Verint Systems Annual Report 2018

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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, 2019Commission File No. 001-34807Verint Systems Inc.(Exact Name of Registrant as Specified in its Charter) Delaware11-3200514(State or Other Jurisdiction of Incorporation orOrganization)(I.R.S. Employer Identification No.) 175 Broadhollow Road, Melville, New York11747(Address of Principal Executive Offices)(Zip Code)Registrant’s telephone number, including area code: (631) 962-9600Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchangeon which registeredCommon Stock, $.001 par value per share 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 þ No oIndicate 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 o No þIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes þ No oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes þ No oIndicate 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, andwill 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. þIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filer þ Accelerated filer oNon-accelerated filer o Smaller reporting company oEmerging growth company oIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ 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 theNASDAQ Global Select Market on the last business day of the registrant’s most recently completed second fiscal quarter (July 31, 2018) was approximately$2,898,954,000.There were 65,332,546 shares of the registrant’s common stock outstanding on March 15, 2019.DOCUMENTS INCORPORATED BY REFERENCEThe 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 proxystatement relating to the Annual Meeting of Stockholders to be held in 2019, which definitive proxy statement shall be filed with the Securities andExchange Commission within 120 days after the end of the fiscal year to which this report relates. Table of ContentsVerint Systems Inc. and SubsidiariesIndex to Form 10-KAs of and For the Year Ended January 31, 2019 Page Cautionary Note on Forward-Looking Statementsii PART I Item 1.Business1Item 1A.Risk Factors14Item 1B.Unresolved Staff Comments27Item 2.Properties27Item 3.Legal Proceedings28Item 4.Mine Safety Disclosures29 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities30Item 6.Selected Financial Data31Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations33Item 7A.Quantitative and Qualitative Disclosures About Market Risk55Item 8.Financial Statements and Supplementary Data59Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure120Item 9A.Controls and Procedures120Item 9B.Other Information123 PART III 124 Item 10.Directors, Executive Officers and Corporate Governance124Item 11.Executive Compensation124Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters124Item 13.Certain Relationships and Related Transactions, and Director Independence125Item 14.Principal Accounting Fees and Services125 PART IV Item 15.Exhibits, Financial Statement Schedules126Item 16.Form 10-K Summary129 Signatures130 iTable of ContentsCautionary 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, theprovisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, asamended (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, in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are oftenidentified by future or conditional words such as “will”, “plans”, “expects”, “intends”, “believes”, “seeks”, “estimates”, or “anticipates”, or by variations ofsuch words or by similar expressions. There can be no assurance that forward-looking statements will be achieved. By their very nature, forward-lookingstatements involve known and unknown risks, uncertainties, assumptions, and other important factors that could cause our actual results or conditions todiffer materially from those expressed or implied by such forward-looking statements. Important risks, uncertainties, assumptions, and other factors that couldcause our actual results or conditions to differ materially from our forward-looking statements include, among others: •uncertainties regarding the impact of general economic conditions in the United States and abroad, particularly in information technology spendingand government budgets, on our business;•risks associated with our ability to keep pace with technological changes, evolving industry standards and challenges, to adapt to changing marketpotential from area to area within our markets, and to successfully develop, launch, and drive demand for new, innovative, high-quality productsthat 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 revenues, margins, and sufficient levels ofinvestment in our business and operations;•risks created by the continued consolidation of our competitors or the introduction of large competitors in our markets with greater resources thanwe have;•risks associated with our ability to successfully compete for, consummate, and implement mergers and acquisitions, including risks associated withvaluations, reputational considerations, 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 properly manage investments in our business and operations, execute on growth initiatives, and enhance our existingoperations and infrastructure, including the proper prioritization and allocation of limited financial and other resources;•risks associated with our ability to retain, recruit, and train qualified personnel in regions in which we operate, including in new markets and growthareas we may enter;•risks that we may be unable to establish and maintain relationships with key resellers, partners, and systems integrators and risks associated with ourreliance on third-party suppliers, partners, or original equipment manufacturers (“OEMs”) for certain components, products, or services, includingcompanies that may compete with us or work with our competitors;•risks associated with the mishandling or perceived mishandling of sensitive or confidential information, including information that may belong toour customers or other third parties, and with security vulnerabilities or lapses, including cyber-attacks, information technology system breaches,failures, or disruptions;•risks that our products or services, or those of third-party suppliers, partners, or OEMs which we use in or with our offerings or otherwise rely on,including third-party hosting platforms, may contain defects, develop operational problems, or be vulnerable to cyber-attacks;•risks associated with our significant international operations, including, among others, in Israel, Europe, and Asia, exposure to regions subject topolitical or economic instability, fluctuations in foreign exchange rates, and challenges associated with a significant portion of