
maturities of greater than 90 days, or without specified maturity dates which we intend to hold for periods in excess of 90 days.
All other bank deposits are included within cash and cash equivalents.
As of January 31, 2016, all of our available-for-sale investments had contractual maturities of less than one year. Gains and
losses on sales of available-for-sale securities during the years ended January 31, 2017, 2016, and 2015 were not significant.
During the years ended January 31, 2017, 2016, and 2015, proceeds from maturities and sales of available-for-sale securities
were $52.8 million, $71.5 million, and $13.7 million, respectively.
4. BUSINESS COMBINATIONS
Year Ended January 31, 2017
Contact Solutions, LLC
On February 19, 2016, we completed the acquisition of Contact Solutions, LLC ("Contact Solutions"), a provider of real-time,
contextual self-service solutions, based in Reston, Virginia. The purchase price consisted of $66.9 million of cash paid at
closing, and a $2.5 million post-closing purchase price adjustment based upon a determination of Contact Solutions'
acquisition-date working capital, which was paid during the three months ended July 31, 2016. The cash paid for this
acquisition was funded with cash on hand.
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The purchase price for Contact Solutions was allocated to the tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values on the acquisition dates, with the remaining unallocated purchase price recorded as
goodwill. The fair value assigned to identifiable intangible assets acquired were determined primarily by using the income
approach, which discounts expected future cash flows to present value using estimates and assumptions determined by
management.
Among the factors contributing to the recognition of goodwill as a component of the Contact Solutions purchase price
allocation were synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has
been assigned to our Customer Engagement segment and is deductible for income tax purposes.
In connection with the purchase price allocation for Contact Solutions, the estimated fair value of undelivered performance
obligations under customer contracts assumed in the acquisition was determined utilizing a cost build-up approach. The cost
build-up approach calculates fair value by estimating the costs required to fulfill the obligations plus a reasonable profit margin,
which approximates the amount that we believe would be required to pay a third party to assume the performance obligations.
The estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similar
services. As a result, in allocating the purchase price, we recorded $0.6 million of current and long-term deferred revenue,
representing the estimated fair value of undelivered performance obligations for which payment had been received, which will
be recognized as revenue as the underlying performance obligations are delivered. For undelivered performance obligations for
which payment had not yet been received, we recorded a $2.9 million asset as a component of the purchase price allocation,
representing the estimated fair value of these obligations, $1.2 million of which is included within prepaid expenses and other
current assets, and $1.7 million of which is included in other assets. We are amortizing this asset over the underlying delivery
periods, which adjusts the revenue we recognize for providing these services to its estimated fair value.
Transaction and related costs directly related to the acquisition of Contact Solutions, consisting primarily of professional fees
and integration expenses, were $1.4 million and $0.1 million for the years ended January 31, 2017 and 2016, respectively, and
were expensed as incurred and are included in selling, general and administrative expenses.
Revenue attributable to Contact Solutions included in our consolidated statement of operations for the year ended January 31,
2017 was not material. Contact Solutions reported a loss before provision (benefit) for income taxes of $8.5 million for the
year ended January 31, 2017.
OpinionLab, Inc.
On November 16, 2016, we completed the acquisition of all of the outstanding shares of OpinionLab, Inc. ("OpinionLab"), a
leading SaaS provider of omnichannel Voice of Customer (“VoC”) feedback solutions which help organizations collect,
understand, and leverage customer insights, helping drive smarter, real-time business action. OpinionLab is based in Chicago,
Illinois.
The purchase price consisted of $56.4 million of cash paid at the closing, funded from cash on hand, partially offset by $6.4
million of OpinionLab's cash received in the acquisition, resulting in net cash consideration at closing of $50.0 million, and we
agreed to pay potential additional future cash consideration of up to $28.0 million, contingent upon the achievement of certain
performance targets over the period from closing through January 31, 2021, the acquisition date fair value of which was
estimated to be $15.0 million. The purchase price is subject to customary purchase price adjustments related to the final
determination of OpinionLab's cash, net working capital, transaction expenses, and taxes as of November 16, 2016. The
acquired business is being integrated into our Customer Engagement operating segment.
The purchase price for OpinionLab was allocated to the tangible and intangible assets acquired and liabilities assumed based on
their estimated fair values on the acquisition dates, with the remaining unallocated purchase price recorded as goodwill. The
fair value assigned to identifiable intangible assets acquired were determined primarily by using the income approach, which
discounts expected future cash flows to present value using estimates and assumptions determined by management.
Among the factors contributing to the recognition of goodwill as a component of the OpinionLab purchase price allocation
were synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has been
assigned to our Customer Engagement segment and is not deductible for income tax purposes.
In connection with the purchase price allocation for OpinionLab, the estimated fair value of undelivered performance
obligations under customer contracts assumed in the acquisition was determined utilizing a cost build-up approach. The cost
build-up approach calculates fair value by estimating the costs required to fulfill the obligations plus a reasonable profit margin,
which approximates the amount that we believe would be required to pay a third party to assume the performance obligations.
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The estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similar
services. As a result, in allocating the purchase price, we recorded $3.1 million of current and long-term deferred revenue,
representing the estimated fair value of undelivered performance obligations for which payment had been received, which will
be recognized as revenue as the underlying performance obligations are delivered. For undelivered performance obligations for
which payment had not yet been received, we recorded a $5.4 million asset as a component of the purchase price allocation,
representing the estimated fair value of these obligations, $3.4 million of which is included within prepaid expenses and other
current assets, and $2.0 million of which is included in other assets. We are amortizing this asset over the underlying delivery
periods, which adjusts the revenue we recognize for providing these services to its estimated fair value.
The purchase price allocation for OpinionLab has been prepared on a preliminary basis and changes to the allocation may occur
as additional information becomes available during the measurement period (up to one year from the acquisition date). Fair
values still under review include values assigned to identifiable intangible assets and certain pre-acquisition loss contingencies.
Transaction and related costs directly related to the acquisition of OpinionLab, consisting primarily of professional fees and
integration expenses, were $0.6 million for the year ended January 31, 2017, and were expensed as incurred and are included in
selling, general and administrative expenses.
Revenue and (loss) income before provision (benefit) for income taxes attributable to OpinionLab included in our consolidated
statement of operations for the year ended January 31, 2017 were not material.
The following table sets forth the components and the allocation of the purchase price for our acquisitions of Contact Solutions
and OpinionLab.
(in thousands)
Components of Purchase Price:
Cash paid at closing
Fair value of contingent consideration
Other purchase price adjustments
Total purchase price
Allocation of Purchase Price:
Net tangible assets (liabilities):
Accounts receivable
Other current assets, including cash acquired
Property and equipment, net
Other assets
Current and other liabilities
Deferred revenue - current and long-term
Deferred Income Taxes - current and long-term
Net tangible assets (liabilities)
Identifiable intangible assets:
Customer relationships
Developed technology
Trademarks and trade names
Total identifiable intangible assets
Goodwill
Total purchase price allocation
Contact
Solutions
OpinionLab
$
$
$
$
66,915
—
2,518
69,433
8,102
2,392
7,007
1,904
(4,943)
(642)
—
13,820
18,000
13,100
2,400
33,500
22,113
69,433
$
$
$
$
56,355
15,000
—
71,355
748
10,625
298
2,036
(1,600)
(3,082)
(9,995)
(970)
19,100
10,400
1,800
31,300
41,025
71,355
For the acquisition of Contact Solutions, the acquired customer relationships, developed technology, and trademarks and trade
names were assigned estimated useful lives of ten years, four years, and five years, respectively, the weighted average of which
is approximately 7.3 years.
For the acquisition of OpinionLab, the acquired customer relationships, developed technology, and trademarks and trade names
were assigned estimated useful lives of ten years, six years, and four years, respectively, the weighted average of which is
approximately 8.3 years.
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The weighted-average estimated useful life of all finite-lived identifiable intangible assets acquired during the year ended
January 31, 2017 is 7.8 years.
The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the
pattern in which the assets are utilized, over their estimated useful lives.
Other Business Combinations
During the year ended January 31, 2017, we completed two transactions that qualified as business combinations in our
Customer Engagement segment. These business combinations were not material to our consolidated financial statements
individually or in the aggregate.
Year Ended January 31, 2016
During the year ended January 31, 2016, we completed three business
• On February 12, 2015, we completed the acquisition of a business that has been integrated into our Customer
Engagement operating segment.
• On May 1, 2015, we completed the acquisition of a business that has been integrated into our Cyber Intelligence
operating segment.
• On August 11, 2015, we acquired certain technology and other assets for use in our Customer Engagement
operating segment in a transaction that qualified as a business combination.
These business combinations were not individually material to our consolidated financial
The combined consideration for these business combinations was approximately $49.5 million, including $33.2 million of
combined cash paid at the closings. For one of these business combinations, we also agreed to make potential additional cash
payments to the respective former shareholders aggregating up to approximately $30.5 million, contingent upon the
achievement of certain performance targets over periods extending through April 2020. The fair value of these contingent
consideration obligations was estimated to be $16.2 million at the applicable acquisition date.
Included among the factors contributing to the recognition of goodwill in these transactions were synergies in products and
technologies, and the addition of skilled, assembled workforces. Of the $28.7 million of goodwill associated with these
business combinations, $7.7 million and $21.0 million was assigned to our Customer Engagement and Cyber Intelligence
segments, respectively. For income tax purposes, $5.1 million of this goodwill is deductible and $23.6 million is not deductible.
Revenue and the impact on net income attributable to these acquisitions for the year ended January 31, 2016 were not
significant.
Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these
acquisitions, totaled $0.6 million and $1.4 million for the years ended January 31, 2017 and 2016, respectively. All transaction
and related costs were expensed as incurred and are included in selling, general and administrative
The purchase price allocations for business combinations completed during the year ended January 31, 2016 are final.
The following table sets forth the components and the allocations of the combined purchase prices for the business
combinations completed during the year ended January 31, 2016, including adjustments identified subsequent to the respective
valuation dates, none of which were material:
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(in thousands)
Components of Purchase Prices:
Cash
Fair value of contingent consideration
Total purchase prices
Allocation of Purchase Prices:
Net tangible assets (liabilities):
Accounts receivable
Other current assets, including cash acquired
Other assets
Current and other liabilities
Deferred revenue - current and long-term
Deferred income taxes - current and long-term
Net tangible liabilities
Identifiable intangible assets:
Customer relationships
Developed technology
Trademarks and trade names
In-process research and development
Total identifiable intangible assets
Goodwill
Total purchase price allocations
Amount
33,222
16,237
49,459
992
4,274
395
(3,037)
(1,872)
(2,922)
(2,170)
1,212
20,300
300
1,100
22,912
28,717
49,459
$
$
$
$
For these acquisitions, customer relationships, developed technology, and trademarks and trade names were assigned estimated
useful lives of from five years to ten years, from four years to five years, and three years, respectively, the weighted average of
which is approximately 4.4 years.
The pro forma impact of these acquisitions was not material to our historical consolidated operating results and is therefore not
presented.
Year Ended January 31, 2015
KANA Software, Inc.
On February 3, 2014, we completed the acquisition of Sunnyvale, California-based KANA Software, Inc. and its subsidiaries
("KANA"), a leading global provider of on-premises and cloud-based solutions which create differentiated, personalized, and
integrated customer experiences for large enterprises and mid-market organizations. The purchase price consisted of $542.4
million of cash paid at the closing, partially offset by $25.1 million of KANA’s cash received in the acquisition, and a $0.7
million post-closing purchase price adjustment, resulting in net cash consideration of $516.6 million.
The merger consideration was funded by a combination of cash on hand, $300.0 million of incremental term loans incurred in
connection with an amendment to our Credit Agreement, and $125.0 million of borrowings under our 2013 Revolving Credit
Facility (further details for which appear in Note 6, "Long-Term Debt").
KANA has been integrated into our Customer Engagement operating segment.
Among the factors contributing to the recognition of goodwill as a component of the KANA purchase price allocation were
synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has been assigned to
our Customer Engagement segment and while generally not deductible for income tax purposes, certain goodwill related to
previous business combinations by KANA is deductible for income tax purposes.
In connection with the purchase price allocation for KANA, the estimated fair value of undelivered performance obligations
under customer contracts assumed in the merger was determined utilizing a cost build-up approach. The cost build-up approach
calculates fair value by estimating the costs required to fulfill the obligations plus a reasonable profit margin, which
approximates the amount that we believe would be required to pay a third party to assume the performance obligations. The
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estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similar services. As
a result, in allocating the purchase price, we recorded $7.9 million of current and long-term deferred revenue, representing the
estimated fair value of undelivered performance obligations for which payment had been received, which will be recognized as
revenue as the underlying performance obligations are delivered. For undelivered performance obligations for which payment
had not yet been received, we recorded an $18.6 million asset within prepaid expenses and other current assets as a component
of the purchase price allocation. We are amortizing this asset over the underlying delivery periods for these obligations as a
reduction to revenue, which reduces the revenue we recognize for providing these services to its estimated fair value.
Transaction and related costs directly related to the acquisition of KANA, consisting primarily of professional fees and
integration expenses, were $0.6 million, $3.2 million, and $10.0 million for the years ended January 31, 2017, 2016, and 2015,
respectively. All transaction and related costs were expensed as incurred and are included in selling, general and administrative
UTX Technologies Limited
On March 31, 2014, we completed the acquisition of all of the outstanding shares of UTX Technologies Limited (“UTX”), a
provider of certain mobile device tracking solutions for security applications, from UTX Limited. UTX Limited was the
supplier of these products to our Cyber Intelligence operating segment prior to the acquisition. The purchase price consisted of
$82.9 million of cash paid at closing, and up to $1.5 million of potential future contingent consideration payments to UTX
Limited, the acquisition date fair value of which was estimated to be $1.3 million. During the year ended January 31, 2015,
$1.5 million of contingent consideration was paid to UTX Limited.
UTX is based in the Europe, the Middle East and Africa (“EMEA”) region and has been integrated into our Cyber Intelligence
operating segment.
Among the factors contributing to the recognition of goodwill as a component of the UTX purchase price allocation were
synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has been assigned to
our Cyber Intelligence segment and is not deductible for income tax purposes.
Transaction and related costs directly related to the acquisition of UTX, consisting primarily of professional fees, integration
expenses and related adjustments, were $2.5 million for the year ended January 31, 2015 and not material for the years ended
January 31, 2017 and 2016. Such costs were expensed as incurred and are included in selling, general and administrative
expenses.
As a result of the UTX acquisition, we recorded a $2.6 million charge for the impairment of certain capitalized software
development costs during the year ended January 31, 2015, reflecting strategy changes in certain product development
initiatives. This charge is reflected within cost of product revenue.
Purchase Price Allocations
The following table sets forth the components and the allocations of the purchase prices for our acquisitions of KANA and
UTX, including adjustments identified subsequent to the respective acquisition dates:
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(in thousands)
Components of Purchase Prices:
Cash, including post-closing adjustments
Fair value of contingent consideration
Total purchase prices
Allocation of Purchase Prices:
Net tangible assets (liabilities):
Accounts receivable
Other current assets, including cash acquired
Other assets
Current and other liabilities
Deferred revenue - current and long-term
Deferred income taxes - current and long-term
Net tangible liabilities
Identifiable intangible assets:
Customer relationships
Developed technology
Trademarks and trade names
Other intangible assets
Total identifiable intangible assets
Goodwill
Total purchase price allocations
KANA
UTX
$
$
$
$
541,685
—
541,685
18,473
49,707
14,494
(17,851)
(7,932)
(60,879)
(3,988)
152,700
55,500
11,500
—
219,700
325,973
541,685
$
$
$
$
82,901
1,347
84,248
—
3,799
924
(263)
(340)
(4,882)
(762)
2,000
37,400
—
1,100
40,500
44,510
84,248
For the acquisition of KANA, the acquired customer relationships, developed technology, and trademarks and trade names
were assigned estimated useful lives of five to ten years, three to five years, and five years, respectively, the weighted average
of which is approximately 8.1 years.
For the acquisition of UTX, the acquired customer relationships, developed technology and other intangible assets were
assigned estimated useful lives of three years, four years, and four years, respectively, the weighted average of which is
approximately 4.0 years.
The weighted-average estimated useful life of all finite-lived identifiable intangible assets acquired during the year ended
January 31, 2015 is 7.4 years.
The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the
pattern in which the assets are utilized, over their estimated useful lives.
Pro Forma Information
The following table provides unaudited pro forma operating results for the year ended January 31, 2015, as if KANA and UTX
had been acquired on February 1, 2014. These unaudited pro forma results reflect certain adjustments related to these
acquisitions, including amortization expense on finite-lived intangible assets acquired from KANA and UTX, interest expense
and fees associated with additional long-term debt incurred to partially fund the acquisition of KANA, and adjustments to
recognize the fair value of revenue associated with performance obligations assumed in the acquisition of KANA.
The unaudited pro forma results do not include any operating efficiencies or potential cost savings associated with these
business combinations. Accordingly, such unaudited pro forma amounts are not necessarily indicative of the results that
actually would have occurred had the acquisitions been completed on February 1, 2014, nor are they indicative of future
operating results.
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(in thousands, except per share amounts)
Revenue
Net income
Net income attributable to Verint Systems Inc.
Net income per common share attributable to Verint Systems Inc.:
Basic
Diluted
Other Business Combination Information
Year Ended
January 31,
2015
1,158,141
29,644
24,173
$
$
$
$
$
0.42
0.41
The acquisition date fair values of contingent consideration obligations associated with business combinations are estimated
based on probability adjusted present values of the consideration expected to be transferred using significant inputs that are not
observable in the market. Key assumptions used in these estimates include probability assessments with respect to the
likelihood of achieving the performance targets and discount rates consistent with the level of risk of achievement. At each
reporting date, we revalue the contingent consideration obligations to their fair values and record increases and decreases in fair
value within selling, general and administrative expenses in our consolidated statements of operations. Changes in the fair
value of the contingent consideration obligations result from changes in discount periods and rates, and changes in probability
assumptions with respect to the likelihood of achieving the performance targets.
For the years ended January 31, 2017, 2016, and 2015, we recorded a charge of $7.3 million, a benefit of $0.9 million, and a
charge of $0.9 million, respectively, within selling, general and administrative expenses for changes in the fair values of
contingent consideration obligations associated with business combinations. The aggregate fair value of the remaining
contingent consideration obligations associated with business combinations was $52.7 million at January 31, 2017, of which
$10.0 million was recorded within accrued expenses and other current liabilities, and $42.7 million was recorded within other
liabilities.
Payments of contingent consideration earned under these agreements were $3.3 million, $7.4 million, and $12.0 million for the
years ended January 31, 2017, 2016, and 2015, respectively.
5.