our cash being heldoverseas;iiTable of Contents•risks associated with political factors related to our business or operations, including reputational risks associated with our security solutions andour ability to maintain security clearances where required as well as risks associated with a significant amount of our business coming from domesticand foreign government customers;•risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we operate, including, amongothers, with respect to trade compliance, anti-corruption, information security, data privacy and protection, tax, labor, government contracts, relatingto both our own operations as well as the use of our solutions by our customers;•challenges associated with selling sophisticated solutions, including with respect to assisting customers in understanding and realizing the benefitsof our solutions, and developing, offering, implementing, and maintaining a broad and sophisticated solution portfolio;•challenges associated with pursuing larger sales opportunities, including with respect to longer sales cycles, transaction reductions, deferrals, orcancellations during the sales cycle, risk of customer concentration, our ability to accurately forecast when a sales opportunity will convert to anorder, 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 intellectualproperty, claim infringement on their intellectual property rights, or claim a violation of their license rights, including relative to free or open sourcecomponents we may use;•risks that our customers or partners delay or cancel orders or are unable to honor contractual commitments due to liquidity issues, challenges in theirbusiness, or otherwise;•risks that we may experience liquidity or working capital issues and related risks that financing sources may be unavailable to us on reasonableterms or at all;•risks associated with significant leverage resulting from our current debt position or our ability to incur additional debt, including with respect toliquidity considerations, covenant limitations and compliance, fluctuations in interest rates, dilution considerations (with respect to our convertiblenotes), 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, ComverseTechnology, Inc. (“CTI”), or associated with formerly being consolidated with, and part of a consolidated tax group with, CTI, or as a result of thesuccessor to CTI’s business operations, Mavenir Inc. (“Mavenir”), being unwilling or unable to provide us with certain indemnities to which we areentitled;•risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, and personnel and our ability to successfullyimplement and maintain enhancements to the foregoing and adequate systems and internal controls for our current and future operations andreporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays;•risks associated with changing accounting principles or standards, tax laws and regulations, tax rates, and the continuing availability of expectedtax benefits; and•risks associated with market volatility in the prices of our common stock and convertible notes based on our performance, third-party publications orspeculation, or other factors. 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. Wemake 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, investorsand others should not conclude that we would make additional updates or corrections thereafter except as otherwise required under the federal securities laws.iiiTable of ContentsPART IItem 1. BusinessOur CompanyVerint® Systems Inc. (together with its consolidated subsidiaries, “Verint”, the “Company”, “we”, “us”, and “our”, unless the context indicates otherwise) is aglobal leader in Actionable Intelligence® solutions.In a world of massive information growth, our solutions empower organizations with crucial, actionable insights and enable decision makers to anticipate,respond, and take action. Today, over 10,000 organizations in more than 180 countries, including over 85 percent of the Fortune 100, use Verint’sActionable Intelligence solutions, deployed in the cloud and on premises, to make more informed, timely, and effective decisions.Our Actionable Intelligence leadership is powered by innovative, enterprise-class software built with artificial intelligence, analytics, automation, and deepdomain expertise established by working closely with some of the most sophisticated and forward-thinking organizations in the world. We believe we haveone of the industry’s strongest research and development (“R&D”) teams focused on actionable intelligence consisting of approximately one-third of ourapproximately 6,100 professionals. Our innovative solutions are backed-up by a strong IP portfolio with close to 1,000 patents and patent applicationsworldwide across data capture, artificial intelligence, machine learning, unstructured data analytics, predictive analytics and automation.Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of selling and support partners.Company BackgroundWe were incorporated in Delaware in February 1994 and completed our initial public offering (“IPO”) in May 2002. Since our formation, we haveconsistently expanded our portfolio of Actionable Intelligence solutions, extended our market leadership, and scaled the business through focus oninnovation via a combination of organic development and acquisitions.Verint’s Actionable Intelligence strategy is focused on two use cases and the company has two operating segments: Customer Engagement Solutions™(“Customer Engagement”) and Cyber Intelligence Solutions™ (“Cyber Intelligence”). 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 to our consolidatedfinancial statements, “Segment, Geographic, and Significant Customer Information,” included under Item 8 of this report for additional information andfinancial 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 onForm 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, assoon as reasonably practicable after we file such materials with, or furnish such materials to, the Securities and Exchange Commission (“SEC”). Our websiteaddress 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 StrategyWe focus on two Actionable Intelligence use cases: Actionable Intelligence for a Smarter Enterprise and Actionable Intelligence for a Safer World. Ourcustomers across both use cases are looking for innovative solutions that incorporate the most advanced technologies to empower them with actionableinsights, critical to achieving their strategic objectives. Our strategy is to combine the latest artificial intelligence, analytics, and automation technology withthe deep domain expertise that is unique to each of our markets. We have invested more than $1 billion in R&D over the last decade in our highly innovativeActionable Intelligence platform, which provides a foundation for our solution portfolio across both use cases. This platform can be described along threekey pillars:•Data Capture and Fusion. Enables the capture of a wide range of structured and unstructured data, such as operational, transactional, network, web,and social data. It also enables data fusion from multiple sources, different systems, and numerous environments.1Table of Contents•Data Analysis and Artificial Intelligence. Facilitates a wide range of algorithms for data analytics and automation, including classification,correlation, anomaly detection, identity extraction, behavioral analysis, artificial intelligence, and predictive analytics. Artificial Intelligence playsan increasingly important role in automating the capture and analytics process to reveal actionable insights in the data.•Data Visualization and Actionable Insights. Supports multiple use cases across Customer Engagement and Cyber Intelligence. Actionable insightsare generated from massive amounts of data and are distributed to decision makers based on the specific use case and end-user operational scenarios.Our strategy is to continue to grow our business across both Actionable Intelligence use cases, leveraging our investment in our Actionable Intelligenceplatform and continuing to invest in artificial intelligence and analytics to drive automation and to create technology differentiation. We will also continueto expand our broad portfolios through innovative technology, combined with further developing our domain expertise in both Customer Engagement andCyber Intelligence. We believe that the combination of a strong technology platform and deep knowledge of our customers has been, and will continue to be,key to our leadership in the actionable intelligence market.Customer Engagement SolutionsOverviewOrganizations have cited effective customer engagement as a key to creating sustainable competitive advantage and as critical to their future success. As aresult, many are making it a priority to invest in new customer engagement technologies that can elevate the customer experience, and at the same timereduce operating cost.As The Customer Engagement Company™, Verint is an established global leader in cloud and automation solutions for customer engagement with over twodecades of experience helping organizations worldwide achieve their strategic objectives. Our strategy is to help organizations elevate customer experienceand at the same time reduce operating cost by simplifying, modernizing, and automating customer engagement across the enterprise.For most organizations, customer engagement is no longer just a contact center function. It has become a responsibility shared across many parts of theenterprise. To support the needs of our customers, we offer a broad portfolio of customer engagement solutions that address requirements throughout theenterprise, including contact centers, back-office and branch operations, self-service, ecommerce, customer experience, marketing, IT, and compliance.Verint is a leader in cloud and automation solutions in Customer Engagement™ with one of the broadest portfolios available, including offerings forWorkforce Engagement, Self-Service, Voice of the Customer, and Compliance and Fraud. We leverage the latest in artificial intelligence (AI) and advancedanalytics technology to unlock the potential of automation and intelligence to drive real business impact across the enterprise. We offer organizations asmooth transition to the cloud, and through our hybrid models, organizations can deploy our solutions using a public cloud (SaaS), private cloud, and/orperpetual license approach, as well as combinations of these models. Independent industry experts, such as Forrester, Gartner, and Ventana Research, have allrecognized Verint as a leader in customer engagement.We have more than 10,000 customers and a large partner network globally, helping us drive ongoing innovation in our award-winning offerings. We focus ondeveloping customers for life, and have been recognized as a “CRM Service Winner” for 11 consecutive years. Verint has also been named a winner on the2019 CRM Watchlist, which recognizes companies that had the greatest impact in the world of customer-facing technology in the prior year.TrendsMany organizations are facing complex, dated, and mostly disparate environments in their legacy customer engagement operations that make it challengingto deliver on the promise of an exceptional customer experience. Faced with higher customer expectations and the need for market differentiation,organizations view customer engagement and elevating the customer experience as essential to their future success. To elevate customer experience, manyorganizations are faced with the need to grow their workforce and find the resulting increase in operating cost unsustainable. As a result, they are looking toinvest in new customer engagement technologies that can elevate the customer experience, while reducing operating cost. We believe the following trendsare driving growth in our market as organizations seek to:2Table of Contents•Reduce Complexity and Become More Agile to Adapt Faster. Many organizations have complex environments that were assembled over manyyears with multiple legacy systems from many different vendors deployed in silos across the enterprise. To reduce complexity and simplifyoperations, these organizations are looking for new solutions that are open and flexible and make it easier to address evolving requirements, whileprotecting their legacy investments. Organizations are also seeking open platforms that address their customer engagement needs across manyenterprise functions, including the contact center, back-office and branch operations, self-service, ecommerce, customer experience, marketing, IT,and compliance.•Modernize Customer Engagement IT Architectures. Many organizations are looking to modernize their legacy customer engagement operationsby transitioning to the cloud, adopting modern architectures that facilitate the orchestration of disparate systems and the sharing of data acrossenterprise functions. Organizations which are at different stages of migrating to the cloud and other modernization initiatives are also looking forvendors that can help them evolve customer engagement at their own pace with minimal disruption to their operations.