INTANGIBLE ASSETS AND GOODWILL
Acquisition-related intangible assets consisted of the following as of January 31, 2017 and 2016:
(in thousands)
Intangible assets with finite lives:
Customer relationships
Acquired technology
Trade names
Non-competition agreements
Distribution network
Total intangible assets with finite lives
In-process research and development, with indefinite lives
Total intangible assets
January 31, 2017
Accumulated
Amortization
Net
Cost
$
$
403,657
233,982
23,493
3,047
4,440
668,619
1,100
669,719
$
$
(244,792) $
(168,653)
(14,187)
(2,499)
(4,329)
(434,460)
—
(434,460) $
158,865
65,329
9,306
548
111
234,159
1,100
235,259
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(in thousands)
Intangible assets, all with finite lives:
Customer relationships
Acquired technology
Trade names
Non-competition agreements
Distribution network
Total intangible assets with finite lives
In-process research and development, with indefinite lives
Total intangible assets
January 31, 2016
Accumulated
Amortization
Net
Cost
$
$
371,722
211,388
18,457
3,047
4,440
609,054
1,100
610,154
$
$
(211,824) $
(134,391)
(11,570)
(2,137)
(3,550)
(363,472)
—
(363,472) $
159,898
76,997
6,887
910
890
245,582
1,100
246,682
The following table presents net acquisition-related intangible assets by reportable segment as of January 31, 2017 and 2016:
(in thousands)
Customer Engagement
Cyber Intelligence
Total
January 31,
2017
2016
$
$
207,436
27,823
235,259
$
$
201,503
45,179
246,682
Total amortization expense recorded for acquisition-related intangible assets was $81.5 million, $78.9 million, and $76.2
million for the years ended January 31, 2017, 2016, and 2015, respectively. The reported amount of net acquisition-related
intangible assets can fluctuate from the impact of changes in foreign currency exchange rates on intangible assets not
denominated in U.S. dollars.
Estimated future amortization expense on finite-lived acquisition-related intangible assets is as follows:
(in thousands)
Years Ending January 31,
2018
2019
2020
2021
2022
Thereafter
Total
Amount
68,227
41,246
31,888
24,716
21,626
46,456
234,159
$
$
During the year ended January 31, 2016, we recorded a $3.2 million impairment of an acquired technology asset, which is
included within cost of product revenue. No impairments of acquired intangible assets were recorded during the years ended
January 31, 2017 and 2015.
As discussed in Note 16, "Segment Information", effective in August 2016, we reorganized into two businesses and now
present our results in two reportable segments. We reallocated $51.8 million of goodwill, net of $25.3 million of accumulated
impairment losses, from our former Video Intelligence segment to our Customer Engagement segment, and $22.2 million of
goodwill, net of $10.8 million of accumulated impairment losses, to our Cyber Intelligence segment, using a relative fair value
approach. In addition, we completed an assessment for potential impairment of the goodwill previously allocated to our former
Video Intelligence segment immediately prior to the reallocation and determined that no impairment existed.
Goodwill activity for the years ended January 31, 2017, and 2016, in total and by reportable segment, was as follows:
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(in thousands)
Year Ended January 31, 2016:
Goodwill, gross, at January 31, 2015
Accumulated impairment losses through January 31, 2015
Goodwill, net, at January 31, 2015
Business combinations
Foreign currency translation and other
Goodwill, net, at January 31, 2016
Year Ended January 31, 2017:
Goodwill, gross, at January 31, 2016
Accumulated impairment losses through January 31, 2016
Goodwill, net, at January 31, 2016
Business combinations
Foreign currency translation and other
Goodwill, net, at January 31, 2017
Balance at January 31, 2017:
Goodwill, gross, at January 31, 2017
Accumulated impairment losses through January 31, 2017
Goodwill, net, at January 31, 2017
Reportable Segment
Total
Customer
Engagement
Cyber Intelligence
$
$
$
$
$
$
1,267,682
(66,865)
1,200,817
28,717
(22,358)
1,207,176
1,274,041
(66,865)
1,207,176
91,209
(33,567)
1,264,818
1,331,683
(66,865)
1,264,818
$
$
$
$
$
$
1,144,188
(56,043)
1,088,145
7,695
(20,634)
1,075,206
1,131,249
(56,043)
1,075,206
91,209
(34,436)
1,131,979
1,188,022
(56,043)
1,131,979
$
$
$
$
$
$
123,494
(10,822)
112,672
21,022
(1,724)
131,970
142,792
(10,822)
131,970
—
869
132,839
143,661
(10,822)
132,839
As a result of the segment reorganization discussed above, we concluded that, for purposes of reviewing for potential goodwill
impairment, we have three reporting units, consisting of Customer Engagement, Cyber Intelligence (excluding situational
intelligence solutions), and the Situational Intelligence business of our former Video Intelligence segment, which is now a
component of our Cyber Intelligence operating segment. Based upon our November 1, 2016 goodwill impairment reviews, we
concluded that the estimated fair values of all of our reporting units significantly exceeded their carrying values.
No changes in circumstances or indicators of potential impairment were identified between November 1 and January 31 in each
of the years ended January 31, 2017 and 2016.
No goodwill impairment was identified for the years ended January 31, 2017, 2016, and 2015.
6. LONG-TERM DEBT
The following table summarizes our long-term debt at January 31, 2017 and 2016:
(in thousands)
1.50% Convertible Senior Notes
February 2014 Term Loans
March 2014 Term Loans
Other debt
Less: Unamortized debt discounts and issuance costs
Total debt
Less: current maturities
Long-term debt
1.50% Convertible Senior Notes
91
January 31,
2017
2016
$
$
400,000
130,060
278,978
404
(60,571)
748,871
4,611
744,260
$
$
400,000
130,729
280,413
—
(73,055)
738,087
2,104
735,983
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On June 18, 2014, we issued $400.0 million in aggregate principal amount of 1.50% convertible senior notes due June 1, 2021,
unless earlier converted by the holders pursuant to their terms. Net proceeds from the Notes after underwriting discounts were
$391.9 million. The Notes pay interest in cash semiannually in arrears at a rate of 1.50% per annum.
The Notes were issued concurrently with our public issuance of 5,750,000 shares of common stock, the majority of the
combined net proceeds of which were used to partially repay certain indebtedness under our Credit Agreement, as further
described below. Additional details regarding our June 18, 2014 issuance of common stock appear in Note 8, “Stockholders’
Equity”.
The Notes are unsecured and rank senior in right of payment to our indebtedness that is expressly subordinated in right of
payment to the Notes; equal in right of payment to our indebtedness that is not so subordinated; effectively subordinated in
right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and
structurally subordinated to indebtedness and other liabilities of our subsidiaries.
The Notes are convertible into, at our election, cash, shares of common stock, or a combination of both, subject to satisfaction
of specified conditions and during specified periods, as described below. If converted, we currently intend to pay cash in
respect of the principal amount of the Notes.
The Notes have a conversion rate of 15.5129 shares of common stock per $1,000 principal amount of Notes, which represents
an effective conversion price of approximately $64.46 per share of common stock and would result in the issuance of
approximately 6,205,000 shares if all of the Notes were converted. The conversion rate has not changed since issuance of the
Notes, although throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events.
Holders may surrender their Notes for conversion at any time prior to the close of business on the business day immediately
preceding December 1, 2020, only under the following circumstances:
•
•
•
during any calendar quarter commencing after the calendar quarter which ended on September 30, 2014, if the closing
sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter, is more than
130% of the conversion price of the Notes in effect on each applicable trading day;
during the ten consecutive trading-day period following any five consecutive trading-day period in which the trading
price for the Notes for each such trading day was less than 98% of the closing sale price of our common stock on such
date multiplied by the then-current conversion rate; or
upon the occurrence of specified corporate events, as described in the indenture governing the Notes, such as a
consolidation, merger, or binding share exchange.
On or after December 1, 2020 until the close of business on the second scheduled trading day immediately preceding the
maturity date, holders may surrender their Notes for conversion regardless of whether any of the foregoing conditions have
been satisfied.
As of January 31, 2017, the Notes were not convertible.
In accordance with accounting guidance for convertible debt with a cash conversion option, we separately accounted for the
debt and equity components of the Notes in a manner that reflected our estimated nonconvertible debt borrowing rate. We
estimated the debt and equity components of the Notes to be $319.9 million and $80.1 million respectively, at the issuance date
assuming a 5.00% non-convertible borrowing rate. The equity component was recorded as an increase to additional paid-in
capital. The excess of the principal amount of the debt component over its carrying amount (the “debt discount”) is being
amortized as interest expense over the term of the Notes using the effective interest method. The equity component is not
remeasured as long as it continues to meet the conditions for equity classification.
We allocated transaction costs related to the issuance of the Notes, including underwriting discounts, of $7.6 million and $1.9
million to the debt and equity components, respectively. Issuance costs attributable to the debt component of the Notes are
presented as a reduction of long-term debt and are being amortized as interest expense over the term of the Notes, and issuance
costs attributable to the equity component were netted with the equity component in additional paid-in capital. The carrying
amount of the equity component, net of issuance costs, was $78.2 million at January 31, 2017.
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As of January 31, 2017, the carrying value of the debt component was $341.7 million, which is net of unamortized debt
discount and issuance costs of $53.3 million and $5.0 million, respectively. Including the impact of the debt discount and
related deferred debt issuance costs, the effective interest rate on the Notes was approximately 5.29% for each of the years
ended January 31, 2017, 2016, and 2015.
Based on the closing market price of our common stock on January 31, 2017, the if-converted value of the Notes was less than
the aggregate principal amount of the Notes.
Note Hedges and Warrants
Concurrently with the issuance of the Notes, we entered into convertible note hedge transactions (the “Note Hedges”) and sold
warrants (the “Warrants”). The combination of the Note Hedges and the Warrants serves to increase the effective initial
conversion price for the Notes to $75.00 per share. The Note Hedges and Warrants are each separate instruments from the
Notes.
Note Hedges
Pursuant to the Note Hedges, we purchased call options on our common stock, under which we have the right to acquire from
the counterparties up to approximately 6,205,000 shares of our common stock, subject to customary anti-dilution adjustments,
at a price of $64.46, which equals the initial conversion price of the Notes. Our exercise rights under the Note Hedges generally
trigger upon conversion of the Notes and the Note Hedges terminate upon maturity of the Notes, or the first day the Notes are
no longer outstanding. The Note Hedges may be settled in cash, shares of our common stock, or a combination thereof, at our
option, and are intended to reduce our exposure to potential dilution upon conversion of the Notes. We paid $60.8 million for
the Note Hedges, which was recorded as a reduction to additional paid-in capital. As of January 31, 2017, we had not purchased
any shares of our common stock under the Note Hedges.
Warrants
We sold the Warrants to several counterparties. The Warrants provide the counterparties rights to acquire from us up to
approximately 6,205,000 shares of our common stock at a price of $75.00 per share. The Warrants expire incrementally on a
series of expiration dates beginning in August 2021. At expiration, if the market price per share of our common stock exceeds
the strike price of the Warrants, we will be obligated to issue shares of our common stock having a value equal to such excess.
The Warrants could have a dilutive effect on net income per share to the extent that the market value of our common stock
exceeds the strike price of the Warrants. Proceeds from the sale of the Warrants were $45.2 million and were recorded as
additional paid-in capital. As of January 31, 2017, no Warrants had been exercised and all Warrants remained outstanding.
The Note Hedges and Warrants both meet the requirements for classification within stockholders’ equity, and their respective
fair values are not remeasured and adjusted as long as these instruments continue to qualify for stockholders’ equity
classification.
Credit Agreement
In April 2011, we terminated a prior credit agreement and entered into a credit agreement with our lenders, which was amended
and restated in March 2013, and further amended in February, March and June 2014 (the “Credit Agreement"). The Credit
Agreement, as amended and restated, provides for senior secured credit facilities, currently comprised of $300.0 million of term
loans borrowed in February 2014 (the “February 2014 Term Loans”), and $643.5 million of term loans borrowed in March
2014 (the "March 2014 Term Loans"), all of which matures in September 2019, and a $300.0 million revolving credit facility
maturing in September 2018 (the "Revolving Credit Facility"), subject to increase and reduction from time to time as described
in the Credit Agreement.
Debt issuance and debt modification costs, as well as original issuance discounts, incurred in connection with the Credit
Agreement are deferred and amortized as adjustments to interest expense over the remaining contractual life of the associated
borrowing.
The February 2014 Term Loans were borrowed in connection with our February 2014 acquisition of KANA. The March 2014
Term Loans were borrowed as part of a refinancing of previously outstanding term loans under the Credit Agreement, which
was accounted for as an early retirement of the previously outstanding term loans. As a result, $4.3 million of unamortized
deferred debt issuance costs and a $2.8 million unamortized discount associated with the previously outstanding term loans
were written off as a $7.1 million loss on early retirement of debt during the year ended January 31, 2015.
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In June 2014, we utilized the majority of the combined net proceeds from the issuance of the Notes and the concurrent issuance
of 5,750,000 shares of common stock to retire $530.0 million of the February 2014 Term Loans and March 2014 Term Loans,
and all $106.0 million of then-outstanding borrowings under the Revolving Credit Facility. As a result, $3.8 million and $1.3
million of deferred debt issuance costs associated with the February 2014 Term Loans and March 2014 Term Loans,
respectively, and a $0.4 million unamortized discount associated with the February 2014 Term Loans, were written off as a $5.5
million loss on early retirement of debt during the year ended January 31, 2015.
The outstanding February 2014 Term Loans and March 2014 Term Loans incur interest at our option at either a base rate plus a
spread of 1.75% or an Adjusted LIBOR Rate, as defined in the Credit Agreement, plus a spread of 2.75%.
As of January 31, 2017, the weighted-average interest rate on both the February 2014 Term Loans and the March 2014 Term
Loans was 3.58%. Taking into account the impact of original issuance discounts, if any, and related deferred debt issuance
costs, the effective interest rates on the February 2014 Term Loans and March 2014 Term Loans were
approximately 4.11% and 3.66%, respectively, at January 31, 2017.
During the year ended January 31, 2017, we executed a pay-fixed, receive-variable interest rate swap agreement with a
multinational financial institution to partially mitigate risks associated with the variable interest rate on our term loans, further
details for which appear in Note 12, "Derivative Financial Instruments".
We are required to pay a commitment fee equal to 0.50% per annum of the undrawn portion on the Revolving Credit Facility,
payable quarterly, and customary administrative agent and letter of credit fees.
Loans under the Credit Agreement are subject to mandatory prepayment requirements with respect to certain asset sales, excess
cash flows (as defined in the Credit Agreement), and certain other events. Optional prepayments of the term loans are permitted
without premium or penalty, other than customary breakage costs associated with the prepayment of loans bearing interest
based on LIBOR.
Our obligations under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and certain foreign
subsidiaries, and are secured by security interests in substantially all of our and the aforementioned subsidiaries' assets, subject
to certain exceptions.
The Credit Agreement contains certain customary affirmative and negative covenants for credit facilities of this type. The
Revolving Credit Facility also contains a financial covenant that requires us to maintain a ratio of Consolidated Total Debt to
Consolidated EBITDA (each as defined in the Credit Agreement) of no greater than 4.50 to 1 (the "Leverage Ratio Covenant").
The limitations imposed by the covenants are subject to certain exceptions as detailed in the Credit Agreement.
The Credit Agreement provides for certain customary events of default with corresponding grace periods. Upon the occurrence
of an event of default resulting from a violation of the Leverage Ratio Covenant, the lenders under our Revolving Credit
Facility may require us to immediately repay outstanding borrowings under the Revolving Credit Facility and may terminate
their commitments to provide loans under that facility. A violation of the Leverage Ratio Covenant would not, by itself, result
in an event of default under the February 2014 Term Loans or March 2014 Term Loans but may trigger a cross-default under
the term loans in the event we are required to repay outstanding borrowings under the Revolving Credit Facility. Upon the
occurrence of other events of default, the lenders may require us to immediately repay all outstanding borrowings under the
Credit Agreement and the lenders under our Revolving Credit Facility may terminate their commitments to provide loans under
the facility
Future Principal Payments on Term Loans
As of January 31, 2017, future scheduled principal payments on the February 2014 Term Loans and March 2014 Term Loans
are presented in the following table:
(in thousands)
Years Ending January 31,
2018
2019
2020
Total
February
2014
Term Loans
1,337
$
1,337
127,386
130,060
$
March
2014
Term Loans
2,869
$
2,869
273,240
278,978
$
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Interest Expense
The following table presents the components of interest expense incurred on the Notes and on borrowings under our Credit
Agreement for the years ended January 31, 2017, 2016, and 2015:
(in thousands)
1.50% Convertible Senior Notes:
Interest expense at 1.50% coupon rate
Amortization of debt discount
Amortization of deferred debt issuance costs
Total - 1.50% Convertible Senior Notes
Borrowings under Credit Agreement:
Interest expense at contractual rates
Impact of interest rate swap agreement
Amortization of debt discounts
Amortization of deferred debt issuance costs
Total - Borrowings under Credit Agreement
Year Ended January 31,
2016
2015
2017
$
$
$
$
6,000
10,669
1,007
17,676
14,682
259
58
2,211
17,210
$
$
$
$
6,000
10,123
955
17,078
14,590
—
56
2,166
16,812
$
$
$
$
3,717
6,014
566
10,297
23,236
—
116
2,435
25,787
7. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION
Consolidated Balance Sheets
Inventories consisted of the following as of January 31, 2017 and 2016:
(in thousands)
Raw materials
Work-in-process
Finished goods
Total inventories
Property and equipment, net consisted of the following as of January 31, 2017 and 2016:
(in thousands)
Land and buildings
Leasehold improvements
Software
Equipment, furniture, and other
Less: accumulated depreciation and amortization
Total property and equipment, net
January 31,
2017
2016
9,074
4,355
4,108
17,537
$
$
7,177
6,668
4,467
18,312
January 31,
2017
2016
9,543
29,247
61,810
93,968
194,568
(117,017)
77,551
$
$
10,276
28,538
47,615
79,545
165,974
(97,070)
68,904
$
$
$
$
Depreciation expense on property and equipment was $25.2 million, $20.3 million, and $17.7 million the years ended January
31, 2017, 2016, and 2015, respectively.
Other assets consisted of the following as of January 31, 2017 and 2016:
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(in thousands)
Long-term restricted cash and time deposits
Deferred debt issuance costs, net
Long-term security deposits
Other
Total other assets
January 31,
2017
2016
$
$
54,566
1,929
4,123
16,002
76,620
$
$
15,359
3,142
4,112
13,611
36,224
Accrued expenses and other current liabilities consisted of the following as of January 31, 2017 and 2016:
(in thousands)
Compensation and benefits
Billings in excess of costs and estimated earnings on uncompleted contracts
Income taxes
Professional and consulting fees
Derivative financial instruments - current portion
Distributor and agent commissions
Taxes other than income taxes
Interest on indebtedness
Contingent consideration - current portion
Other
Total accrued expenses and other current liabilities
Other liabilities consisted of the following as of January 31, 2017 and 2016:
(in thousands)
Unrecognized tax benefits, including interest and penalties
Contingent consideration - long-term portion
Deferred rent expense
Obligations for severance compensation
Other
Total other liabilities
Consolidated Statements of Operations
January 31,
2017
2016
73,998
59,810
11,410
8,020
1,655
10,384
8,564
3,712
9,725
25,946
213,224
$
$
69,895
54,873
18,707
7,094
2,347
8,471
8,430
4,597
3,691
28,862
206,967
January 31,
2017
2016
28,204
42,708
13,805
2,880
6,762
94,359
$
$
25,315
18,401
12,553
2,712
2,647
61,628
$
$
$
$
Other expense, net consisted of the following for the years ended January 31, 2017, 2016, and 2015:
(in thousands)
Foreign currency losses, net
(Losses) gains on derivative financial instruments, net
Other, net
Total other expense, net
Consolidated Statements of Cash Flows
Year Ended January 31,
2016
2015
2017
$
$
(2,743) $
(322)
(3,861)
(6,926) $
(8,037) $
394
(4,634)
(12,277) $
(13,402)
3,986
(155)
(9,571)
The following table provides supplemental information regarding our consolidated cash flows for the years ended January 31,
2017, 2016, and 2015:
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(in thousands)
Cash paid for interest
Cash payments of income taxes, net
Non-cash investing and financing transactions:
Accrued but unpaid purchases of property and equipment
Inventory transfers to property and equipment
Liabilities for contingent consideration in business combinations
Leasehold improvements funded by lease incentives
8. STOCKHOLDERS’ EQUITY
Issuance of Common Stock
Year Ended January 31,
2016
2015
2017
$
$
$
$
$
$
21,892
29,582
2,868
552
26,400
82
$
$
$
$
$
$
20,734
17,165
4,562
1,142
16,238
1,721
$
$
$
$
$
$
29,296
15,362
4,258
630
8,347
2,242
On June 18, 2014, we completed a public offering of our common stock pursuant to which we issued and sold 5,750,000 shares
of common stock at a price of $47.75 per share. We received aggregate proceeds of $265.6 million from the offering, net of
underwriters’ discounts and commissions, but before deducting approximately $0.7 million of other offering expenses.