•Automate Customer Engagement Operations. Many organizations are seeking solutions that incorporate artificial intelligence and analytics toreduce manual work and increase workforce efficiency through automation. They also seek to empower their customers with self-service backed byAI-powered bots, and human/bot collaboration, to elevate the customer experience in a fast, personalized way.Our StrategyOur strategy was designed working closely with our customers, which include more than 85 percent of the Fortune 100, as well as with our large globalpartner network. This strategy, as outlined below, is intended to enable organizations to simplify, modernize, and automate their customer engagementoperations and turn customer engagement into a sustainable competitive advantage, while reducing complexity and cost in customer operations.•Simplifying Customer Engagement. We offer solutions that are open, easy to deploy, and simple to use. Our open portfolio is designed to integrateinto organizations’ current and evolving technology environments and to share data seamlessly across the organization. This enables customers toprotect their existing investments, as they can “start anywhere” within the Verint portfolio based on their business-specific requirements and expandover time. Our open portfolio is also compatible with leading providers of call center communications solutions, providing organizations flexibilityto select the most suitable communications solution for their contact centers, while leveraging Verint’s portfolio for elevating the customerexperience and reducing cost. We believe this compatibility is particularly important now as the contact center communications market is goingthrough change with new entrants offering disruptive approaches to communications. •Modernizing Customer Engagement. We offer organizations a smooth transition to the cloud, and through our hybrid cloud model, they candeploy solutions from our portfolio in public cloud (SaaS), private cloud and perpetual license models, or combinations of these. Our API-richportfolio provides organizations the ability to easily share data across the enterprise and integrate with third-party applications. Our modern andopen portfolio also makes our solutions compatible with IT initiatives for modernizing enterprise architectures.•Automating Customer Engagement. We enable organizations to draw on the power of automation to reduce repetitive, manual tasks, increaseemployee efficiency, and lower cost. Our strategy is to infuse automation capabilities throughout our solution portfolio to enable employees tofocus on more strategic work, empower consumers with AI bots so they can serve themselves, and support human/bot collaboration. Our automationcapabilities deliver intelligence and context in real-time, reduce errors in manual work, ensure adherence to compliance requirements, and enablecustomer experiences that are faster, personalized, and more enjoyable. Our OfferingsFor most organizations, customer engagement is no longer just a contact center function, it is a responsibility shared across the entire enterprise. To supportthe needs of our customers, we offer a broad portfolio across a wide spectrum of customer engagement functions. Our solutions address requirements acrosscontact centers, back-office and branch operations, self-service, ecommerce, customer experience, marketing, IT, and compliance functions. Our offeringsspan the following categories: Workforce Engagement, Self-Service, Voice of the Customer, and Compliance and Fraud.•Workforce Engagement3Table of ContentsOur Workforce Engagement offerings enable organizations to empower the workforce to engage with customers effectively in the contact center andin back-office and branch operations. These solutions empower employees and managers with modern tools to simplify their jobs, easily access andshare knowledge, reduce costs, increase revenue, and orchestrate the delivery of exceptional experiences across all engagement channels.•Self-ServiceOur Self-Service offerings enable organizations to improve customer experiences and reduce costs by delivering automated help to their customersthat’s faster and requires less effort. These solutions help make customer self-service as simple and effective as assisted service. Leveraging the sameintelligence that empowers employees, self-service bots enable customers to succeed at helping themselves, and create a modern, conversationalexperience that is consistent across voice and digital channels.•Voice of the CustomerOur Voice of the Customer (VoC) offerings enable organizations to improve customer experiences and reduce costs by effectively listening,analyzing, and acting on customer intelligence to drive desired customer and business outcomes. These solutions measure and improve experiences,satisfaction, and loyalty, and they provide feedback to drive improvements in operational processes. Within our VoC solution set, we offer a uniquescience-driven methodology that helps business leaders make better decisions and prioritize where to invest limited resources across the customerjourney. And with benchmarks across more than 800 industries and subcategories, we allow companies to benchmark their customer experience overtime, against their peers, and against best in class. Our VoC offerings are deployed across the organization by functions including, customer support,marketing, customer experience, and others.•Compliance and FraudOur Compliance and Fraud offerings enable organizations to avoid fines and minimize fraud. Our Compliance solutions support regulatoryrequirements, such as the General Data Protection Regulation (GDPR), in contact centers, financial trading compliance, emergency responseoperations, and other environments. Our Fraud solutions help investigate and mitigate the risk of contact center identity fraud, branch bankingfraud, and self-service systems fraud. All our products are available in the cloud and offered in a hybrid cloud model for maximum customer flexibility. Our cloud strategy is to help customerstransition to the cloud at their own pace. Our cloud offering scales from SMB to very large enterprise customers with cloud deployments in many countriesaround the world.We offer our customers solutions that are comprised of one or more of the following products (listed in alphabetical order):Product NameDescriptionAutomated Quality ManagementAutomates the entire quality management (QM) process, from scoring evaluations to assigning coaching.Delivers consistent, calibrated scoring and new levels of employee performance and transparency, bringinga modern, employee-empowering, and cost-effective approach to QM.Automated VerificationAutomates testing and verification of systems across multiple applications (e.g., ACD, IVR, recording,desktop applications, routers, firewalls) to ensure optimum operation. Actively checks systems for issuesand proactively simulates user transactions to validate performance. Provides enhanced control andawareness of system health, status, and performance to avoid issues with service availability, data integrity,and data breaches.Branch Surveillance and InvestigationHelps financial institutions, retailers, and other organizations identify security threats and vulnerabilities,mitigate risk, ensure operational compliance, and improve fraud investigations. Offers real-time intelligenceand protection to enhance the customer experience, while safeguarding people, property, and assets.Features video recording and analytics to heighten protection, improve performance, reduce costs, andprovide rapid action/response when required.4Table of ContentsCase ManagementAllows organizations to automate and adapt business processes rapidly in response to changing market andcustomer requirements. Tracks the progress of customer and internal issues as they are resolved betweenvarious parties in the organization, helping deliver end-to-end case lifecycle management using businessrules and service level agreements (SLAs).Chat EngagementEnables employees to help online customers in real-time. Provides customers with a quick, easy way tocommunicate with customer service employees via a simple text interface, and helps employees rapidlyaddress needs and decrease abandonment of online transactions. Guides customers through online processesusing chat in conjunction with co-browsing.Coaching/LearningProvides a framework for consistent, performance-based mentoring of employees by supervisors and theautomated delivery of training right to the employee desktop. Can be scheduled at the best times tominimize impact on service levels, and enable employees to engage and improve their skills on-demand.Compliance RecordingReliably and securely captures, encrypts, archives, searches, and replays interactions for compliance andliability protection. Enables organizations and employees to protect credit card data and personalinformation (data compliance), adhere to rules for recording and telemarketing practices (communicationscompliance), proactively address complaints, and help prevent identity theft.Customer CommunitiesEnables organizations to establish and manage online communities for their customers and partners tosupport social customer service, digital marketing, and engagement. Fosters self-service, knowledgesharing, collaboration, and networking through peer-to-peer support forums, communications blogs, andonline resources, such as discussion forums, product documentation, and how-to videos.Desktop and Process AnalyticsProvides organizations with visibility into how employees use different systems, applications, andprocesses to perform their functions. Helps identify opportunities to improve business processes, increaseemployee productivity and capacity, enhance compliance, and heighten the overall efficiency, cost, andquality of customer service.Digital FeedbackFeatures an enterprise solution that captures customer-initiated feedback via web and mobile channelsduring key moments in the customer journey, and empowers organizations to analyze and act in real-timeon that feedback to deliver demonstrable business value.Email EngagementAutomates the process of capturing, documenting, interpreting, and routing emails, helping organizationsrespond to customers quickly and consistently. Routes messages to the most appropriate employee basedon skills, entitlements, and availability, providing standard templates and responses, a central knowledgebase, and unified customer history across channels. Features a secure web portal for customers tosend/receive confidential information as needed.Employee DesktopUnifies the disparate applications on an employee’s desktop. Presents on one screen all of the contextualcustomer information, relevant knowledge, and business process guidance that an employee needs tohandle interactions in any channel, without having to toggle between numerous screens and applications.Enterprise FeedbackProvides an enterprise-class platform to help organizations gain a complete view of the voice of theircustomers and employees through company-initiated surveys delivered via mobile, email, web, IVR, andSMS channels, together with the ability to analyze and act on that feedback to achieve desired outcomes.Financial ComplianceImproves compliance in trading room, contact center, and financial back-office operations by capturingvoice, video, desktop, and text interactions across multiple channels, including collaboration tools (e.g.,Skype for Business and Cisco Jabber). Delivers reliable, robust recording, indexing, archiving, and retrievalof interactions and transactions to address complex challenges, including MiFID II, trading floorcompliance, collaboration compliance, legal hold, and more.5Table of ContentsFull-Time RecordingEnables enterprise recording to support customer engagement. Reliably and securely captures, encrypts,indexes, archives, searches, and replays audio, screen, and other methods of interaction from different andmixed recording environments, and couples these capabilities with powerful speech analytics to providegreater value from recorded interactions.GamificationApplies automated game mechanics to energize employee engagement, communicate personal andorganizational goals, measure and acknowledge achievements, inspire collaboration, and motivate teams.Delivers key performance indicator (KPI)-linked programs to transform the process of acquiring,maintaining, and improving the skills, knowledge, and behaviors necessary for employees to enhancequality, customer engagement, sales, and other expertise.Identity AnalyticsCombines automated recorder-embedded “passive” voice biometrics technology with multifactor metadataanalytics 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-serviceinteractions, and helps improve experiences by authenticating legitimate customers faster, reducing callhandling and fraud-related losses.Interaction AnalyticsUnifies data visualization of top categories, terms and themes from contact center interactions across voice-based and text-based channels, using purpose-built engines for each interaction type. Provides the ability tosee high-level trends impacting the business, as well as drill down into specific interactions.Internal CommunitiesSupports employee engagement, collaboration, and enterprise social networking through open and closedmicro-communities, peer-to-peer support forums, communications blogs, wikis, activity streams, and onlineresources. Enables knowledge and best practice sharing in a high-value, low-effort manner, enhancingrelationships, productivity, and