Common Stock Dividends
We did not declare or pay any dividends on our common stock during the years ended January 31, 2017, 2016, and 2015.
Under the terms of our Credit Agreement, we are subject to certain restrictions on declaring and paying dividends on our
common stock.
Share Repurchase Program
On March 29, 2016, we announced that our board of directors had authorized a share repurchase program whereby we may
make up to $150 million in purchases of our outstanding shares of common stock over the two years following the date of
announcement. Under the share repurchase program, purchases can be made from time to time using a variety of methods,
which may include open market purchases. The specific timing, price and size of purchases depends on prevailing stock prices,
general market and economic conditions, and other considerations, including the amount of cash generated in the U.S. and
other potential uses of cash, such as acquisitions. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-
determined metrics set forth in such plan. The authorization of the share repurchase program does not obligate us to acquire any
particular amount of common stock, and the program may be suspended or discontinued at any time.
Treasury Stock
Repurchased shares of common stock are recorded as treasury stock, at cost, but may from time to time be retired. At January
31, 2017, we held approximately 1,654,000 shares of treasury stock with a cost of $57.1 million. At January 31, 2016, we held
approximately 348,000 and shares of treasury stock with a cost of $10.3 million.
During the year ended January 31, 2017 we acquired approximately 1,306,000 shares of treasury stock with a cost of $46.9
million under the aforementioned share repurchase program. We did not acquire any shares of treasury stock during the year
ended January 31, 2016. During the year ended January 31, 2015, we acquired approximately 46,000 shares of treasury stock
from directors, executive officers, and other employees at a cost of $2.2 million.
From time to time, our board of directors has approved limited programs to repurchase shares of our common stock from
directors or officers in connection with the vesting of restricted stock or restricted stock units to facilitate required income tax
withholding by us or the payment of required income taxes by such holders. In addition, the terms of some of our equity award
agreements with all grantees provide for automatic repurchases by us for the same purpose if a vesting-related or delivery-
related tax event occurs at a time when the holder is not permitted to sell shares in the market. Our stock bonus program
contains similar terms. Any such repurchases of common stock occur at prevailing market prices and are recorded as treasury
stock.
Accumulated Other Comprehensive Income (Loss)
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Accumulated other comprehensive income (loss) includes items such as foreign currency translation adjustments and
unrealized gains and losses on certain marketable securities and derivative financial instruments designated as hedges.
Accumulated other comprehensive income (loss) is presented as a separate line item in the stockholders’ equity section of our
consolidated balance sheets. Accumulated other comprehensive income (loss) items have no impact on our net income as
presented in our consolidated statements of operations.
The following table summarizes changes in the components of our accumulated other comprehensive income (loss) by
component for the years ended January 31, 2017 and 2016:
(in thousands)
Accumulated other comprehensive (loss) income
at January 31, 2015
Other comprehensive loss before reclassifications
Amounts reclassified out of accumulated other
comprehensive income (loss)
Net other comprehensive income (loss)
Accumulated other comprehensive loss at
January 31, 2016
Other comprehensive income (loss) before
reclassifications
Amounts reclassified out of accumulated other
comprehensive income (loss)
Net other comprehensive income (loss)
Accumulated other comprehensive income (loss)
at January 31, 2017
Unrealized
Gains
(Losses) on
Derivative
Financial
Instruments
Designated
as Hedges
Unrealized
Gain on
Interest
Rate Swap
Designated
as Hedge
Unrealized
Gains
(Losses) on
Available-
for-Sale
Investments
Foreign
Currency
Translation
Adjustments
Total
$
(7,992) $
(992)
7,113
6,121
(1,871)
3,585
(1,139)
2,446
— $
—
—
—
—
632
—
632
$
101
(211)
(86,444) $
(27,769)
(94,335)
(28,972)
—
(211)
—
(27,769)
7,113
(21,859)
(110)
(114,213)
(116,194)
110
—
110
(41,850)
(37,523)
—
(41,850)
(1,139)
(38,662)
$
575
$
632
$
— $ (156,063) $ (154,856)
All amounts presented in the table above are net of income taxes, if applicable. The accumulated net losses in foreign currency
translation adjustments primarily reflect the strengthening of the U.S. dollar against the British pound sterling, which has
resulted in lower U.S. dollar-translated balances of British pound sterling-denominated goodwill and intangible assets.
The amounts reclassified out of accumulated other comprehensive income (loss) into the consolidated statement of operations,
with presentation location, for the years ended January 31, 2017, 2016, and 2015 were as follows:
(in thousands)
Unrealized (gains) losses on derivative
financial instruments:
Year Ended January 31,
2017
2016
2015
Financial Statement Location
Foreign currency forward contracts
$
(108) $
(115)
(651)
(383)
718
672
4,556
2,205
$
190 Cost of product revenue
159 Cost of service and support revenue
1,050 Research and development, net
458 Selling, general and administrative
(1,257)
118
(1,139) $
8,151
(1,038)
7,113
$
1,857 Total, before income taxes
(299) Provision (benefit) for income taxes
1,558 Total, net of income taxes
$
9. RESEARCH AND DEVELOPMENT, NET
Our gross research and development expenses for the years ended January 31, 2017, 2016, and 2015, were $174.6 million,
$181.7 million, and $178.7 million, respectively. Reimbursements from the OCS and other government grant programs
98
amounted to $3.5 million, $4.0 million, and $5.0 million for the years ended January 31, 2017, 2016, and 2015, respectively,
which were recorded as reductions of gross research and development expenses.
We capitalize certain costs incurred to develop our commercial software products, and we then recognize those costs within
cost of product revenue as the products are sold. Activity for our capitalized software development costs for the years ended
January 31, 2017, 2016, and 2015 was as follows:
(in thousands)
Capitalized software development costs, net, beginning of year
Software development costs capitalized during the year
Amortization of capitalized software development costs
Impairments, foreign currency translation and other
Capitalized software development costs, net, end of year
Year Ended January 31,
2016
2015
2017
$
$
11,992
2,338
(3,341)
(1,480)
9,509
$
$
10,112
5,027
(2,976)
(171)
11,992
$
$
8,483
6,083
(1,666)
(2,788)
10,112
During the years ended January 31, 2017 and 2015, we recorded impairments of capitalized software development costs of $1.3
million and $2.6 million, respectively, reflecting strategy changes in certain product development initiatives, due in part to
acquisition of technology associated with business combinations. There were no impairments of such costs during the year
ended January 31, 2016.
10. INCOME TAXES
The components of (loss) income before provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and
2015 were as follows:
(in thousands)
Domestic
Foreign
Total (loss) income before provision (benefit) for income taxes
Year Ended January 31,
2016
2015
2017
$
$
(60,722) $
37,248
(23,474) $
(43,471) $
66,651
23,180
$
(53,877)
75,280
21,403
The provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and 2015 consisted of the following:
(in thousands)
Current provision (benefit) for income taxes:
Federal
State
Foreign
Total current provision for income taxes
Deferred (benefit) provision for income taxes:
Federal
State
Foreign
Total deferred benefit for income taxes
Total provision (benefit) for income taxes
Year Ended January 31,
2016
2015
2017
$
$
604
989
18,120
19,713
(8,179)
(842)
(7,920)
(16,941)
2,772
$
$
(2,997) $
1,300
8,289
6,592
2,244
12
(7,896)
(5,640)
952
$
342
1,575
30,415
32,332
(40,007)
(2,610)
(4,714)
(47,331)
(14,999)
We identified misstatements in certain income tax disclosures included in the footnotes to our previously issued consolidated
financial statements as of and for the years ended January 31, 2016 and 2015. The misstatements impacted certain components
of the income tax rate reconciliation, deferred income tax, and valuation allowance tables, but had no effect on our consolidated
statements of operations, comprehensive loss, stockholders’ equity, or cash flows for the years ended January 31, 2016 and
2015, or on our consolidated balance sheet as of January 31, 2016. We assessed the materiality of the misstatements, in
accordance with guidance provided in SEC Staff Accounting Bulletin No. 99, and concluded that the misstatements were not
material to the applicable consolidated financial statements. The comparative financial information presented in the applicable
tables included in this footnote reflects the correction of these immaterial misstatements, details for which appear following
those tables.
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The reconciliation of the U.S. federal statutory rate to our effective tax rate on (loss) income before provision (benefit) for
income taxes for the years ended January 31, 2017, 2016, and 2015 was as follows:
(in thousands)
U.S. federal statutory income tax rate
Income tax (benefit) provision at the U.S. federal statutory rate
State income tax (benefit) provision
Foreign tax rate differential
Tax incentives
Valuation allowances
Stock-based and other compensation
Non-deductible expenses
Tax credits
Tax contingencies
Tax effects of reorganizations and liquidations
U.S. tax effects of foreign operations
Other, net
Total provision (benefit) for income taxes
Effective income tax rate
Year Ended January 31,
2016
2015
2017
35.0 %
35.0 %
35.0 %
$
$
(8,215)
(312)
(5,794)
(3,507)
(3,640)
2,522
5,315
(112)
5,566
975
9,542
432
2,772
(11.8)%
$
$
8,115
(79)
(3,068)
(12,293)
(7,767)
3,562
6,061
(482)
(6,281)
6,136
7,574
(526)
952
4.1%
$
$
7,489
(1,739)
(9,650)
(14,865)
(15,793)
4,222
2,156
(2,461)
14,762
—
1,451
(571)
(14,999)
(70.1)%
The table above reflects the correction of certain amounts previously presented for the years ended January 31, 2016 and 2015.
For the year ended January 31, 2016, the favorable impact of valuation allowances was increased by $4.3 million, and the
favorable impact of tax contingencies was reduced by $4.3 million. For the year ended January 31, 2015, the favorable impact
of valuation allowances was increased by $4.9 million, and the unfavorable impact of tax contingencies was increased by $4.9
million. The effective income tax rates for the years ended January 31, 2016 and 2015 were unchanged.
Our operations in Israel have been granted "Approved Enterprise" ("AE") status by the Investment Center of the Israeli
Ministry of Industry, Trade and Labor, which makes us eligible for tax benefits under the Israeli Law for Encouragement of
Capital Investments, 1959. Under the terms of the program, income attributable to an approved enterprise is exempt from
income tax for a period of two years and is subject to a reduced income tax rate for the subsequent five to eight years (generally
10% - 25%, depending on the percentage of foreign investment in the company). In addition, certain operations in Cyprus
qualify for favorable tax treatment under the Cypriot Intellectual Property Regime ("IP Regime"). This legislation exempts 80%
of income and gains derived from patents, copyrights, and trademarks from taxation. These tax incentives decreased our
effective tax rate by 12.4%, 51.0%, and 64.0% for the years ended January 31, 2017, 2016, and 2015, respectively. The current
year benefit is lower than in prior years as a result of the Company’s taxable loss position in the Cyprus entity. At the lower IP
Regime tax rate, the deferred tax benefit of the net operating losses generated by those companies is less than it would be under
the higher statutory tax rate.
Deferred tax assets and liabilities consisted of the following at January 31, 2017 and 2016:
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(in thousands)
Deferred tax assets:
Accrued expenses
Deferred revenue
Loss carryforwards
Tax credits
Stock-based and other compensation
Capitalized research and development expenses
Other, net
Total deferred tax assets
Deferred tax liabilities:
Goodwill and other intangible assets
Unremitted earnings of foreign subsidiaries
Other, net
Total deferred tax liabilities
Valuation allowance
Net deferred tax liabilities
Recorded as:
Long-term deferred tax assets
Long-term deferred tax liabilities
Net deferred tax liabilities
January 31,
2017
2016
$
10,627
3,953
125,986
7,972
20,187
4,146
2,672
175,543
(50,679)
(18,215)
(2,344)
(71,238)
(108,609)
(4,304) $
9,553
7,819
127,718
8,308
20,213
4,125
3,783
181,519
(53,354)
(18,870)
(3,053)
(75,277)
(115,756)
(9,514)
$
21,510
(25,814)
(4,304) $
17,528
(27,042)
(9,514)
$
$
$
$
The table above reflects the correction of certain amounts previously presented as of January 31, 2016. Deferred tax assets
resulting from loss carryforwards and total deferred tax assets were both reduced by $12.4 million, with a corresponding $12.4
million decrease to the valuation allowance. Net deferred tax liabilities as of January 31, 2016 were unchanged.
At January 31, 2017, we had U.S. federal net operating loss ("NOL") carryforwards of approximately $661.0 million. These
loss carryforwards expire in various years ending from January 31, 2019 to January 31, 2036. We had state NOL carryforwards
of approximately $248.6 million, expiring in years ending from January 31, 2018 to January 31, 2035. We had foreign NOL
carryforwards of approximately $53.8 million. At January 31, 2017, all but $8.8 million of these foreign loss carryforwards had
indefinite carryforward periods. Certain of these federal, state, and foreign loss carryforwards and credits are subject to Internal
Revenue Code Section 382 or similar provisions, which impose limitations on their utilization following certain changes in
ownership of the entity generating the loss carryforward. The NOL carryforwards for tax return purposes are different from the
NOL carryforwards for financial statement purposes, primarily due to the reduction of NOL carryforwards for financial
statement purposes under the authoritative guidance on accounting for uncertainty in income taxes. We had U.S. federal, state,
and foreign tax credit carryforwards of approximately $12.1 million at January 31, 2017, the utilization of which is subject to
limitation. At January 31, 2017, approximately $3.0 million of these tax credit carryforwards may be carried forward
indefinitely. The balance of $9.1 million expires in various years ending from January 31, 2019 to January 31, 2034.
As of January 31, 2017, we have not provided for deferred taxes on the excess of financial reporting over the tax basis of
investments in certain foreign subsidiaries in the amount of $479.8 million because we plan to reinvest such earnings
indefinitely outside the United States. If these earnings were repatriated in the future, additional income and withholding tax
expense would be incurred. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to
be made, it is not practicable to estimate the total amount of income taxes that would have to be provided on such earnings.
As required by the authoritative guidance on accounting for income taxes, we evaluate the realizability of deferred tax assets on
a jurisdictional basis at each reporting date. Accounting for income taxes guidance requires that a valuation allowance be
established when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances
where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, we
establish a valuation allowance. We have recorded valuation allowances in the amounts of $108.6 million and $115.8 million at
January 31, 2017 and 2016, respectively.
Activity in the recorded valuation allowance consisted of the following for the years ended January 31, 2017 and 2016:
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(in thousands)
Valuation allowance, beginning of year
Provision (benefit) for income taxes
Additional paid-in capital
Currency translation adjustment
Valuation allowance, end of year
Year Ended January 31,
2017
(115,756) $
3,640
3,204
303
(108,609) $
2016
(123,837)
7,767
(59)
373
(115,756)
$
$
The table above reflects the correction of certain amounts previously presented for the year ended January 31, 2016. The
valuation allowance at January 31, 2015 year was reduced by $8.1 million, and the reduction in the valuation allowance
resulting from the provision for income taxes for the year ended January 31, 2016 was increased by $4.3 million, resulting in a
$12.4 million net decrease to the valuation allowance as of January 31, 2016.
In accordance with the authoritative guidance for accounting for stock-based compensation, we use a "with-and-without"
approach to applying the intra-period allocation rules in accordance with accounting for income taxes. Under this approach, the
windfall tax benefit is calculated based on the incremental tax benefit received from deductions related to stock-based
compensation. The amount is measured by calculating the tax benefit both "with" and "without" the excess tax deduction; the
resulting difference between the two calculations is considered the windfall. We did not recognize windfall benefits in our U.S.
federal income tax (benefit) provisions for the years ended January 31, 2017, 2016, and 2015.
In accordance with the authoritative guidance on accounting for uncertainty in income taxes, differences between the amount of
tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial
statements, determined by applying the prescribed methodologies of accounting for uncertainty in income taxes, represent our
unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets.
For the years ended January 31, 2017, 2016, and 2015, the aggregate changes in the balance of gross unrecognized tax benefits
were as follows:
(in thousands)
Gross unrecognized tax benefits, beginning of year
Increases related to tax positions taken during the current year
Increases as a result of business combinations
Increases related to tax positions taken during prior years
Increases (decreases) related to foreign currency exchange rates
Reductions for tax positions of prior years
Reductions for settlements with tax authorities
Lapses of statutes of limitations
Gross unrecognized tax benefits, end of year
Year Ended January 31,
2016
2015
2017
$
$
142,271
11,034
—
585
648
(5,094)
(145)
(660)
148,639
$
$
159,648
9,465
985
2,514
(741)
(13,613)
(13,811)
(2,176)
142,271
$
$
145,408
15,522
4,744
1,927
(3,900)
(3,440)
—
(613)
159,648
As of January 31, 2017, we had $148.6 million of unrecognized tax benefits, of which $143.0 million represents the amount
that, if recognized, would impact the effective income tax rate in future periods. We recorded $0.5 million of tax expense, $4.4
million of tax benefit, and $1.9 million of tax expense for interest and penalties related to uncertain tax positions in our
provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and 2015, respectively. Accrued liabilities for
interest and penalties were $3.9 million and $3.3 million at January 31, 2017 and 2016, respectively. Interest and penalties
(expense and/or benefit) are recorded as a component of the provision (benefit) for income taxes in the consolidated financial
statements.
Our income tax returns are subject to ongoing tax examinations in several jurisdictions in which we operate. In Israel, we are
no longer subject to income tax examination for years prior to January 31, 2014. In the United Kingdom, with the exception of
years which are currently under examination, we are no longer subject to income tax examination for years prior to January 31,
2015. In the U.S., our federal returns are no longer subject to income tax examination for years prior to January 31, 2014.
However, to the extent we generated NOLs or tax credits in closed tax years, future use of the NOL or tax credit carry forward
balance would be subject to examination within the relevant statute of limitations for the year in which utilized.
As of January 31, 2017, income tax returns are under examination in the following significant tax jurisdictions:
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Jurisdiction
Canada
United Kingdom
India
Israel
Tax Years
January 31, 2011 - January 31, 2012
December 31, 2006; January 31, 2008
March 31, 2006 - March 31, 2008; March 31, 2010 - March 31, 2013, March 31, 2015
January 31, 2014 - January 31, 2016
We regularly assess the adequacy of our provisions for income tax contingencies. As a result, we may adjust the reserves for
unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretations of relevant tax law,
assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of expiration. We believe that it
is reasonably possible that the total amount of unrecognized tax benefits at January 31, 2017 could decrease by approximately
$3.2 million in the next twelve months as a result of settlement of certain tax audits or lapses of statutes of limitation. Such
decreases may involve the payment of additional taxes, the adjustment of certain deferred taxes including the need for
additional valuation allowances and the recognition of tax benefits.
11. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our assets and liabilities measured at fair value on a recurring basis consisted of the following as of January 31, 2017 and 2016:
(in thousands)
Assets:
Money market funds
Foreign currency forward contracts
Interest rate swap agreement
Total assets
Liabilities:
Foreign currency forward contracts
Interest rate swap agreement
Contingent consideration - business combinations
Option to acquire noncontrolling interests of consolidated subsidiaries
Total liabilities
(in thousands)
Assets:
Money market funds
Commercial paper and corporate debt securities, classified as cash and
cash equivalents
Short-term investments, classified as available-for-sale
Foreign currency forward contracts
Total assets
Liabilities:
Foreign currency forward contracts
Contingent consideration - business combinations
Total liabilities
January 31, 2017
Fair Value Hierarchy Category
Level 2
Level 3
Level 1
$
$
$
$
175
—
—
175
$
$
— $
—
—
—
— $
— $
1,646
1,429
3,075
1,246
408
—
—
1,654
$
$
$
—
—
—
—
—
—
52,733
3,550
56,283
January 31, 2016
Fair Value Hierarchy Category
Level 2
Level 3
Level 1
$
12,137
$
— $
—
—
—
12,137
$
— $
—
— $
5,030
52,932
113
58,075
2,377
—
2,377
$
$
$
$
$
$
—
—
—
—
—
—
22,391
22,391
The following table presents the changes in the estimated fair values of our liabilities for contingent consideration measured
using significant unobservable inputs (Level 3) for the years ended January 31, 2017 and 2016:
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(in thousands)
Fair value measurement, beginning of year
Contingent consideration liabilities recorded for business combinations
Changes in fair values, recorded in operating expenses
Payments of contingent consideration
Fair value measurement, end of year
Year Ended January 31,
2017
2016
$
$
22,391
26,400
7,255
(3,313)
52,733
$
$
14,507
16,238
(910)
(7,444)
22,391
Our estimated liability for contingent consideration represents potential payments of additional consideration for business
combinations, payable if certain defined performance goals are achieved. Changes in fair value of contingent consideration are
recorded in the consolidated statements of operations within selling, general and administrative expenses.
During the year ended January 31, 2017, we acquired two majority owned subsidiaries for which we hold an option to acquire
the noncontrolling interests. We account for the option as an in-substance investment in the noncontrolling common stock of
each such subsidiary. We include the fair value of the option within other liabilities and do not recognize noncontrolling
interests in these subsidiaries. The following table presents the change in the estimated fair value of this liability, which is
measured using Level 3 inputs, for the year ended January 31, 2017:
(in thousands)
Fair value measurement, beginning of year
Acquisition of option to acquire noncontrolling interests of consolidated subsidiaries
Change in fair value, recorded in operating expenses
Fair value measurement, end of year
Year Ended
January 31,
2017
$
$
—
3,134
416
3,550
There were no transfers between levels of the fair value measurement hierarchy during the years ended January 31, 2017 and
2016.
Fair Value Measurements
Money Market Funds - We value our money market funds using quoted active market prices for such funds.
Short-term Investments, Corporate Debt Securities, and Commercial Paper - The fair values of short-term investments, as well
as corporate debt securities and commercial paper classified as cash equivalents, are estimated using observable market prices
for identical securities that are traded in less-active markets, if available. When observable market prices for identical securities
are not available, we value these short-term investments using non-binding market price quotes from brokers which we review
for reasonableness using observable market data; quoted market prices for similar instruments; or pricing models, such as a
discounted cash flow model.
Foreign Currency Forward Contracts - The estimated fair value of foreign currency forward contracts is based on quotes
received from the counterparties thereto. These quotes are reviewed for reasonableness by discounting the future estimated cash
flows under the contracts, considering the terms and maturities of the contracts and market foreign currency exchange rates
using readily observable market prices for similar contracts.
Interest Rate Swap Agreement - The fair value of our interest rate swap agreement is based in part on data received from the
counterparty, and represents the estimated amount we would receive or pay to settle the agreement, taking into consideration
current and projected future interest rates as well as the creditworthiness of the parties, all of which can be validated through
readily observable data from external sources.
Contingent Consideration - Business Combinations - The fair value of the contingent consideration related to business
combinations is estimated using a probability-adjusted discounted cash flow model. These fair value measurements are based
on significant inputs not observable in the market. The key internally developed assumptions used in these models are discount
rates and the probabilities assigned to the milestones to be achieved. We remeasure the fair value of the contingent
consideration at each reporting period, and any changes in fair value resulting from either the passage of time or events
occurring after the acquisition date, such as changes in discount rates, or in the expectations of achieving the performance
targets, are recorded within selling, general, and administrative expenses. Increases or decreases in discount rates would have
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inverse impacts on the related fair value measurements, while favorable or unfavorable changes in expectations of achieving
performance targets would result in corresponding increases or decreases in the related fair value measurements. We utilized
discount rates ranging from 3.0% to 20.0% in our calculations of the estimated fair values of our contingent consideration
liabilities as of January 31, 2017. We utilized discount rates ranging from 3.0% to 41.7% in our calculations of the estimated
fair values of our contingent consideration liabilities as of January 31, 2016.
Option to Acquire Noncontrolling Interests of Consolidated Subsidiaries - The fair value of the option is determined primarily
by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions
determined by management. This fair value measurement is based upon significant inputs not observable in the market. We
remeasure the fair value of the option at each reporting period, and any changes in fair value are recorded within selling,
general, and administrative expenses. We utilized a discount rate of 14.0% in our calculation of the estimated fair value of the
option as of January 31, 2017.
Other Financial Instruments
The carrying amounts of accounts receivable, accounts payable, and accrued liabilities and other current liabilities approximate
fair value due to their short maturities.
The estimated fair values of our term loan borrowings were $410 million and $411 million at January 31, 2017 and 2016,
respectively. The estimated fair values of the term loans are based upon indicative bid and ask prices as determined by the
agent responsible for the syndication of our term loans. We consider these inputs to be within Level 3 of the fair value hierarchy
because we cannot reasonably observe activity in the limited market in which participations in our term loans are traded. The
indicative prices provided to us as at each of January 31, 2017 and 2016 did not significantly differ from par value. The
estimated fair value of our revolving credit borrowings, if any, is based upon indicative market values provided by one of our
lenders. We had no revolving credit borrowings at January 31, 2017 and 2016.
The estimated fair values of our Notes were approximately $381 million and $367 million at January 31, 2017 and 2016,
respectively. The estimated fair value of the Notes is determined based on quoted bid and ask prices in the over-the-counter
market in which the Notes trade. We consider these inputs to be within Level 2 of the fair value hierarchy.
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and
liabilities at fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property,
plant and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the
asset’s projected undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is
recognized. Further details regarding our regular impairment reviews appear in Note 1, "Summary of Significant Accounting
Policies".
12. DERIVATIVE FINANCIAL INSTRUMENTS
Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest
rate risk, when deemed appropriate. We enter into these contracts in the normal course of business to mitigate risks and not for
speculative purposes.
Foreign Currency Forward Contracts
Under our risk management strategy, we periodically use foreign currency forward contracts to manage our short-term
exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates. These cash flow
exposures result from portions of our forecasted operating expenses, primarily compensation and related expenses, which are
transacted in currencies other than the U.S. dollar, most notably the Israeli shekel. We also periodically utilize foreign currency
forward contracts to manage exposures resulting from forecasted customer collections to be remitted in currencies other than
the applicable functional currency, and exposures from cash, cash equivalents and short-term investments denominated in
currencies other than the applicable functional currency. Our joint venture, which has a Singapore dollar functional currency,
also utilizes foreign exchange forward contracts to manage its exposure to exchange rate fluctuations related to settlements of
liabilities denominated in U.S. dollars. These foreign currency forward contracts generally have maturities of no longer than
twelve months, although occasionally we will execute a contract that extends beyond twelve months, depending upon the
nature of the underlying risk.
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Our outstanding foreign currency forward contracts had notional amounts of $144.0 million and $136.4 million as of
January 31, 2017 and 2016, respectively.
Interest Rate Swap Agreement
During the year ended January 31, 2017, we executed a pay-fixed, receive-variable interest rate swap agreement with a
multinational financial institution to partially mitigate risks associated with the variable interest rate on our term loans, under
which we will pay interest at a fixed rate of 4.143% and receive variable interest of three-month LIBOR (subject to a minimum
of 0.75%), plus a spread of 2.75%, on a notional amount of $200.0 million. The effective date of the agreement
was November 1, 2016, and settlements with the counterparty occur on a quarterly basis, beginning on February 1, 2017. The
agreement will terminate on September 6, 2019. Throughout the term of the interest rate swap agreement, if we elect three-
month LIBOR at the term loans' periodic interest rate reset dates for at least $200.0 million of our term loans, as we did on
November 1, 2016 and February 1, 2017, the annual interest rate on $200.0 million of our term loans will be fixed
at 4.143% for the applicable interest rate period.
The interest rate swap agreement is designated as a cash flow hedge and as such, changes in its fair value are recognized in
accumulated other comprehensive income (loss) in the consolidated balance sheet and are reclassified into the statement of
operations in the period in which the hedged transaction affects earnings. Hedge ineffectiveness, if any, is recognized currently
in the consolidated statement of operations.
Fair Values of Derivative Financial Instruments
The fair values of our derivative financial instruments and their classifications in our consolidated balance sheets as of
January 31, 2017 and 2016 were as follows:
(in thousands)
Derivative assets:
Foreign currency forward contracts:
Designated as cash flow hedges
Not designated as hedging instruments
Interest rate swap agreement, designated as
a cash flow hedge
Total derivative assets
Derivative liabilities:
Foreign currency forward contracts:
Designated as cash flow hedges
Not designated as hedging instruments
Interest rate swap agreement, designated as
a cash flow hedge
Total derivative liabilities
Balance Sheet Classification
2017
2016
January 31,
Prepaid expenses and other current assets
Prepaid expenses and other current assets
Other assets
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities
Other liabilities
Accrued expenses and other current liabilities
$
$
$
$
927
719
1,429
3,075
288
958
—
408
1,654
$
$
$
$
—
113
—
113
2,108
239
30
—
2,377
Derivative Financial Instruments in Cash Flow Hedging Relationships
The effects of derivative financial instruments designated as cash flow hedges on accumulated other comprehensive loss
("AOCL") and on the consolidated statement of operations for the years ended January 31, 2017, 2016, and 2015 were as
follows:
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(in thousands)
Net gains (losses) recognized in Other comprehensive (loss) income:
Foreign currency forward contracts
Interest rate swap agreement
Net gains (losses) reclassified from Other comprehensive (loss) income
to the consolidated statements of operations:
Foreign currency forward contracts
Year Ended January 31,
2016
2015
2017
575
632
1,207
$
$
(1,871) $
—
(1,871) $
(7,992)
—
(7,992)
1,257
$
(8,151) $
(1,857)
$
$
$
For information regarding the line item locations of the net gains (losses) on foreign currency forward contracts reclassified out
of Other comprehensive (loss) income into the consolidated statements of operations, see Note 8, "Stockholders' Equity".
There were no gains or losses from ineffectiveness of these cash flow hedges recorded for the years ended January 31, 2017,
2016, and 2015. All of the foreign currency forward contracts underlying the $0.6 million of net unrealized gains recorded in
our accumulated other comprehensive loss at January 31, 2017 mature within twelve months, and therefore we expect all such
gains to be reclassified into earnings within the next twelve months. The $0.6 million net unrealized gain recorded in our
accumulated other comprehensive loss at January 31, 2017 for the interest rate swap agreement includes $0.4 million of net
losses expected to be reclassified into earnings within the next twelve months.
Derivative Financial Instruments Not Designated as Hedging Instruments
(losses) gains recognized on derivative financial instruments not designated as hedging instruments in our consolidated
statements of operations for the years ended January 31, 2017, 2016, and 2015 were as follows:
(in thousands)
Foreign currency forward contracts
Classification in Consolidated
Statements of Operations
Other income (expense), net
Year Ended January 31,
2017
2016
2015
$
(323) $
394
$
3,986
13. STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS
Stock-Based Compensation Plans
Plan Summaries
We issue stock-based incentive awards to eligible employees, directors and consultants, including restricted stock units
(“RSUs”), restricted stock awards (“RSAs”), performance awards, stock options (both incentive and non-qualified), and other
awards, under the terms of our outstanding stock benefit plans (the "Plans" or "Stock Plans") and/or forms of equity award
agreements approved by our board of directors.
Awards are generally subject to multi-year vesting periods. We recognize compensation expense for awards on a straight-line
basis over the requisite service periods of the awards, which are generally the vesting periods, reduced by estimated forfeitures.
Upon issuance of restricted stock, exercise of stock options, or issuance of shares under the Plans, we generally issue new
shares of common stock, but occasionally may issue treasury shares.
2015 Stock-Based Compensation Plan
On June 25, 2015, our stockholders approved the Verint Systems Inc. 2015 Long-Term Stock Incentive Plan (the "2015 Plan").
which authorizes our board of directors to provide equity-based compensation in various forms, including RSUs, RSAs,
performance awards, and other stock-based awards. Subject to adjustment as provided in the 2015 Plan, an aggregate of up
to 9,700,000 shares of our common stock may be issued or transferred in connection with awards under the 2015 Plan. Each
stock option or stock-settled stock appreciation right granted under the 2015 Plan will reduce the available plan capacity
by one share and each other award denominated in shares that is granted under the 2015 Plan will reduce the available plan
capacity by 2.29 shares.
107
Upon approval of the 2015 Plan, additional awards were no longer permitted under our other stock-based compensation plans.
Awards outstanding at June 25, 2015 under our prior stock-based compensation plans were not impacted by approval of the
2015 Plan.
Stock-Based Compensation Expense
We recognized stock-based compensation expense in the following line items on the consolidated statements of operations for
the years ended January 31, 2017, 2016, and 2015:
(in thousands)
Component of (loss) income before provision (benefit) for income
taxes:
Cost of revenue - product
Cost of revenue - service and support
Research and development, net
Selling, general and administrative
Total stock-based compensation expense
Income tax benefits related to stock-based compensation (before
consideration of valuation allowances)
Total stock-based compensation, net of taxes
Year Ended January 31,
2016
2015
2017
$
$
$
1,290
7,297
11,637
45,384
65,608
$
1,466
5,719
9,195
48,169
64,549
15,752
49,856
$
14,385
50,164
$
1,228
5,028
6,421
41,781
54,458
12,364
42,094
Total stock-based compensation expense by type of award was as follows for the years ended January 31, 2017, 2016, and
2015:
(in thousands)
Restricted stock units and restricted stock awards
Stock bonus program and bonus share program
Total equity-settled awards
Phantom stock units (cash-settled awards)
Total stock-based compensation expense
Year Ended January 31,
2016
2015
2017
$
$
55,123
10,298
65,421
187
65,608
$
$
58,028
6,359
64,387
162
64,549
$
$
46,634
7,680
54,314
144
54,458
Awards under our stock bonus and bonus share programs are accounted for as liability-classified awards, because the
obligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, to be
settled with a variable number of shares of our common stock.
Net excess tax benefits resulting from our Stock Plans were $0.7 million, $0.5 million, and $0.3 million for the years ended
January 31, 2017, 2016, and 2015, respectively. Excess tax benefits represent a reduction in income taxes, otherwise payable
during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits, and are recorded as
increases to additional paid-in capital.
Restricted Stock Units and Restricted Stock Awards
We periodically award RSUs and RSAs to our directors, officers, and other employees. The fair value of these awards is
equivalent to the market value of our common stock on the grant date. The principal difference between these instruments is
that RSUs are not shares of our common stock and do not have any of the rights or privileges thereof, including voting or
dividend rights. On the applicable vesting date, the holder of an RSU becomes entitled to a share of our common stock. Both
RSAs and RSUs are subject to certain restrictions and forfeiture provisions prior to vesting.
We periodically award RSUs to executive officers and certain employees that vest upon the achievement of specified
performance goals or market conditions (“PRSUs”). An accounting grant date for PRSUs is generally not established until the
performance vesting condition has been defined and communicated and for some PRSUs, the performance goals are established
by our board subsequent to the award date.
We separately recognize compensation expense for each tranche of a PRSU award as if it were a separate award with its own
vesting date. For certain PRSUs, an accounting grant date may be established prior to the requisite service period.
108
Once a performance vesting condition has been defined and communicated, and the requisite service period has begun, our
estimate of the fair value of PRSUs requires an assessment of the probability that the specified performance criteria will be
achieved, which we update at each reporting date and adjust our estimate of the fair value of the PRSUs, if necessary. All
compensation expense for PRSUs with market conditions is recognized if the requisite service period is fulfilled, even if the
market condition is not satisfied.
RSUs that are expected to settle with cash payments upon vesting, if any, are reflected as liabilities on our consolidated balance
sheets. Such RSU's were insignificant at January 31, 2017 and 2016.
The following table summarizes activity for RSUs (including PRSUs) and RSAs under the Plans for the years ended January
31, 2017, 2016, and 2015:
2017
Year Ended January 31,
2016
2015
(in thousands, except grant date fair
values)
Beginning balance
Granted
Released
Forfeited
Ending balance
Weighted-
Average
Grant-Date
Fair Value
54.57
35.33
47.98
52.20
45.20
Shares or
Units
2,649
$
$
1,870
(1,433) $
(344) $
$
2,742
Weighted-
Average
Grant-Date
Fair Value
40.96
62.62
39.75
50.56
54.57
Shares or
Units
2,545
$
$
1,729
(1,312) $
(313) $
$
2,649
Shares or
Units
Weighted-
Average
Grant-Date
Fair Value
33.77
46.11
33.11
38.46
40.96
2,250
$
$
1,504
(1,009) $
(200) $
$
2,545
With respect of our stock bonus program, activity presented in the table above only includes shares earned and released in
consideration of the discount provided under that program. Consistent with the provisions of the Plans under which such shares
are issued, other shares issued under the stock bonus program are not included in the table above because they do not reduce
available plan capacity (since such shares are deemed to be purchased by the grantee at fair value in lieu of receiving an earned
cash bonus). Further details appear below under “Stock Bonus Program”.
Activity for performance awards under the Plans for the years ended January 31, 2017, 2016, and 2015 was as follows:
(in thousands)
Beginning balance
Granted
Released
Forfeited
Ending balance
Year Ended January 31,
2016
2015
2017
332
312
(159)
(47)
438
497
195
(239)
(121)
332
477
250
(189)
(41)
497
As of January 31, 2017, unrecognized compensation expense related to unvested RSUs expected to vest subsequent to January
31, 2017 was approximately $70.2 million, with remaining weighted-average vesting periods of approximately 1.7 years, over
which such expense is expected to be recognized. The unrecognized compensation expense does not include compensation
expense of up to $2.1 million, related to shares for which a grant date has been established but the requisite service period has
not begun. The total fair values of RSUs vested during the years ended January 31, 2017, 2016, and 2015 were $68.7 million,
$52.2 million, and $33.4 million, respectively.
Stock Options
We did not grant stock options during the years ended January 31, 2017, 2016, and 2015.