efficiency.Knowledge ManagementProvides a central repository of up-to-date information to deliver the right knowledge to users in the contactcenter and to customers through self-service. Provides answers quickly by searching, browsing, or followingguided processes, with personalized results tailored to the customer’s context. Helps increase first contactresolution, improve the consistency and quality of answers, enhance compliance with regulations andcompany processes, and reduce employee training time.Mobile WorkforceComprises a family of mobile applications, offering anytime, anywhere access to important operationalinformation. Allows employees to access and change schedules and view performance information, andenables the convenient collection of in-the-moment feedback through device-friendly survey formats overthe web, email, and SMS, as well as on site in retail stores and sporting venues.Performance ManagementProvides a complete, closed-loop solution to manage individual and departmental performance againstgoals. Provides a comprehensive view of KPIs using performance scorecards to report on customerinteractions, 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.Robotic Process AutomationAutomates repetitive manual processes, allowing employees to focus on more complex and value-addedcustomer-facing activities. Leverages software robots to execute specific tasks or entire multistep processeswithin a functional area, leading to improved quality and productivity.Social AnalyticsCollects, analyzes, and reports relevant insights derived from posts and content published to social mediasites and messaging services. Reveals intelligence and trends related to sentiment, emerging topics andthemes, and locations, enabling organizations to understand the voice of the customer and givingemployees the means and insight they need to respond to/address issues and concerns expressed throughthese channels.6Table of ContentsSpeech TranscriptionEnables the export of transcripts of 100% of contact center telephone interactions for use by big data,predictive and business insight teams. Transcripts are speaker-separated, time stamped, and available inover 60 languages and variants and in 3 different formats based on intended use.Speech AnalyticsAutomatically analyzes and identifies trends, themes, and the root causes driving customer call volumes inorder to proactively respond to issues and act on opportunities that enhance the customer experience andsupport business objectives.Text AnalyticsPerforms root cause analysis on the drivers and trends driving customer interactions through text-basedcommunications channels-including survey verbatims, email, and customer service chat sessions-toimprove performance, optimize processes, and enhance the customer experience.Virtual AssistantUses artificial intelligence (AI) and machine learning to provide conversational access to information, getanswers to complex questions, and orchestrate self-service transactions across voice and digital channels.Predicts user intent based on context and initiates best next actions based on business rules in order todeliver successful outcomes.Voice Self-ServiceProvides natural language, speech-enabled voice self-service enhanced by real-time, contextual automationand analytics-driven personalization. Leverages business intelligence to analyze and adapt call flow andthe pace of interactions based on caller behavior, and to continually improve performance over time.Voice Self-Service Fraud DetectionAutomates and provides upstream fraud detection based on real-time analysis of over 60 parameters ofcaller behavior in voice self-service across multiple calls and programs. Identifies and flags suspiciouscallers based on threat level, and alerts the enterprise so action can be taken to mitigate risk prior to accounttakeover.Web/Mobile Self-ServiceEnables customers to self-serve on the web or via their mobile devices. Unites knowledge management, casemanagement, process management, and channel escalation to enable personalized web and mobile self-service experiences. Features advanced cross-channel messaging, enabling customers to start a digitalinteraction on one device and continue it on another, as well as seamlessly transition from self-service tolive service within a mobile app, mobile web, or web application.Work ManagerHelps increase productivity, meet service delivery goals, and enhance customer satisfaction by prioritizingthe 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 SLAs based on available employees with the right skills.Workforce ManagementEnables 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 acrosscustomer touchpoints in contact center, branch and back-office operations.Cyber Intelligence SolutionsOverviewVerint is a leading global provider of security and intelligence data mining software. Our solutions are deployed in over 100 countries, helping governments,critical infrastructure and enterprise organizations to neutralize and prevent terror, crime and cyber threats. Our data mining software helps securityorganizations capture and analyze data from multiple sources and turn that data into actionable insights. Verint has over two decades of cyber intelligenceexperience leveraging data mining software, deep domain expertise and advanced intelligence methodologies to address a broad range of security missionsfor intelligence, cyber and physical security organizations.7Table of ContentsWe believe that security organizations face new kinds of sophisticated threats that are increasingly complex, and they seek to deploy data mining solutionsthat are powered by predictive intelligence and incorporate a higher level of automation using artificial intelligence and other advanced analytictechnologies. Our significant experience serving leading security agencies around the world provides us with a unique perspective on our customers’evolving needs and allows us to respond quickly to new market trends.Verint’s growth strategy is to expand our portfolio to address market trends and to offer our solutions directly and through partners to our growing installedbase and to new customers globally.TrendsWe believe that the following trends are driving demand for security and intelligence data mining software:•Security Threats Becoming Increasingly Pervasive and Complex. Governments, critical infrastructure providers, and enterprises face many typesof security threats from criminal and terrorist organizations and foreign governments. Some of these security threats come from well-organized andwell-funded organizations that utilize new and increasingly sophisticated methods. As a result, security and intelligence organizations find it moredifficult and complicated to detect, investigate and neutralize threats. Many of these organizations are seeking to deploy more advanced datamining solutions that can help them capture and analyze data from multiple sources to effectively and efficiently address the challenge of increasedsophistication and complexity.