The following table summarizes stock option activity under the Plans for the years ended January 31, 2017, 2016, and 2015:
109
(in thousands, except exercise
prices)
Beginning balance
Exercised
Expired
Ending balance
Stock options exercisable
2017
Weighted-
Average
Exercise
Price
Stock
Options
3
$
(1) $
— $
$
2
$
2
9.59
8.71
—
10.09
10.09
Year Ended January 31,
2016
Weighted-
Average
Exercise
Price
Stock
Options
9
$
(6) $
— $
$
3
$
3
28.74
36.10
—
9.59
9.59
2015
Weighted-
Average
Exercise
Price
Stock
Options
516
$
(505) $
(2) $
$
9
$
9
34.60
34.71
23.13
28.74
28.74
The following table summarizes certain key data for exercised options:
(in thousands)
Intrinsic value of options exercised
Cash received from the exercise of stock options
Tax benefits realized from stock options exercised
Fair value of options vested
Phantom Stock Units
Year Ended January 31,
2016
2015
2017
$
$
$
$
24
8
6
35
$
$
$
$
164
232
107
56
$
$
$
$
8,759
17,606
2,306
178
We have periodically issued phantom stock units to certain employees that settle, or are expected to settle, with cash payments
upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain
forfeiture provisions prior to vesting.
Phantom stock unit activity for the years ended January 31, 2017, 2016, and 2015 was not significant.
Stock Bonus Program
Under the terms of our stock bonus program, eligible employees may elect to receive a portion of their earned bonuses,
otherwise payable in cash, in the form of discounted shares of our common stock. Executive officers are eligible to participate
in this program to the extent that shares remained available for awards following the enrollment of all other participants. Shares
awarded to executive officers with respect to the discount feature of the program are subject to a one-year vesting period. This
program is subject to annual funding approval by our board of directors and an annual cap on the number of shares that can be
issued. Subject to these limitations, the number of shares to be issued under the program for a given year is determined using a
five-day trailing average price of our common stock when the awards are calculated, reduced by a discount to be determined by
the board of directors each year (the "discount"). To the extent that this program is not funded in a given year or the number of
shares of common stock needed to fully satisfy employee enrollment exceeds the annual cap, the applicable portion of the
employee bonuses will generally revert to being paid in cash. Obligations under this program are accounted for as liabilities,
because the obligations are based predominantly on fixed monetary amounts that are generally known at inception of the
obligation, to be settled with a variable number of shares of common stock determined using a discounted average price of our
common stock, as described above.
The following table summarizes certain key data for the stock bonus program for the years ended January 31, 2017, 2016, and
2015:
(in thousands, except discount)
Maximum stock bonus program shares
Discount
Shares in lieu of earned cash bonus - granted and released
Shares in respect of discount:
Granted
Released
110
Year Ended January 31,
2016
2015
2017
—
—%
25
—
—
125
—%
43
7
5
125
15%
82
12
9
Shares granted in a particular year, as presented in the table above, represent the shares earned under the prior year's stock
bonus program authorization.
Awards under the stock bonus program for the performance period ended January 31, 2017 will consist of shares earned in
respect of executive officer incentive plans and will be awarded without a discount, and are expected to be issued during the
first half of the year ending January 31, 2018.
In March 2017, our board of directors approved up to 125,000 shares of common stock, and a discount of 15%, for awards
under our stock bonus program for the year ending January 31, 2018. Executive officers will be permitted to participate in this
program for the year ending January 31, 2018, but only to the extent that shares remain available for awards following the
enrollment of all other participants. Shares awarded to executive officers with respect to the 15% discount will be subject to a
one-year vesting period.
Bonus Share Program
In February 2015, the board of directors authorized an additional program under which we may provide discretionary year-end
bonuses to employees in the form of shares of common stock. Unlike the stock bonus program, there is no enrollment for this
program and no discount feature. Similar to the accounting for the stock bonus program, obligations for these bonuses are
accounted for as liabilities, because the obligations are based predominantly on fixed monetary amounts that are generally
known, to be settled with a variable number of shares of common stock.
For bonuses in respect of the year ended January 31, 2015, the board of directors authorized the use of up to approximately
$4.7 million in shares for bonuses under this program to employees other than executive officers, subject to certain limitations
on the aggregate number of shares that may be issued. During the year ended January 31, 2016, approximately 74,000 shares of
common stock were awarded and released under the bonus share program in respect of the performance period ended January
31, 2015.
For bonuses in respect of the year ended January 31, 2016, the board of directors approved the use of up to 75,000 shares of
common stock, plus any shares not used under the stock bonus program in respect of the year ended January 31, 2016, for
awards under this program (not to exceed 200,000 shares in aggregate between the two programs). During the year ended
January 31, 2017, approximately 171,000 shares of common stock were awarded and released under the bonus share program
in respect of the performance period ended January 31, 2016.
Our board of directors has authorized up to 300,000 shares of common stock for awards under this program in respect of the
performance period ended January 31, 2017.
The combined accrued liabilities for the stock bonus program and the bonus share program were $10.0 million and $6.6
million at January 31, 2017 and 2016, respectively.
Other Benefit Plans
401(k) Plan and Other Retirement Plans
We maintain a 401(k) Plan for our full-time employees in the United States. The plan allows eligible employees who attain the
age of 21 beginning with the first of the month following their date of hire to elect to contribute up to 60% of their annual
compensation, subject to the prescribed maximum amount. We match employee contributions at a rate of 50%, up to a
maximum annual matched contribution of $2,000 per employee.
Employee contributions are always fully vested, while our matching contributions for each year vest on the last day of the
calendar year provided the employee remains employed with us on that day.
Our matching contribution expenses for our 401(k) Plan were $2.6 million, $2.2 million, and $2.1 million for the years ended
January 31, 2017, 2016, and 2015, respectively.
We provide retirement benefits for non-U.S. employees as required by local laws or to a greater extent as we deem appropriate
through plans that function similar to 401(k) plans. Funding requirements for programs required by local laws are determined
on an individual country and plan basis and are subject to local country practices and market circumstances.
Severance Pay
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We are obligated to make severance payments for the benefit of certain employees of our foreign subsidiaries. Severance
payments made to Israeli employees are considered significant compared to all other subsidiaries with severance payment
arrangements. Under Israeli law, we are obligated to make severance payments to employees of our Israeli subsidiaries, subject
to certain conditions. In most cases, our liability for these severance payments is fully provided for by regular deposits to funds
administered by insurance providers and by an accrual for the amount of our liability which has not yet been deposited.
Severance expenses for the years ended January 31, 2017, 2016, and 2015 were $6.4 million, $7.2 million, and $6.8 million,
respectively.
14. RELATED PARTY TRANSACTIONS
During the years ended January 31, 2016 and 2015, our joint venture incurred certain operating expenses, including office rent
and other administrative costs, under arrangements with one of its then noncontrolling shareholders. These expenses totaled
$0.4 million and $0.5 million for the years ended January 31, 2016 and 2015, respectively. Revenue recognized by our joint
venture from this noncontrolling shareholder was $0.3 million for the year ended January 31, 2016, and was not significant for
the year ended January 31, 2015. The counterparty to these transactions is no longer a noncontrolling shareholder of our joint
venture.
15. COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases
We lease office, manufacturing, and warehouse space, as well as certain equipment, under non-cancelable operating lease
agreements. We have also periodically entered into capital leases. Terms of the leases, including renewal options and escalation
clauses, vary by lease.
Rent expense incurred under all operating leases was $25.6 million, $19.4 million, and $17.2 million for the years ended
January 31, 2017, 2016, and 2015, respectively.
As of January 31, 2017, our minimum future rent obligations under non-cancelable operating leases with initial or remaining
terms in excess of one year were as follows:
(in thousands)
Years Ending January 31,
2018
2019
2020
2021
2022
Thereafter
Total
Operating
Leases
25,447
24,138
17,865
15,460
14,335
56,945
154,190
$
$
We sublease certain space in our facilities to third parties. As of January 31, 2017, total expected future sublease income was
$0.6 million and will range from $0.2 million to $0.4 million on an annual basis through August 2018.
Unconditional Purchase Obligations
In the ordinary course of business, we enter into certain unconditional purchase obligations, which are agreements to purchase
goods or services that are enforceable, legally binding, and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our
purchase orders are based on current needs and are typically fulfilled by our vendors within a relatively short time horizon.
As of January 31, 2017, our unconditional purchase obligations totaled approximately $109.8 million, the majority of which
were scheduled to occur within the subsequent twelve months. Due to the relatively short life of the obligations, the carrying
value approximates the fair value of these obligations at January 31, 2017.
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Warranty Liability
The following table summarizes the activity in our warranty liability, which is included in accrued expenses and other current
liabilities in the consolidated balance sheets, for the years ended January 31, 2017, 2016, and 2015:
(in thousands)
Warranty liability, beginning of year
Provision charged to (credited against) expenses
Warranty charges
Foreign currency translation and other
Warranty liability, end of year
Year Ended January 31,
2016
2015
2017
$
$
826
797
(658)
(3)
962
$
$
633
473
(278)
(2)
826
$
$
706
(60)
—
(13)
633
We accrue for warranty costs as part of our cost of revenue based on associated product costs, labor costs, and associated
overhead. Our Customer Engagement solutions are sold with a warranty of generally one year on hardware and 90 days for
software. Our Cyber Intelligence solutions are sold with warranties that typically range in duration from 90 days to three years,
and in some cases longer.
Licenses and Royalties
We license certain technology and pay royalties under such licenses and other agreements entered into in connection with
research and development activities.
As discussed in Note 1, "Summary of Significant Accounting Policies", we receive non-refundable grants from the OCS that
fund a portion of our research and development expenditures. The Israeli law under which the OCS grants are made limits our
ability to manufacture products, or transfer technologies, developed using these grants outside of Israel. If we were to seek
approval to manufacture products, or transfer technologies, developed using these grants outside of Israel, we could be subject
to additional royalty requirements or be required to pay certain redemption fees. If we were to violate these restrictions, we
could be required to refund any grants previously received, together with interest and penalties, and may be subject to criminal
penalties.
Off-Balance Sheet Risk
In the normal course of business, we provide certain customers with financial performance guarantees, which are generally
backed by standby letters of credit or surety bonds. In general, we would only be liable for the amounts of these guarantees in
the event that our nonperformance permits termination of the related contract by our customer, which we believe is remote. At
January 31, 2017, we had approximately $92.6 million of outstanding letters of credit and surety bonds relating primarily to
these performance guarantees. As of January 31, 2017, we believe we were in compliance with our performance obligations
under all contracts for which there is a financial performance guarantee, and the ultimate liability, if any, incurred in connection
with these guarantees will not have a material adverse effect on our consolidated results of operations, financial position, or
cash flows. Our historical non-compliance with our performance obligations has been insignificant.
Indemnifications
In the normal course of business, we provide indemnifications of varying scopes to customers against claims of intellectual
property infringement made by third parties arising from the use of our products. Historically, costs related to these
indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these
indemnification provisions on our future results of operations.
To the extent permitted under Delaware law or other applicable law, we indemnify our directors, officers, employees, and
agents against claims they may become subject to by virtue of serving in such capacities for us. We also have contractual
indemnification agreements with our directors, officers, and certain senior executives. The maximum amount of future
payments we could be required to make under these indemnification arrangements and agreements is potentially unlimited;
however, we have insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid.
We are not able to estimate the fair value of these indemnification arrangements and agreements in excess of applicable
insurance coverage, if any.
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Legal Proceedings
On March 26, 2009, legal actions were commenced by Ms. Orit Deutsch, a former employee of our subsidiary, Verint Systems
Limited ("VSL"), against VSL in the Tel Aviv Regional Labor Court (Case Number 4186/09) (the “Deutsch Labor Action”) and
against CTI in the Tel Aviv District Court (Case Number 1335/09) (the “Deutsch District Action”). In the Deutsch Labor
Action, Ms. Deutsch filed a motion to approve a class action lawsuit on the grounds that she purports to represent a class of our
employees and former employees who were granted Verint and CTI stock options and were allegedly damaged as a result of the
suspension of option exercises during the period from March 2006 through March 2010, during which we did not make
periodic filings with the SEC as a result of certain internal and external investigations and reviews of accounting matters
discussed in our prior public filings. In the Deutsch District Action, in addition to a small amount of individual damages, Ms.
Deutsch is seeking to certify a class of plaintiffs who were allegedly damaged due to their inability to exercise Verint and CTI
stock options as a result of alleged negligence by CTI in its financial reporting. The class certification motions do not specify
an amount of damages. On February 8, 2010, the Deutsch Labor Action was dismissed for lack of material jurisdiction and was
transferred to the Tel Aviv District Court and consolidated with the Deutsch District Action. On March 16, 2009 and March 26,
2009, respectively, legal actions were commenced by Ms. Roni Katriel, a former employee of CTI's former subsidiary,
Comverse Limited, against Comverse Limited in the Tel Aviv Regional Labor Court (Case Number 3444/09) (the “Katriel
Labor Action”) and against CTI in the Tel Aviv District Court (Case Number 1334/09) (the “Katriel District Action”). In the
Katriel Labor Action, Ms. Katriel is seeking to certify a class of plaintiffs who were granted CTI stock options and were
allegedly damaged as a result of the suspension of option exercises during an extended filing delay period affecting CTI's
periodic reporting discussed in CTI's historical SEC filings. In the Katriel District Action, in addition to a small amount of
individual damages, Ms. Katriel is seeking to certify a class of plaintiffs who were allegedly damaged due to their inability to
exercise CTI stock options as a result of alleged negligence by CTI in its financial reporting. The class certification motions do
not specify an amount of damages. On March 2, 2010, the Katriel Labor Action was transferred to the Tel Aviv District Court,
based on an agreed motion filed by the parties requesting such transfer.
On April 4, 2012, Ms. Deutsch and Ms. Katriel filed an uncontested motion to consolidate and amend their claims and on
June 7, 2012, the District Court allowed Ms. Deutsch and Ms. Katriel to file the consolidated class certification motion and an
amended consolidated complaint against VSL, CTI, and Comverse Limited. Following CTI's announcement of its intention to
effect the Comverse Share Distribution, on July 12, 2012, the plaintiffs filed a motion requesting that the District Court order
CTI to set aside up to $150.0 million in assets to secure any future judgment. The District Court ruled that it would not decide
this motion until the Deutsch and Katriel class certification motion was heard. Plaintiffs initially filed a motion to appeal this
ruling in August 2012, but subsequently withdrew it in July 2014.
Prior to the consummation of the Comverse Share Distribution, CTI either sold or transferred substantially all of its business
operations and assets (other than its equity ownership interests in us and Comverse) to Comverse or unaffiliated third parties.
On October 31, 2012, CTI completed the Comverse Share Distribution, in which it distributed all of the outstanding shares of
common stock of Comverse to CTI's shareholders. As a result of the Comverse Share Distribution, Comverse became an
independent public company and ceased to be a wholly owned subsidiary of CTI, and CTI ceased to have any material assets
other than its equity interest in us. On September 9, 2015, Comverse changed its name to Xura, Inc.
On February 4, 2013, we completed the CTI Merger. As a result of the CTI Merger, we have assumed certain rights and
liabilities of CTI, including any liability of CTI arising out of the Deutsch District Action and the Katriel District Action.
However, under the terms of the Distribution Agreement between CTI and Comverse relating to the Comverse Share
Distribution, we, as successor to CTI, are entitled to indemnification from Comverse (now Xura) for any losses we suffer in our
capacity as successor-in-interest to CTI in connection with the Deutsch District Action and the Katriel District Action.
Following an unsuccessful mediation process, the proceeding before the District Court resumed. On August 28, 2016, the
District Court (i) denied the plaintiffs' motion to certify the suit as a class action with respect to all claims relating to Verint
stock options and (ii) approved the plaintiffs' motion to certify the suit as a class action with respect to claims of current or
former employees of Comverse Limited (now Xura) or VSL who held unexercised CTI stock options at the time CTI
suspended option exercises. The court also ruled that the merits of the case and any calculation of damages would be evaluated
under New York law.
On December 15, 2016, CTI filed with the Supreme Court a motion for leave to appeal the District Court's August 28, 2016
ruling. The plaintiffs filed their response to the motion on February 26, 2017. The plaintiffs did not file an appeal of the
District Court's August 28, 2016 ruling.
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On December 13, 2016, the plaintiffs filed a notice with the District Court regarding the appointment of a new representative
plaintiff, David Vaknin, for the current or former employees of VSL who held unexercised CTI stock options at the time CTI
suspended option exercises. The plaintiffs must now file an amended statement of claims by May 1, 2017.
From time to time we or our subsidiaries may be involved in legal proceedings and/or litigation arising in the ordinary course
of our business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of
any current claims will have a material effect on our consolidated financial position, results of operations, or cash flows.
16. SEGMENT, GEOGRAPHIC, AND SIGNIFICANT CUSTOMER INFORMATION
Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is
evaluated regularly by the enterprise’s chief operating decision maker ("CODM"), or decision making group, in deciding how
to allocate resources and in assessing performance. Our Chief Executive Officer is our CODM.
Through July 31, 2016, we were organized and had reported our operating results in three operating segments: Enterprise
Intelligence, Video Intelligence, and Cyber Intelligence. In August 2016, we reorganized into two businesses and, now report
our results in two operating segments, Customer Engagement Solutions ("Customer Engagement") and Cyber Intelligence
Solutions ("Cyber Intelligence"). Comparative segment financial information provided for prior periods has been recast to
conform to this revised segment structure.
Over time, our Video Intelligence business had evolved to focus on two use cases: the first is fraud mitigation and loss
prevention, and the second is situational intelligence and incident response. The fraud and loss prevention use case is applicable
to our banking and retail customers, while the situational intelligence and incident response use case is applicable to other
vertical markets, including our public sector and campus customers. As part of this evolution, in August 2016, we separated our
Video Intelligence team to create better vertical market alignment and growth opportunities. We transitioned the banking and
retail portion of the Video Intelligence team into our Enterprise Intelligence segment, aligning it with our large banking and
retail customer presence in our Enterprise Intelligence segment. This combined segment has been named Customer
Engagement Solutions. We transitioned the situational intelligence portion of the Video Intelligence team into our Cyber
Intelligence segment, reflecting this business’s focus on security and public safety. We believe this change creates two strong
businesses of scale, well positioned for growth in their respective markets, with dedicated management teams, unique product
portfolios, and domain expertise, and aligns with the manner in which our CODM receives and uses financial information to
allocate resources and evaluate the performance of our Customer Engagement and Cyber Intelligence businesses.
We measure the performance of our operating segments based upon operating segment revenue and operating segment
contribution. Operating segment contribution includes segment revenue and expenses incurred directly by the segment,
including material costs, service costs, research and development and selling, marketing, and administrative expenses. We do
not allocate certain expenses, which include the majority of general and administrative expenses, facilities and communication
expenses, purchasing expenses, manufacturing support and logistic expenses, depreciation and amortization, amortization of
capitalized software development costs, stock-based compensation, and special charges such as restructuring costs when
calculating operating segment contribution. These expenses are included in the unallocated expenses section of the table
presented below. Revenue from transactions between our operating segments is not material.
Operating results by segment for the years ended January 31, 2017, 2016, and 2015 were as follows:
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(in thousands)
Revenue:
Customer Engagement:
Segment revenue
Revenue adjustments
Cyber Intelligence:
Segment revenue
Revenue adjustments
Total revenue
Segment contribution:
Customer Engagement
Cyber Intelligence
Total segment contribution
Unallocated expenses, net:
Amortization of acquired intangible assets
Stock-based compensation
Other unallocated expenses
Total unallocated expenses, net
Operating income
Other expense, net
$
$
$
(Loss) income before provision (benefit) for income taxes
$
Year Ended January 31,
2016
2015
2017
$
716,163
(10,266)
705,897
$
698,298
(3,441)
694,857
742,537
(29,032)
713,505
356,533
(324)
356,209
1,062,106
269,017
85,777
354,794
$
$
81,461
65,608
190,359
337,428
17,366
(40,840)
(23,474) $
436,343
(934)
435,409
1,130,266
264,378
133,186
397,564
78,904
64,549
186,259
329,712
67,852
(44,672)
23,180
$
$
$
415,626
(695)
414,931
1,128,436
286,587
133,203
419,790
76,167
54,458
210,054
340,679
79,111
(57,708)
21,403
Revenue adjustments represent revenue of acquired companies which is included within segment revenue reviewed by the
CODM, but not recognizable within GAAP revenue. These adjustments primarily relate to the acquisition-date excess of the
historical carrying value over the fair value of acquired companies’ future maintenance and service performance obligations. As
the obligations are satisfied, we report our segment revenue using the historical carrying values of these obligations, which we
believe better reflects our ongoing maintenance and service revenue streams, whereas GAAP revenue is reported using the
obligations’ acquisition-date fair values.
With the exception of goodwill and acquired intangible assets, we do not identify or allocate our assets by operating segment.
Consequently, it is not practical to present assets by operating segment. In connection with our August 2016 change in
segmentation, we reallocated goodwill previously assigned to the Video Intelligence operating segment to the Customer
Engagement and Cyber Intelligence operating segments. There were no other material changes in the allocations of goodwill
and acquired intangible assets by operating segment during the years ended January 31, 2017, 2016, and 2015. Further details
regarding the allocations of goodwill and acquired intangible assets by operating segment appear in Note 5, "Intangible Assets
and Goodwill".
Geographic Information
Revenue by major geographic region is based upon the geographic location of the customers who purchase our products and
services. The geographic locations of distributors, resellers, and systems integrators who purchase and resell our products may
be different from the geographic locations of end customers.
Revenue in the Americas includes the United States, Canada, Mexico, Brazil, and other countries in the Americas. Revenue in
EMEA includes the United Kingdom, Germany, Israel, and other countries in EMEA. Revenue in the Asia-Pacific ("APAC")
region includes Australia, India, Singapore, and other Asia-Pacific countries.
The information below summarizes revenue from unaffiliated customers by geographic area for the years ended January 31,
2017, 2016, and 2015:
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(in thousands)
Americas:
United States
Other
Total Americas
EMEA
APAC
Total revenue
Year Ended January 31,
2016
2015
2017
$
$
438,034
134,111
572,145
322,130
167,831
1,062,106
$
$
430,626
150,435
581,061
350,217
198,988
1,130,266
$
$
430,565
157,992
588,557
347,056
192,823
1,128,436
Our long-lived assets primarily consist of net property and equipment, goodwill and other intangible assets, capitalized
software development costs, deferred cost of revenue, and deferred income taxes. We believe that our tangible long-lived
assets, which consist of our net property and equipment, are exposed to greater geographic area risks and uncertainties than
intangible assets and long-term cost deferrals, because these tangible assets are difficult to move and are relatively illiquid.
Property and equipment, net by geographic area consisted of the following as of January 31, 2017 and 2016:
(in thousands)
United States
Israel
Other countries
Total property and equipment, net
Significant Customers
January 31,
2017
2016
$
$
37,751
25,421
14,379
77,551
$
$
28,572
25,350
14,982
68,904
No single customer accounted for more than 10% of our revenue during the years ended January 31, 2017, 2016 and 2015.
17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized condensed quarterly financial information for the years ended January 31, 2017 and 2016 appears in the following
tables:
(in thousands, except per share data)
Revenue
Gross profit
(Loss) income before (benefit) provision for income taxes
Net (loss) income
Net (loss) income attributable to Verint Systems Inc.
Net (loss) income per common share attributable to Verint
Systems Inc.
Basic
Diluted
$
$
$
$
$
$
$
Three Months Ended
April 30,
2016
July 31,
2016
October 31,
2016
January 31,
2017
245,424
$
$
144,730
(15,863) $
(16,193) $
(17,456) $
261,921
$
$
159,460
(10,020) $
(11,078) $
(11,705) $
258,902
155,696
$
$
(4,075) $
(7,434) $
(8,237) $
295,859
179,591
6,484
8,459
8,018
(0.28) $
(0.28) $
(0.19) $
(0.19) $
(0.13) $
(0.13) $
0.13
0.13
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(in thousands, except per share data)
Revenue
Gross profit
Income (loss) before (benefit) provision for income taxes
Net income (loss)
Net (loss) income attributable to Verint Systems Inc.
Net (loss) income per common share attributable to Verint
Systems Inc.
Basic
Diluted
$
$
$
$
$
$
$
Three Months Ended
April 30,
2015
July 31,
2015
October 31,
2015
January 31,
2016
$
269,536
$
166,363
$
1,678
$
731
(416) $
295,882
177,344
$
$
(3,139) $
(5,760) $
(7,085) $
284,054
178,537
10,021
8,470
7,634
(0.01) $
(0.01) $
(0.11) $
(0.11) $
0.12
0.12
$
$
$
$
$
$
$
280,794
179,116
14,620
18,787
17,505
0.28
0.28
Net (loss) income per common share attributable to Verint Systems Inc. is computed independently for each quarterly period
and for the year. Therefore, the sum of quarterly net (loss) income per common share amounts may not equal the amounts
reported for the years.
Quarterly operating results for the years ended January 31, 2017 and 2016 did not include any material unusual or infrequently
occurring items.
As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most
years, our revenue and operating income are typically highest in the fourth quarter and lowest in the first quarter (prior to the
impact of unusual or nonrecurring items). Moreover, revenue and operating income in the first quarter of a new year may be
lower than in the fourth quarter of the preceding year, in some years, potentially by a significant margin. In addition, we
generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that
month. We believe that these seasonal and cyclical factors primarily reflects customer spending patterns and budget cycles, as
well as the impact of compensation incentive plans for our sales personnel. While seasonal and cyclical factors such as these
are common in the software and technology industry, this pattern should not be considered a reliable indicator of our future
revenue or financial performance. Many other factors, including general economic conditions, also have an impact on our
business and financial results. See "Risk Factors" under Item 1A of this report for a more detailed discussion of factors which
may affect our business and financial results.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, as of January 31, 2017. Disclosure controls and procedures are those controls and other
procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the rules and forms
promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As a result of this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective
as of January 31, 2017.
Management's Report on Internal Control Over Financial Reporting
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Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of January 31, 2017 based on the 2013 framework established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Our internal control over financial reporting includes policies and procedures that provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with GAAP.
Based on the results of our evaluation, our management concluded that our internal control over financial reporting was
effective as of January 31, 2017. We reviewed the results of management’s assessment with our Audit Committee.
Our independent registered accounting firm, Deloitte & Touche LLP, has audited the effectiveness of our internal control over
financial reporting as stated in their report included herein.
In performing the assessment of our internal control over financial reporting as of the date of the evaluation, our management
has excluded the operations of Contact Solutions and OpinionLab. These exclusions are in accordance with the SEC’s general
guidance that an assessment of a recently acquired business may be omitted from the scope of the evaluation for a period of up
to one year following the acquisition. Total assets (excluding acquired goodwill and intangible assets) and revenue subject to
Contact Solutions' and OpinionLab's internal control over financial reporting represented approximately 1% and 3% our
consolidated total assets and revenue, respectively, as of and for the year ended January 31, 2017. We are currently assessing
the control environments of these acquired businesses.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the three months ended January 31, 2017, that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure
controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system will be achieved. Further, the design of a control system must reflect the impact of resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent
limitations include the possibility that judgments in decision-making can be faulty, and that breakdowns can occur because of
simple errors. Additionally, controls can be circumvented by individual acts, by collusion of two or more people, or by
management override of the controls. The design of any system of controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
possible conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree
of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Verint Systems Inc.
Melville, New York
We have audited the internal control over financial reporting of Verint Systems Inc. and subsidiaries (the "Company") as of
January 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on that risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
January 31, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements as of and for the year ended January 31, 2017 of the Company and our report dated March
28, 2017 expressed an unqualified opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 28, 2017
120
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Item 9B. Other Information
Not applicable.
121
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Except as set forth below, the information required by Item 10 will be included under the captions “Election of Directors”,
“Corporate Governance”, “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance" in our
definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year
ended January 31, 2017 (the "2017 Proxy Statement") and is incorporated herein by reference.
Corporate Governance Guidelines
All of our employees, including our executive officers, are required to comply with our Code of Conduct. Additionally, our
Chief Executive Officer, Chief Financial Officer, and senior officers must comply with our Code of Business Conduct and
Ethics for Senior Officers. The purpose of these corporate policies is to ensure to the greatest possible extent that our business
is conducted in a consistently legal and ethical manner. The text of the Code of Conduct and the Code of Business Conduct and
Ethics for Senior Officers is available on our website (www.verint.com). We intend to disclose on our website any amendment
to, or waiver from, a provision of our policies as required by law.
Item 11. Executive Compensation
The information required by Item 11 will be included under the captions “Executive Compensation” and “Compensation
Committee Interlocks and Insider Participation” in the 2017 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except as set forth below, the information required by Item 12 will be included under the caption “Security Ownership of
Certain Beneficial Owners and Management” in the 2017 Proxy Statement and is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information regarding our equity compensation plans as of January 31, 2017.
(a)
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options,
Warrants, and
Rights
(b)
Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights (1)
(c)
Number of
Securities
Remaining
Available for
Future Issuance
under Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column (a))
Plan Category
Equity compensation plans approved by security holders
2,743,978 (2) $
10.09
5,231,990 (3)
Equity compensation plans not approved by security holders
—
—
Total
2,743,978
$
10.09
5,231,990
(1) The weighted-average price relates to outstanding stock options only (as of the applicable date). Other outstanding awards
carry no exercise price and are therefore excluded from the weighted-average price.
(2) Consists of 1,569 stock options and 2,742,409 restricted stock units.
(3) Consists of shares that may be issued pursuant to future awards under the Verint Systems Inc. 2015 Long-Term Stock
Incentive Plan (the “2015 Plan”). The 2015 Plan uses a fungible ratio such that each option or stock-settled stock appreciation
122
Table of Contents
right granted under the 2015 Plan will reduce the plan capacity by one share and each other award denominated in shares that is
granted under the 2015 Plan will reduce the available capacity by 2.29 shares.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 will be included under the captions “Corporate Governance” and “Certain Relationships
and Related Person Transactions” in the 2017 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 will be included under the caption “Audit Matters” in the 2017 Proxy Statement and is
incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report
(1) Financial Statements
The consolidated financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements
in Part II, Item 8 of this Form 10-K.
(2) Financial Statement Schedules
All financial statement schedules have been omitted here because they are not applicable, not required, or the information is
shown in the consolidated financial statements or notes thereto.
(3) Exhibits
See (b) below.
(b) Exhibits
Number
Description
2.1
2.2
2.3
2.4
3.1
3.2
3.3
4.1
4.2
4.3
4.4
10.1
10.2
Agreement and Plan of Merger, dated August 12, 2012, by and among
Comverse Technology, Inc., Verint Systems Inc. and Victory Acquisition
I LLC*
Agreement and Plan of Merger, dated January 6, 2014, by and among
Verint Systems Inc., Kiwi Acquisition Inc., Kay Technology Holdings,
Inc. and Accel-KKR Capital Partners III, LP*
Distribution Agreement, dated as of October 31, 2012, by and between
Comverse Technology, Inc. and Comverse, Inc.
Tax Disaffiliation Agreement, dated as of October 31, 2012, by and
between Comverse Technology, Inc. and Comverse, Inc.
Filed Herewith /
Incorporated by
Reference from
Form 8-K filed on August 13, 2012
Form 8-K filed on January 6, 2014
Comverse, Inc. Current Report on
Form 8-K filed with the SEC on
November 2, 2012
Comverse, Inc. Current Report on
Form 8-K filed with the SEC on
November 2, 2012
Amended and Restated Certificate of Incorporation of Verint Systems
Inc.
Form S-1 (Commission File No.
333-82300) effective on May 16, 2002
Amended and Restated By-laws of Verint Systems Inc. (as amended as
of March 19, 2015)
Form 8-K filed on March 25, 2015
Amended and Restated Certificate of Designation, Preferences and
Rights of the Series A Convertible Perpetual Preferred Stock of Verint
Systems Inc.
Specimen Common Stock certificate
Form 10-Q filed on September 6, 2012
Form S-1 (Commission File No.
333-82300) effective on May 16, 2002
Specimen Series A Convertible Perpetual Preferred Stock certificate
Form 10-K filed on March 17, 2010
Indenture, dated as of June 18, 2014, between Verint Systems Inc. and
Wilmington Trust, National Association, as trustee.
First Supplemental Indenture, dated as of June 18, 2014, between Verint
Systems Inc. and Wilmington Trust, National Association, as trustee.
Form of Indemnification Agreement
Verint Systems Inc. 2010 Long-Term Stock Incentive Plan
Form 8-K filed on June 18, 2014
Form 8-K filed on June 18, 2014
Form S-1 (Commission File No.
333-82300) effective on May 16, 2002
Form S-8 (Commission File No.
333-169768) effective on October 5,
2010
124
Table of Contents
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Amendment No. 1 to Verint Systems Inc. 2010 Long-Term Stock
Incentive Plan
Form 8-K filed on June 19, 2012
Vovici Corporation Amended and Restated Stock Plan
Form 10-K filed on April 2, 2012
Amended and Restated Comverse Technology, Inc. 2011 Stock Incentive
Compensation Plan
Form S-8 (Commission File No.
333-189062) effective on June 3, 2013
Verint Systems Inc. 2015 Long-Term Stock Incentive Plan
Form 8-K filed on June 26, 2015
Verint Systems Inc. Stock Bonus Program**
Form of Time-Based Restricted Stock Unit Award Agreement for Grants
Subsequent to March 2014**
Form of Performance-Based Restricted Stock Unit Award Agreement for
Grants Subsequent to March 2015**
Form of Performance-Based Restricted Stock Unit Award Agreement for
Grants Subsequent to March 2016**
Form of Time-Based Restricted Stock Unit Award Agreement for Grants
Subsequent to March 2016**
Form 10-K filed on March 30, 2016
Form 10-K filed on March 31, 2014
Form 10-K filed on March 27, 2015
Form 10-K filed on March 30, 2016
Form 10-K filed on March 30, 2016
Form of Performance-Based Restricted Stock Unit Award Agreement for
Grants Subsequent to March 2017**
Filed herewith
Credit Agreement dated as of April 29, 2011 among Verint Systems Inc.,
as Borrower, the lenders from time to time party thereto, and Credit
Suisse AG, as administrative agent and collateral agent
Amendment and Restatement Agreement, dated as of March 6, 2013,
among Verint Systems Inc., the lenders party thereto, and Credit Suisse
AG, as administrative agent and collateral agent, including the Amended
and Restated Credit Agreement, dated as of March 6, 2013, among Verint
Systems Inc., as Borrower, the lenders from time to time party thereto,
and Credit Suisse AG, as administrative agent and collateral agent
attached as Exhibit A thereto
Amendment No. 1, Incremental Amendment and Joinder Agreement
dated February 3, 2014 to the Amended and Restated Credit Agreement,
dated as of March 6, 2013, among Verint Systems Inc., as Borrower, the
lenders from time to time party thereto, and Credit Suisse AG, as
administrative agent and collateral agent
Amendment No. 2, dated February 3, 2014 to the Amended and Restated
Credit Agreement, dated as of March 6, 2013, among Verint Systems
Inc., as Borrower, the lenders from time to time party thereto, and Credit
Suisse AG, as administrative agent and collateral agent
Amendment No. 3, dated February 3, 2014 to the Amended and Restated
Credit Agreement, dated as of March 6, 2013, among Verint Systems
Inc., as Borrower, the lenders from time to time party thereto, and Credit
Suisse AG, as administrative agent and collateral agent
Amendment No. 4, dated March 7, 2014 to the Amended and Restated
Credit Agreement, dated as of March 6, 2013, among Verint Systems
Inc., as Borrower, the lenders from time to time party thereto, and Credit
Suisse AG, as administrative agent and collateral agent
Amendment No. 5, Incremental Amendment and Joinder Agreement
dated June 18, 2014 to the Amended and Restated Credit Agreement,
dated as of March 6, 2013, among Verint Systems Inc., as Borrower, the
lenders from time to time party thereto, and Credit Suisse AG, as
administrative agent and collateral agent.
Employment Agreement, dated February 23, 2010, between Verint
Systems Inc. and Dan Bodner**
Amended and Restated Employment Agreement, dated July 13, 2011,
between Verint Systems Inc. and Douglas Robinson**
Second Amended and Restated Employment Agreement, dated July 13,
2011, between Verint Systems Inc. and Elan Moriah**
Second Amended and Restated Employment Agreement, dated July 13,
2011, between Verint Systems Inc. and Peter Fante**
125
Form 8-K filed on May 2, 2011
Form 8-K filed on March 8, 2013
Form 8-K filed on February 3, 2014
Form 8-K filed on February 3, 2014
Form 8-K filed on February 3, 2014
Form 8-K filed on March 10, 2014
Form 8-K filed on June 18, 2014
Form 8-K filed on February 23, 2010
Form 8-K filed on July 14, 2011
Form 8-K filed on July 14, 2011
Form 8-K filed on July 14, 2011
Table of Contents
10.24
10.25
12.1
21.1
23.1
31.1
31.2
32.1
32.2
Summary of the Terms of Verint Systems Inc. Executive Officer Annual
Bonus Plan**
Form 10-K filed on March 27, 2015
Federal Income Tax Sharing Agreement, dated as of January 31, 2002,
between Comverse Technologies, Inc. an Verint Systems Inc.
Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined
Fixed Charges and Preference Security Dividends
Form S-1 (Commission File No.
333-82300) effective on May 16, 2002
Filed herewith
Subsidiaries of Verint Systems Inc.
Consent of Deloitte & Touche LLP, Independent Registered Public
Accounting Firm
Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer pursuant to Securities
Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350 (1)
Certification of the Chief Financial Officer pursuant to Securities
Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350 (1)
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
(1) These exhibits are being "furnished" with this periodic report and are not deemed "filed" with the SEC and are not incorporated by
reference in any filing of the company under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as
amended.
* Certain exhibits and schedules have been omitted, and the Company agrees to furnish supplementally to the SEC a copy of any
omitted exhibits or schedules upon request.
** Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to
Item 15(b) of this report.
(c) Financial Statement Schedules
None
126
Table of Contents
Item 16. Form 10-K Summary
None.
127
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 28, 2017
March 28, 2017
VERINT SYSTEMS INC.
/s/ Dan Bodner
Dan Bodner
President and Chief Executive Officer
/s/ Douglas E. Robinson
Douglas E. Robinson
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Dan Bodner
Dan Bodner
Chief Executive Officer and President, and Director
March 28, 2017
(Principal Executive Officer)
/s/ Douglas E. Robinson
Chief Financial Officer
March 28, 2017
Douglas E. Robinson
(Principal Financial Officer and Principal Accounting Officer)
/s/ Victor A. DeMarines
Chairman of the Board of Directors
March 28, 2017
Victor A. DeMarines
/s/ John R. Egan
John R. Egan
/s/ William H. Kurtz
William H. Kurtz
/s/ Larry Myers
Larry Myers
/s/ Richard Nottenburg
Richard Nottenburg
/s/ Howard Safir
Howard Safir
/s/ Earl Shanks
Earl Shanks
Director
Director
Director
Director
Director
Director
128
March 28, 2017
March 28, 2017
March 28, 2017
March 28, 2017
March 28, 2017
March 28, 2017
EXHIBIT 10.12
___________ __, 20__
[Name of Recipient]
[Address]
Notice of Grant of Performance-Based Restricted Stock Units
Dear [Name]:
Congratulations! You have been granted a performance-based restricted stock unit award
(the “Award”) pursuant to the terms and conditions of the Verint Systems Inc. 2015 Long-Term
Stock Incentive Plan, as modified by any sub-plan, addendum, or supplement applicable to you
under Section 16 of the Agreement (as defined below) (the “Plan”) and the attached Verint
Systems Inc. (the “Company”) Performance-Based Restricted Stock Unit Award Agreement (the
“Agreement”). The details of your Award are specified below and in the attached Agreement.