•Shortage of Security Analysts Increasing the Need for Automation. Security organizations are using data mining solutions to help conductinvestigations and generate actionable insights. Typically, data mining solutions require security organizations to employ intelligence analysts anddata scientists to operate them. However, there is a shortage of such qualified personnel globally leading to elongated investigations and increasedrisk that security threats go undetected or are not addressed. To overcome this challenge, many security organizations are seeking advanced datamining solutions that automate functions historically performed manually to improve the quality and speed of investigations and intelligenceproduction. These organizations are also increasingly seeking artificial intelligence and other advanced data analysis tools to gain intelligencefaster with fewer analysts and data scientists.•Need for Predictive Intelligence as a Force Multiplier. Predictive intelligence is generated by correlating massive amounts of data from a widerange of disparate sources to uncover previously unknown connections, identify suspicious behaviors using advanced analytics, and predict futureevents. Predictive intelligence is a force multiplier, enabling security organizations to allocate resources more effectively to prioritize variousoperational tasks based on actionable intelligence. Security organizations are seeking advanced data mining solutions that can generate accurateand actionable predictive intelligence to shorten investigation times and empower their teams with greater insights.Our Strategy We believe we are well positioned to address these market trends. The key elements of our growth strategy include:•Addressing the Increased Complexity of Security Threats with Advanced Data Mining Software, Proven Intelligence Methodologies and DeepDomain Expertise. Verint has a long history of working closely with leading security organizations around the world and has designed its datamining software portfolio based on a thorough understanding of our customers’ needs, proven intelligence methodologies and deep domainexpertise. We believe this experience positions us well to expand existing customer relationships, win new customers, and continue to grow our datamining software portfolio to address evolving and more complex security needs.•Leveraging Automation Technologies to Reduce Dependency on Security Analysts and Data Scientists. Security analysts and data scientists arecritical to conducting security investigations in an environment of growing complexity. However, given a shortage of these skilled resources, it isimportant to reduce the dependency on them by automating tedious and repetitive functions that previously required manual operation. Our strategyis to increase the use of automation and artificial intelligence technologies across our portfolio and introduce advanced data mining software thatcan further automate the intelligence and investigative processes for our customers, while reducing dependency on large numbers of intelligenceanalysts and data scientists.•Improving the Effectiveness of Security Organizations with Predictive Intelligence Capabilities. Our data mining software portfolio provides ourcustomers the capability to capture and analyze data and to generate predictive intelligence. Our strategy is to further enhance our software toempower security organizations with more accurate8Table of Contentspredictive intelligence by leveraging analytics and machine learning technologies that can correlate massive amounts of data from a wide range ofdisparate sources. Our solutions are engineered to collect and analyze vast amounts of data from multiple and diverse sources and leverage artificialintelligence, as well as other advanced analytic tools, to generate intelligence and predict future events, shortening the time to intelligence,reducing the number of routine tasks, and empowering our customers to execute their missions faster and more efficiently.Our ProductsProduct NameDescriptionCyber SecurityOur cyber security software captures cyber security data and applies machine learning and behavioralanalytics to empower an organization’s Security Operations Center. “Virtual Analysts” automate theprocess of detecting, investigating and responding to advanced cyber-attacks and driving intelligence tothe security operations team. Intelligence Fusion Center (IFC) and Web andSocial IntelligenceOur Intelligence Fusion software enables security analysts to work more efficiently by fusing cross-organizational data sources, generating and surfacing valuable insights, and turning knowledge intoactions and predictive intelligence. Our Web & Social Intelligence software enables the collection, fusionand analysis of data from the web, including the deep web and dark nets, from social media blogs, and fromthe media.Network Intelligence SuiteOur network intelligence data mining software helps security organizations generate critical intelligencefrom large amounts of data captured from a variety of network, internal and external open sources.Situational IntelligenceOur Situational Intelligence software delivers intelligence to help organizations increase situationalawareness, improve security responsiveness and realize greater operational efficiency. It captures and fusesdata from multiple systems and sensors, such as access control, video, intrusion, fire, public safety, weather,traffic, first responder, and other mobile device systems. It enables security organizations to quickly fuse,analyze, and report information, and take action on risks, alarms, and incidents. Our Solutions: By IndustryVerint offers its broad portfolio of cyber intelligence solutions to government and enterprise customers.•Government. National security and law enforcement agencies are using Verint solutions to prevent terrorism, collect intelligence and investigatesecurity threats and to fight a wide range of criminal activity, such as arson, drug trafficking, homicides, human trafficking, identity theft,kidnapping, poaching, illegal immigration, financial crimes, and other organized crimes.