Capitalized terms used in this Notice of Grant and not otherwise defined shall have the meanings
given in the Plan or the Agreement.
Granted To:
ID#:
[Name]
[ID Number]
Grant Date:
[____________], 20__
Target Number
of Units Granted:
[Number] (with the opportunity to earn up to
[Number]1 additional Restricted Stock Units).2 The
Restricted Stock Units eligible to be earned under this
Award will be divided one-third into “Revenue Units”,
one-third into “EBITDA Units”, and one-third into “TSR
Units”, which will vest independently based on the
Performance Matrix attached as Exhibit A.
Price Per Unit:
U.S.$0.00
Performance Period:
As specified in the Performance Matrix attached as
Exhibit A.
________________________
1 Not to exceed 100% of the target number of Restricted Stock Units (or such lower percentage as specified by the
grant resolutions).
2 Note that the maximum number of Restricted Stock Units granted is subject to the approval of the Compensation
Committee.
1
Vesting Schedule:
The Restricted Stock Units granted hereby shall
vest on the dates or at the times set forth in the
Agreement, following the achievement of specified
performance goals, but in any event, no earlier than
[_______], 20__ for the Revenue Units and for the
EBITDA Units, and no earlier than [______], 20__
for the TSR Units.3
Verint Systems Inc.
By my signature below or my electronic acceptance hereof (if provided to me
electronically), I hereby acknowledge my receipt of this Award granted on the date shown
above, which has been issued to me under the terms and conditions of the Plan and the
Agreement. I agree that the Award is subject to all of the terms and conditions of this
Notice of Grant, the Plan, and the Agreement.
If I am a resident of Canada, I also acknowledge having requested that this Notice
and all documents referred to herein be drafted in the English language. Je reconnais
également avoir exigé que ce document ainsi que tout document auquel ce document fait
référence, soient rédigés en langue anglaise.
Signature: _______________________________ Date: ______________
________________________
3 Dates to be specified in the applicable grant resolutions, with the first date to be after the filing of the Company's 10-
K covering the final year of the performance period applicable to the Revenue and EBITDA Units (and the release of
the related blackout period) and with the second date to be after the filing of the Company's 10-K covering the final
year of the performance period applicable to the TSR Units (and the release of the related blackout period).
2
VERINT SYSTEMS INC.
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
This Performance-Based Restricted Stock Unit Award Agreement (this “Agreement”) and the
Verint Systems Inc. 2015 Long-Term Stock Incentive Plan, as modified by any sub-plan,
addendum, or supplement applicable to you under Section 16 of this Agreement (the “Plan”)
govern the terms and conditions of the Performance-Based Restricted Stock Unit Award (the
“Award”) specified in the Notice of Grant of Performance-Based Restricted Stock Units (the
“Notice of Grant”) delivered herewith entitling the person to whom the Notice of Grant is
addressed (“Grantee”) to receive from Verint Systems Inc. (the “Company”) the target number of
performance-based Restricted Stock Units indicated in the Notice of Grant and the opportunity to
earn additional Restricted Stock Units (if provided for in the Notice of Grant), as described
herein, subject to the terms and conditions of this Agreement.
1
RESTRICTED STOCK UNITS; VESTING
1.1
Grant of Performance-Based Restricted Stock Units.
(a)
(b)
(c)
Subject to the terms of this Agreement, the Company hereby grants to Grantee the target
number of performance-based restricted stock units (as may be further defined under the
terms of the Plan, “Restricted Stock Units”) indicated in the Notice of Grant, and if
provided in the Notice of Grant, the opportunity to earn additional Restricted Stock
Units4 (if applicable, the “Overachievement Units”).
Subject to the terms of this Agreement, Grantee’s right to receive all or any portion of the
Restricted Stock Units will be contingent upon the Company’s achievement of one or
more performance goals specified in the performance matrix attached as Exhibit A to this
Agreement (the “Performance Matrix”) measured over the performance period(s)
specified in the Performance Matrix.
If and when the Restricted Stock Units vest in accordance with the terms of the Plan, this
Agreement, and the Notice of Grant without forfeiture, and upon the satisfaction of all
other applicable conditions as to the Restricted Stock Units, one Share shall be issuable to
Grantee for each Restricted Stock Unit that vests on such date, which Shares, except as
otherwise provided herein or in the Notice of Grant, will be free of any Company-
imposed transfer restrictions. Notwithstanding any other provision of this Agreement, the
Company reserves the right to settle the Award in cash or cancel the award for cash,
based on the Fair Market Value of the Shares on the applicable vesting dates, subject to
required withholding and in accordance with the customary payroll practices of the entity
employing Grantee.
________________________
4 Note that the maximum number of Restricted Stock Units granted is subject to the approval of the Compensation
Committee.
3
1.2
Vesting of Performance-Based Restricted Stock Units.
(a)
(b)
(c)
(d)
Generally. Vesting of the Restricted Stock Units shall be in accordance with the
Performance Matrix. If the calculations specified on the Performance Matrix would
result in the vesting of a fraction of a Restricted Stock Unit, the result of the calculation
will be rounded down to the nearest whole Restricted Stock Unit.
Determination of Earned Award. Not later than 60 days following the Board’s receipt of
the Company’s audited financial statements covering the final year of the performance
period applicable to a given category of Restricted Stock Units, the Committee will
determine (i) whether and to what extent the performance goal(s) have been satisfied, (ii)
the number of Restricted Stock Units vesting hereunder pursuant to the terms hereof, and
(iii) whether all other conditions to receipt of the Shares have been met. The
Committee’s determination of the foregoing shall be final and binding on Grantee absent
a showing of manifest error. Notwithstanding any other provision of this Agreement, no
Restricted Stock Units for a given category shall vest (x) until the Committee has made
the foregoing determinations and (y) prior to the date or dates discussed in the next
paragraph.
Time Vesting Limitation. For the avoidance of doubt, notwithstanding the determination
of the Board or the Committee pursuant to the previous paragraph, no Restricted Stock
Units will vest prior to the date or dates specified in the Notice of Grant.
Other Vesting Provisions. Any Restricted Stock Units that do not become vested based
on the foregoing provisions will be automatically forfeited by Grantee without
consideration. Vesting shall cease upon the date Grantee’s Continuous Service terminates
for any reason, unless otherwise determined by the Board or the Committee in its sole
discretion or otherwise provided in a separate written agreement between the parties.
1.3
Forfeiture.
(a)
Except as otherwise provided herein, Grantee’s right to receive any of the Restricted
Stock Units is contingent upon his or her remaining in the Continuous Service of the
Company or a Subsidiary or Affiliate through the respective vesting dates specified in the
Notice of Grant and hereunder. If Grantee’s Continuous Service terminates for any
reason, all Restricted Stock Units which are then unvested shall, unless otherwise
determined by the Board or the Committee in its sole discretion or subject to a separate
written agreement between the parties, be cancelled and the Company shall thereupon
have no further obligation thereunder. For the avoidance of doubt, subject to a separate
written agreement between the parties, Grantee acknowledges and agrees that he or she
has no expectation that any Restricted Stock Units will vest on the termination of his or
her Continuous Service for any reason and that he or she will not be entitled to make a
claim for any loss occasioned by such forfeiture as part of any claim for breach of his or
her employment or service contract or otherwise.
4
1.4
Delivery.
(a)
(b)
Subject to Section 1.6 and any other applicable conditions hereunder, as soon as
administratively practicable following the vesting of Restricted Stock Units in accordance
with the terms of this Agreement and the Notice of Grant (but in no event later than the
date the short-term deferral period under Section 409A of the Code expires with respect
to such vested Shares), the Company shall issue the applicable Shares and, at its option,
(i) deliver or cause to be delivered to Grantee a certificate or certificates for the
applicable Shares or (ii) transfer or arrange to have transferred the Shares to a brokerage
account of Grantee designated by the Company.
Notwithstanding the foregoing, the issuance of Shares upon the vesting of a Restricted
Stock Unit shall be delayed in the event the Company reasonably anticipates that the
issuance of Shares would constitute a violation of U.S. federal securities laws, other
applicable law, or Nasdaq rules. If the issuance of the Shares is delayed by the provisions
of this paragraph, such issuance shall occur at the earliest date at which the Company
reasonably anticipates issuing the Shares will not cause such a violation. For purposes of
this paragraph, the issuance of Shares that would cause inclusion in gross income or the
application of any penalty provision or other provision of the Code or other tax
legislation applicable to Grantee is not considered a violation of applicable law.
1.5
Restrictions.
(a)
Except as provided herein, Grantee shall not have any rights as a stockholder with respect
to any Shares to be distributed under this Agreement until he, she or it has become the
holder of such Shares as provided in this Agreement. Until delivery of such Shares (or
other settlement of the Award hereunder), Grantee will have only the rights of a general
unsecured creditor of the Company.
(b)
The Award is subject to the transferability restrictions under the Plan.
1.6
Tax; Withholding.
(a)
(b)
The Company shall determine the amount of any withholding or other tax required by
law to be withheld or paid by the Company or its Subsidiary with respect to any income
recognized by Grantee with respect to the Restricted Stock Units or the issuance of
Shares pursuant to the terms of the Restricted Stock Units.
Neither the Company nor any Subsidiary, Affiliate or agent makes any representation or
undertaking regarding the treatment of any tax or withholding in connection with the
grant, vesting or settlement of the Award or the subsequent sale of Shares subject to the
Award. The Company and its Subsidiaries and Affiliates do not commit and are under no
obligation to structure the Award to reduce or eliminate Grantee’s tax liability, and none
of the Company, any of its Subsidiaries or Affiliates, or any of their employees or
representatives shall have any liability to Grantee with respect thereto.
5
(c)
Notwithstanding the withholding provision in the Plan:
(i)
(ii)
If in the tax jurisdiction in which Grantee resides, a tax withholding obligation
arises upon vesting of the Award (regardless of when the Shares underlying the
Award are delivered to Grantee), or for non-employee directors of the Company
in any jurisdiction, on each date that all or a portion of the Award actually vests,
if (1) the Company does not have in place an effective registration statement
under the Securities Act of 1933, as amended (the “Securities Act”) and there is
not a Securities Act exemption available under which Grantee may sell Shares or
(2) Grantee is subject to a Company-imposed trading blackout, then unless
Grantee has made other arrangements satisfactory to the Company, the Company
will (x) with respect to employees of the Company, withhold from the Shares to
be delivered to Grantee such number of Shares as are sufficient in value (as
determined by the Company in its sole discretion) to cover the minimum amount
of the tax withholding obligation and (y) with respect to non-employee directors
of the Company, settle 40% of the portion of the Award then vesting in cash by
paying Grantee cash (in accordance with the Company’s normal payroll
practices) equal to the Fair Market Value of one Share for each Restricted Stock
Unit being settled in such manner.
If in the tax jurisdiction in which Grantee resides, a tax withholding obligation
arises upon delivery of the Shares underlying the Restricted Stock Units
(regardless of when vesting occurs), then following each date that all or a portion
of the Award actually vests, the Company will defer the delivery of the Shares
otherwise deliverable to Grantee until the earliest of: (1) the date Grantee’s
employment with the Company (or a Subsidiary or Affiliate) is terminated (by
either party), (2) the date that the short-term deferral period under Section 409A
of the Code expires with respect to such vested Shares, or (3) the date on which
the Company has in place an effective registration statement under the Securities
Act or there is a Securities Act exemption available under which Grantee may
sell Shares and on which Grantee is not subject to a Company-imposed trading
blackout (the earliest of such dates, the “Delivery Date”). If on the Delivery Date
(x) the Company does not have in place an effective registration statement under
the Securities Act and there is not a Securities Act exemption available under
which Grantee may sell Shares or (y) Grantee is subject to a Company-imposed
trading blackout, then unless Grantee has made other arrangements satisfactory
to the Company, the Company will withhold from the Shares to be delivered to
Grantee such number of Shares as are sufficient in value (as determined by the
Company in its sole discretion) to cover the minimum amount of the tax
withholding obligation.
(d)
Grantee is ultimately liable and responsible for all taxes owed by Grantee in connection
with the Award, regardless of any action the Company or any of its Subsidiaries,
Affiliates or agents takes with respect to any tax withholding obligations that arise in
connection with the Award. Accordingly, Grantee agrees to pay to the Company or its
relevant Subsidiary, Affiliate or agent as soon as practicable, including through additional
payroll withholding (if permitted under applicable law), any amount of required tax
6
withholding that is not satisfied by any such action of the Company or its Subsidiary,
Affiliate or agent.
(e)
The Committee shall be authorized, in its sole discretion, to establish such rules and
procedures relating to the use of Shares of common stock to satisfy tax withholding
obligations as it deems necessary or appropriate to facilitate and promote the conformity
of Grantee’s transactions under this Agreement with Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, if such rule is applicable to transactions by Grantee.
Detrimental Activity. In the event the Company determines or discovers during or after
1.7
the course of Grantee’s employment or service that Grantee committed an act during the course of
employment or service that constitutes or would have constituted Cause for termination, the
Committee shall have the right, to the maximum extent permissible under applicable law, to
cancel all or any portion of the Award (whether or not vested).
Erroneously Awarded Compensation. The Award, if and to the extent subject to the
1.8
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any regulations
promulgated thereunder (collectively, the “Dodd-Frank Act”), may be subject to a claw back
policy or other incentive compensation policy established from time to time by the Company to
comply with such Act.
2
CERTAIN DEFINITIONS
Defined terms not defined in this Agreement but defined in the Plan shall have the same definitions
as in the Plan. For the avoidance of doubt, in each instance that the term “Company” is used in the
Plan, “Company” shall mean Verint Systems Inc.
The performance goals specified in the performance matrix shall be measured by the Committee
(for calculation purposes) on a non-GAAP basis, consistent with the Company’s Board-approved
budget and 2-year plan, with the Committee having the discretion, but not the obligation, to adjust
any such performance goals and/or the associated vesting levels to reflect the impact of:
•
•
•
•
extraordinary transactions or unbudgeted Company merger/acquisitions or similar
activity,
changes in applicable tax or other laws, rules, or regulations,
changes in applicable revenue recognition or other accounting rules, requirements, or
standards, or
stock repurchases or dividends paid to stockholders,
in order to prevent unintended enlargement or dilution of benefits to the Grantee as a result of such
activity.
3
REPRESENTATIONS OF GRANTEE
Grantee hereby represents to the Company that Grantee has read and fully understands the provisions
of this Agreement, and Grantee acknowledges that Grantee is relying solely on his or her own advisors
with respect to the tax consequences of the Award. Grantee acknowledges that this Agreement has
7
not been reviewed or approved by any regulatory authority in his or her country of residence or
otherwise.
4
NOTICES
All notices or communications under this Agreement shall be in writing, addressed as follows:
To the Company:
Verint Systems Inc.
175 Broadhollow Road
Melville, NY 11747-3201
U.S.A.
+(631) 962-9600 (phone)
+(631) 962-9623 (fax)
Attn: Chief Legal Officer
To Grantee:
as set forth in the Company’s payroll
records
Any such notice or communication shall be (a) delivered by hand (with written confirmation of
receipt) or sent by a nationally recognized overnight delivery service (receipt requested) or (b) sent
certified or registered mail, return receipt requested, postage prepaid, addressed as above (or to such
other address as such party may designate in writing from time to time), and the actual date of receipt
shall determine the time at which notice was given. Grantee will promptly notify the Company in
writing upon any change in Grantee’s mailing address or e-mail address.
5
BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of
Grantee and the assigns and successors of the Company.
6
ENTIRE AGREEMENT; AMENDMENT
The Plan, this Agreement and the Notice of Grant represent the entire agreement of the parties with
respect to the subject matter hereof. Subject to the terms of the Plan, the Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
the Award; provided that any such waiver, amendment, alteration, suspension, discontinuance,
cancellation or termination that would impair the rights of Grantee or any holder or beneficiary of
the Award previously granted shall not be effective as to Grantee without the written consent of
Grantee, holder or beneficiary, but further provided that the consent of Grantee or any holder or
beneficiary shall not be required to an amendment that is deemed necessary by the Company to
ensure compliance with (a) the Dodd-Frank Act, including, without limitation, as a result of the
implementation of any recoupment policy the Company adopts to comply with the requirements set
forth in the Dodd-Frank Act and (b) Section 409A of the Code as amplified by any Internal Revenue
Service or U.S. Treasury Department regulations or guidance, or any other applicable equivalent
tax law, rule, or regulation, as the Company deems appropriate or advisable.
8
7
GOVERNING LAW
The rules and regulations relating to this Agreement shall be determined in accordance with the laws
of the State of New York, applied without giving effect to its conflict of laws principles. Each party
to this Agreement hereby consents and submits himself, herself or itself to the jurisdiction of the
courts of the state of New York for the purposes of any legal action or proceeding arising out of this
Agreement. Nothing in this Agreement shall affect the right of the Company to commence
proceedings against Grantee in any other competent jurisdiction, or concurrently in more than one
jurisdiction, or to serve process, pleadings and other papers upon Grantee in any manner authorized
by the laws of any such jurisdiction. Grantee irrevocably waives:
(a)
any objection which he, she or it may have now or in the future to the laying of
the venue of any action, suit or proceeding in any court referred to in this Section; and
any claim that any such action, suit or proceeding has been brought in an
(b)
inconvenient forum.
8
SEVERABILITY
If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable
in any jurisdiction or as to any person or this Agreement, or would disqualify this Agreement under
any law deemed applicable by the Committee, such provision shall be construed or deemed amended
to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of this Agreement, such provision
shall be stricken as to such jurisdiction, person or this Agreement and the remainder of this Agreement
shall remain in full force and effect.
9
ONE-TIME GRANT; NO RIGHT TO CONTINUED SERVICE OR
PARTICIPATION; EFFECT ON OTHER PLANS
The Award evidenced by this Agreement is a voluntary, discretionary bonus being made on a one-
time basis and it does not constitute a commitment to make any future awards, even if awards have
been made repeatedly in the past. Further, the Award is made outside the scope of Grantee’s
employment or service contract, if any, unless otherwise expressly provided therein. Neither this
Agreement nor the Notice of Grant shall be construed as giving Grantee the right to be retained in
the employ of, or in any consulting or other service relationship to, or as a director on the Board or
board of directors, as applicable, of, the Company or any Subsidiary or Affiliate of the Company.
Further, the Company or a Subsidiary or Affiliate of the Company may at any time dismiss Grantee
from employment or discontinue any consulting or other service relationship, free from any liability
or any claim under the Plan or this Agreement, unless otherwise expressly provided in the Plan, this
Agreement or any applicable employment or service contract or agreement. In the event that Grantee
is not an employee of the Company, the grant of the Award will not be interpreted to form an
employment contract or relationship with the Company or any Affiliate or Subsidiary of the Company.