•Enterprise. Commercial organizations and critical infrastructure, such as airports, transportation systems, power plants, public and governmentfacilities, are using Verint solutions to improve efficiency and effectiveness of physical security and to detect and respond to cyber threats. Inaddition, telecommunication carriers are using Verint solutions to comply with certain government regulations requiring them to assist thegovernment in their evidence and intelligence collection processes.Our Solutions: By Security ChallengeBelow are examples of the challenges security organizations around the world are using Verint’s Intelligence-Powered Security portfolio to address:•Counter terrorism - Tracking terrorist organizations and generating actionable intelligence for detecting and preventing terror attacks.9Table of Contents•Fighting Transnational Drug Trafficking - Identifying local and international drug networks, running complex investigations, generating legalevidence, and taking action against traffickers.•Crime Syndicate Investigations - Accelerating investigations through behavioral profiles and visual link analysis and revealing investigationclues.•Cyber Security for Advanced Threats - Detecting breaches across attack chains and automating cyber investigations and threat hunting.•Physical Security, Emergency Management & Response - Evaluating and responding more efficiently to incidents to ensure facility and assetprotection, as well as employee safety.•Financial Crime Investigations - Fusing data from financial databases, the web and other sources to identify and investigate suspicious financialtransactions.•Locating Natural Disaster Survivors - Empowering field teams with intelligence to quickly zero-in on areas of need and provide urgent help.•Border Control - Tracking and preventing illegal border activity.Customer ServicesWe offer a range of customer services, including implementation and training, consulting and managed services, and maintenance and support, to help ourcustomers maximize their return on investment in our solutions.Implementation and TrainingOur solutions are implemented by our service organizations, authorized partners, resellers, or by our customers themselves. Our implementation servicesinclude project management, system installation, and commissioning, including integrating our solutions with our customers’ environments and third-partysolutions. Our training programs are designed to enable our customers to use our solutions effectively and to maximize the value of our solutions. OurCustomer Engagement solutions business includes training programs designed to certify our partners to sell, install, and support our solutions. Customer andpartner training is provided at the customer site, at our training centers around the world, and/or remotely online.ConsultingOur management consulting capabilities include business strategy, process excellence, performance management, intelligence methodologies, and projectand program management, and are designed to help our customers maximize the value of our solutions in their own environments.Managed ServicesWe offer a range of managed services designed to help our customers effectively run their operations, and maximize business and intelligence insights. Thesemanaged services are recurring in nature and can be delivered in conjunction with Verint’s technology or on a standalone basis and help to deepen ourtrusted partner relationships with our customers.Maintenance and SupportWe offer a range of customer maintenance and support plans to our customers and resellers, which may include phone and web access to technical personnelup 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 thatcustomer support is critical to retaining and expanding our customer base. Our Customer Engagement solutions are generally sold with a warranty of one yearfor hardware and 90 days for software. Our Cyber Intelligence solutions are generally sold with warranties that typically range from 90 days to three yearsand, in some cases, longer. In addition, customers are typically provided the option to purchase maintenance plans that provide a range of services, such astelephone support, advanced replacement, upgrades when and if available, and on-site repair or replacement. Currently, the majority of our maintenancerevenue is related to our Customer Engagement solutions.Direct and Indirect Sales10Table of ContentsWe sell our solutions through our direct sales teams and indirect channels, including distributors, systems integrators, value-added resellers (“VARs”), andOEM 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 marketcoverage, 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 customerrequirements and develop technical responses to those requirements. We sell directly and indirectly in both of our segments. See “Risk Factors—RisksRelated to Our Business—Competition, Markets, and Operations—If we are unable to establish and maintain our relationships with third parties that marketand 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 ofcertain sales and distribution risks that we face.CustomersOur solutions are used by over 10,000 organizations in more than 180 countries. In the year ended January 31, 2019, we derived approximately 65% and35% of our revenue from the sale of our Customer Engagement and Cyber Intelligence solutions, respectively. We are party to contracts with customers inboth of our segments, the loss of which could have a material adverse effect on the segment.In the year ended January 31, 2019, we derived approximately 54%, 26%, and 20% of our revenue from sales to end users in the Americas, in Europe, theMiddle East and Africa (“EMEA”), and in the Asia-Pacific (“APAC”) regions, respectively. See also Note 16, “Segment, Geographic, and SignificantCustomer Information” to our consolidated financial statements included under Item 8 of this report for additional information and financial data about eachof our operating segments and geographic regions.For the year ended January 31, 2019, 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 contractsgenerally, our government contracts may be subject to renegotiation or termination at the election of the government customer. Some of our customerengagements require us to have security credentials or to participate in projects through an approved legal entity.Seasonality and CyclicalityAs is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most years, our revenue and operatingincome are typically highest in the fourth quarter and lowest in the first quarter (prior to the impact of unusual or nonrecurring items). Moreover, revenue andoperating 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 significantmargin. 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. Webelieve that these seasonal and cyclical factors primarily reflect customer spending patterns and budget