Payment received by Grantee pursuant to this Agreement and the Notice of Grant shall not be
considered part of normal or expected compensation or salary for any purpose, including, but not
limited to, calculation of any overtime, severance, resignation, termination, redundancy, end of
service payments, bonuses, long-service awards, pension or retirement benefits or similar payments
and shall not be included in the determination of benefits under any pension, group insurance or
9
other benefit plan of the Company or any Subsidiary or Affiliate in which Grantee may be enrolled,
except as provided under the terms of such plans, or as determined by the Board.
10
NATURE OF THE GRANT
In accepting the Award, Grantee acknowledges that:
(a)
the Plan is established voluntarily by the Company, it is discretionary in
nature and may be modified, amended, suspended or terminated by the Company at any time,
unless otherwise provided in the Plan or this Agreement;
(b)
Grantee’s participation in the Plan is voluntary;
(c)
the future value of the underlying Shares is unknown and cannot be
predicted with certainty;
(d)
if Grantee receives Shares upon vesting of the Award, the value of such
Shares may increase or decrease in value; and
(e)
in consideration of the grant of the Award, no claim or entitlement to
compensation or damages arises from diminution in value of the Award received upon vesting of
the Award or, except as otherwise provided herein or under a separate agreement between the
parties, from the termination of the Award resulting from termination of Grantee’s Service to the
Company or a Subsidiary or Affiliate (for any reason whatsoever and whether or not in breach of
local labor laws) and, subject to the foregoing, Grantee irrevocably releases the Company and its
Subsidiaries and Affiliates from any such claim that may arise; if, notwithstanding the foregoing,
any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this
Agreement, Grantee shall be deemed irrevocably to have waived his, her or its entitlement to
pursue such claim.
11
NO STRICT CONSTRUCTION
No rule of strict construction shall be implied against the Company, the Committee, or any other
person in the interpretation of any of the terms of this Agreement, the Notice of Grant or any rule
or procedure established by the Committee.
12
USE OF THE WORD “GRANTEE”
Wherever the word “Grantee” is used in any provision of this Agreement under circumstances where
the provision should logically be construed to apply to the executors, the administrators, or the person
or persons to whom the Restricted Stock Units may be transferred by will or the laws of descent and
distribution, the word “Grantee” shall be deemed to include such person or persons.
13
FURTHER ASSURANCES
Grantee agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver
and perform all additional documents, instruments and agreements which may be reasonably required
by the Company or the Committee, as the case may be, to implement the provisions and purposes
of this Agreement.
10
14
CONSENT TO TRANSFER PERSONAL DATA
The Company and its Subsidiaries hold certain personal information about Grantee, that may
include Grantee’s name, home address and telephone number, date of birth, social security
number or other employee identification number, salary, nationality, job title, any Shares of stock
held in the Company, or details of any entitlement to Shares of stock awarded, canceled,
purchased, vested, or unvested, for the purpose of implementing, managing, and administering
the Award, the Plan or this Agreement (collectively “Data”). Grantee hereby agrees that the
Company and/or its Subsidiaries may transfer Data amongst themselves as necessary for the
purpose of implementation, administration, and management of Grantee’s participation in the
Award, the Plan or this Agreement, and the Company and/or any of its Subsidiaries may each
further transfer Data to any third parties assisting the Company in the implementation,
administration, and management of the Award, the Plan or this Agreement. These recipients may
be located throughout the world, including, without limitation, outside Grantee’s country of
residence (or outside of the European Economic Area, for Grantees located within the European
Economic Area). Such countries may not provide for a similar level of data protection as
provided for by local law (such as, for example, European privacy directive 95/46/EC and local
implementations thereof). Grantee hereby authorizes those recipients – even if they are located in
a country outside of Grantee’s country of residence (and/or outside of the European Economic
Area, for Grantees located within the European Economic Area) – to receive, possess, use, retain,
and transfer the Data, in electronic or other form, for the purpose of implementing,
administering, and managing Grantee’s participation in the Award, the Plan or this Agreement,
including but not limited to any transfer of such Data as may be required for the administration
of the Award, the Plan or this Agreement and/or the subsequent holding of Shares of stock on
Grantee’s behalf by a broker or other third party with whom Grantee or the Company may elect
to deposit any Shares of stock acquired pursuant to the Award, the Plan or this Agreement.
Grantee is not obliged to consent to such collection, use, processing and transfer of personal data
and may, at any time, review Data, require any necessary amendments to it, or withdraw the
consent contained in this Section by contacting the Company in writing. However, withdrawing
or withholding consent may affect Grantee’s ability to participate in the Award, the Plan or this
Agreement. More information on the Data and/or the consequences of withholding or
withdrawing consent can be obtained from the Company’s legal department.
15
GOVERNING PLAN DOCUMENT
This Agreement is subject to all the provisions of the Plan, the provisions of which are hereby
made a part of this Agreement, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this Agreement and those of the Plan, the
provisions of the Plan control.
16
CERTAIN COUNTRY-SPECIFIC PROVISIONS
For residents of the UK only:
Your Award is subject to the UK Sub-Plan under the Plan.
11
Grantee agrees, as a condition to its acceptance of the Award, to satisfy any requirement of the
Company or any Subsidiary that, prior to vesting of all or any part of the Award, Grantee enter
into a joint election under section 431(1) of the UK Income Tax (Earnings and Pensions) Act
2003, the effect of which is that the Shares issued on vesting will be treated as if they were not
restricted securities.
Tax withholding obligations under this Agreement shall include, without limitation:
(i)
United Kingdom (UK) income tax; and
(ii)
UK primary class 1 (employee's) national insurance contributions.
For residents of Canada only:
Your Award is subject to the Canadian Sub-Plan under the Plan.
I acknowledge having requested that this Agreement and all documents referred to herein be
drafted in the English language. Je reconnais également avoir exigé que ce document ainsi que
tout document auquel ce document fait référence, soient rédigés en langue anglaise.
Tax withholding obligations under this Agreement shall include federal and provincial income
tax, Canadian Pension Plan contributions, and Employment Insurance premiums (including the
provincial equivalents) as applicable.
For residents of Hong Kong only:
a) The Data Protection Principles specified in the Personal Data (Privacy) Ordinance (Cap. 486
of the Laws of Hong Kong) will apply to any Data upon its transfer to any place outside of Hong
Kong.
b) Hong Kong Securities Law Notice. The Restricted Stock Units and any Shares issued
pursuant to the Awards do not constitute a public offering of securities under Hong Kong law and
are available to any eligible person under the Plan. The Agreement, the Plan and other incidental
communication materials (together, the “Award Agreement”) have not been prepared in
accordance with and are not intended to constitute a “prospectus” for a public offering of
securities under the applicable securities legislation in Hong Kong. The Restricted Stock Units
and any related documentation are intended only for the personal use of each eligible person
under the Plan and may not be distributed to any other person. The contents of the Award
Agreement, including the Plan, have not been reviewed by any regulatory authority in Hong
Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about
any of the contents of the Award Agreement or the Plan, you should obtain independent
professional advice.
For residents of Russia only:
You acknowledge that the grant of Restricted Stock Units, the Plan and all other materials you
may receive regarding participation in the Plan do not constitute an advertising or offering of
securities in Russia. The issuance of securities pursuant to the Plan has not and will not be
registered in Russia and therefore, the securities described in any Plan-related documents may not
12
be used for offering or public circulation in Russia.
You further acknowledge that in no event will Shares that may be issued to you with respect to
the Restricted Stock Units be delivered to you in Russia; all Shares issued to you with respect to
the Restricted Stock Units will be maintained on your behalf in the United States.
For residents of Argentina only:
Neither the award under the plan nor the underlying shares are publicly offered or listed on any
stock exchange in Argentina. The offer is private and not subject to the supervision of any
Argentine governmental authority.
For residents of Israel only:
By my signature on or electronic acceptance of this Agreement, I acknowledge that the Award is
granted under and governed by (i) this Agreement, (ii) the Plan, a copy of which has been
provided to me or made available for my review, (iii) the Israeli Supplement (“the Supplement”),
a copy of which has been provided to me or made available for my review; (iv) Section 102(b)(2)
of the Income Tax Ordinance (New Version) – 1961 and the Rules promulgated in connection
therewith, and (v) the Trust Agreement, a copy of which has been provided to me or made
available for my review. Furthermore, by my signature on or electronic acceptance of this
Agreement, I agree that the Awards will be issued to the Trustee to hold on my behalf, pursuant to
the terms of the Section 102, the Section 102 Rules and the Trust Agreement.
In addition, by my signature on or electronic acceptance of this Agreement, I confirm that I am
familiar with the terms and provisions of Section 102, particularly the Capital Gains Track
described in subsection (b)(2) thereof, and I agree that I will not require the Trustee to release the
Awards or Company shares to me, or to sell the Awards or Company shares to a third party,
during the Holding Period, unless permitted to do so by applicable law.
All capitalized terms in this undertaking shall have the meaning granted to them under the
Supplement.
For residents of India only:
Your Award is subject to the India Addendum to the Plan.
END OF AGREEMENT
13
EXHIBIT A
Performance Matrix
Performance Equity Award Granted [_______], 20__
The Restricted Stock Units eligible to be earned under this Award are divided into three
categories: one-third “Revenue Units”, one-third “EBITDA Units”, and one-third “TSR Units”,
with each category of Restricted Stock Units vesting independently based on the table below.
No Restricted Stock Units of a given category will be earned if performance falls below the
threshold for such category. Vesting levels between points on the table below will be on a linear
basis between such points. If the Notice of Grant makes Overachievement Units available, the
maximum payout (for performance at or above the maximum level) will be at the maximum
percentage specified in the table below for such category. If the Notice of Grant does not make
Overachievement Units available, the maximum payout (for performance at or above the target
level) will be at the target percentage specified in the table below for such category.
The performance period for the Revenue Units and for the EBITDA Units will be from
[__________] to [__________].5
The performance period for the TSR Units will be from [__________] to [__________].6
Revenue Achieved in Performance Period7
Payout Percentage for Revenue Units
Threshold ([__]% of Revenue Target)
Target (100% of Revenue Target)
Maximum ([__]% of Revenue Target)
[__]%
[__]%
[__]%8
EBITDA Achieved in Performance Period9
Threshold ([__]% of EBITDA Target)
Target (100% of EBITDA Target)
Maximum ([__]% of EBITDA Target)
Payout Percentage for EBITDA Units
[__]%
[__]%
[__]%10
5 Two year performance period.
6 Three year performance period.
7 May include more than three data points.
8 If the Notice of Grant does not make Overachievement Units available for over-performance, replace this line of the
table with “Maximum: Not Applicable”.
9 May include more than three data points.
10 If the Notice of Grant does not make Overachievement Units available for over-performance, replace this line of the
table with “Maximum: Not Applicable”.
14
Relative TSR Achieved in Performance Period11
Payout Percentage for TSR Units
< 25th percentile Relative TSR
Threshold (25th percentile Relative TSR)
Target (50th percentile Relative TSR)
Maximum (75th or > percentile Relative TSR)
[__]%
[__]%
[__]%
[__]%12
“Relative TSR” means the Company’s total stockholder return, on a percentile basis, relative to
the companies comprising the S&P 1500 Information Technology Sector Index (the “Index”) with
respect to the performance period for the TSR Units, weighted equally and based on the
applicable 90-day volume-weighted trailing average closing prices of such constituent companies
as of the beginning and end of such performance period (adjusted for dividends); provided that
members of the Index will only be taken into account for purposes of the calculation of Relative
TSR if they constitute part of the Index at both the beginning and the end of the performance
period.
11 May include more than four data points.
12 If the Notice of Grant does not make Overachievement Units available for over-performance, replace this line of the
table with “Maximum: Not Applicable”.
15
EXHIBIT 12.1
Verint Systems Inc. and Subsidiaries
Ratios of Earnings to Fixed Charges
and
Ratios of Earnings to Combined Fixed Charges and Preference Security Dividends
(in thousands, except ratios)
Earnings:
(Loss) income before provision (benefit) for income taxes
Add: Fixed charges
Subtract: Noncontrolling interest in pre-tax income of
subsidiaries
Year Ended January 31,
2017
2016
2015
2014
2013
$ (23,474) $ 23,180
40,218
43,302
$ 21,403
$ 63,315
$ 67,764
42,151
34,330
35,900
(3,616)
$ 16,212
(5,526)
$ 57,872
(6,293)
$ 57,261
(6,081)
$ 91,564
(5,783)
$ 97,881
Fixed Charges and Preference Security Dividends:
Interest expense, including amortization of discounts
$ 21,018
$ 20,586
$ 27,529
$ 27,119
$ 27,544
Amortization of deferred debt-related costs
Interest component of rent expense
Total Fixed Charges
Dividends on convertible preferred stock (pre-tax)
Total Fixed Charges and Preference Security Dividends
13,944
8,340
43,302
—
13,300
6,332
40,218
—
9,133
5,489
2,662
4,549
42,151
34,330
—
211
3,489
4,867
35,900
18,883
$ 43,302
$ 40,218
$ 42,151
$ 34,541
$ 54,783
Ratio of Earnings to Fixed Charges
Ratio of Earnings to Fixed Charges and Preference
Security Dividends
*
*
1.4
1.4
1.4
1.4
2.7
2.7
2.7
1.8
* Earnings were deficient in covering fixed charges by $27.1 million for the year ended January 31, 2017.
Earnings consists of our consolidated net income before income taxes, plus fixed charges, reduced by the non-controlling
interest in the pre-tax income of a consolidated subsidiary that did not incur fixed charges. Fixed charges consist of interest
expense (including only interest expense on third party indebtedness and excluding interest expense accrued on uncertain tax
positions), amortization of debt discounts and capitalized expenses related to indebtedness as well as a portion of rental expense
deemed by us to be representative of the interest factor within rental payments under operating leases. Preference security
dividends represent the estimated amount of pre-tax earnings necessary to pay dividends on our previously outstanding Series A
Convertible Preferred Stock. Dividends on our Series A Convertible Preferred Stock were cumulative. Our Series A Convertible
Preferred Stock was canceled on February 4, 2013, in connection with our merger with CTI. No dividends had been declared or
paid on our Series A Convertible Preferred Stock.
Subsidiaries of Verint Systems Inc.
(as of March 1, 2017)
EXHIBIT 21.1
Name
Adtech Global (UK) Limited
BPA Corporate Facilitation Ltd. (1)
BPA International, Inc. (1)
Ciboodle Ireland Ltd.
Ciboodle (Land and Estates) Ltd.
Ciboodle Ltd.
CIS Comverse Information Systems Ltd.
Febrouin Investments Ltd.
Focal Info Israel Ltd.
Gita Technologies Ltd.
Global Management Technologies, LLC
Iontas Limited
KANA Software Ireland Limited
KANA Software Ireland No. 2 Limited
KANA Solutions Limited
Lagan Technologies Limited
MultiVision Holdings Limited
OpinionLab Canada Inc.
Permadeal Limited
PT Ciboodle Indonesia
Rontal Engineering Applications (2001) Ltd.
Suntech S.A.
Syborg GmbH
Syborg Grundbesitz GmbH
Syborg Informationsysteme b.h. OHG
Trinicom Duetschland Gmbh
Triniventures BV
UT Techeng Limited
UTX Technologies Limited
Verint Acquisition LLC
Verint Americas Inc.
Verint CES Ltd.
Verint Netherlands BV
Verint Systems (Asia Pacific) Limited
Verint Systems (Australia) PTY Ltd.
Verint Systems Belgium N.V.
Verint Systems Bulgaria
Verint Systems B.V.
Verint Systems Canada Inc.
Verint Systems Cayman Limited
Verint Systems GmbH
Verint Systems (India) Private Ltd.
Verint Systems Japan K.K.
Verint Systems Ltd.
Jurisdiction of
Incorporation or
Organization
United Kingdom
United Kingdom
New York
Ireland
United Kingdom
United Kingdom
Israel
Cyprus
Israel
Israel
Delaware
Ireland
Ireland
Ireland
United Kingdom
United Kingdom
British Virgin Islands
Canada
Cyprus
Indonesia
Israel
Brazil
Germany
Germany
Germany
Germany
Netherlands
Cyprus
Cyprus
Delaware
Delaware
Israel
Netherlands
Hong Kong
Australia
Belgium
Bulgaria
The Netherlands
Canada
Cayman Islands
Germany
India
Japan
Israel
Name
Verint Systems New Zealand Limited
Verint Systems (Philippines) Corporation
Verint Systems Poland sp.z.o.o.
Verint Systems (PTY) Ltd.
Verint Systems SAS
Verint Systems (Singapore) Pte. Ltd. (2)
Verint Systems (Software and Services) Pte Ltd.
Verint Systems (Taiwan) Ltd.
Verint Systems UK Ltd.
Verint Systems (Zhuhai) Limited
Verint Technology Cyprus Ltd.
Verint Technology Inc.
Verint Technology UK Limited
Verint Video Solutions SL
Verint Witness Systems LLC
Verint Witness Systems S.A. de C.V.
Verint Witness Systems Services S.A. de C.V.
Verint Witness Systems Software, Hardware, E Servicos Do Brasil Ltda
Verint WS Holdings Ltd.
Victory Acquisition I LLC
Witness Systems Software (India) Private Limited
___________________
Jurisdiction of
Incorporation or
Organization
New Zealand
Philippines
Poland
South Africa
France
Singapore
Singapore
Taiwan (Republic of China)
United Kingdom
People’s Republic of China
Cyprus
Delaware
United Kingdom
Spain
Delaware
Mexico
Mexico
Brazil
United Kingdom
Delaware
India
(1) We own a 51% equity interest in this entity.
(2) We own a 50% equity interest in this entity and do not have the power to unilaterally direct or cause the direction of
the management and policies of this entity.
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Verint Systems Inc.
Melville, New York
We consent to the incorporation by reference in Registration Statement Nos. 333-167618, 333-169005, 333-169768,
333-171006, 333-173421, 333-173454, 333-174820, 333-182032, 333-182755, 333-189062, 333-198575, and 333-205658 on
Form S-8 and Registration Statement No. 333-196612 on Form S-3 of our reports dated March 28, 2017, relating to the
consolidated financial statements of Verint Systems Inc., and the effectiveness of Verint Systems Inc.’s internal control over
financial reporting, appearing in this Annual Report on Form 10-K of Verint Systems Inc. for the year ended January 31, 2017.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 28, 2017
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Dan Bodner, certify that:
1. I have reviewed this annual report on Form 10-K of Verint Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: March 28, 2017
By:
/s/ Dan Bodner
Dan Bodner
President and Chief Executive Officer
Principal Executive Officer
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Douglas E. Robinson, certify that:
1. I have reviewed this annual report on Form 10-K of Verint Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: March 28, 2017
By:
/s/ Douglas E. Robinson
Douglas E. Robinson
Chief Financial Officer
Principal Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Verint Systems Inc. (the “Company”) on Form 10-K for the period ended January 31,
2017 (the “Report”), I, Dan Bodner, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 28, 2017
/s/ Dan Bodner
Dan Bodner
President and Chief Executive Officer
Principal Executive Officer
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference.
EXHIBIT 32.2
CERTIFICATION REQUIRED BY 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Verint Systems Inc. (the “Company”) on Form 10-K for the period ended January 31,
2017 (the “Report”), I, Douglas E. Robinson, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 28, 2017
/s/ Douglas E. Robinson
Douglas E. Robinson
Chief Financial Officer
Principal Financial Officer
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference.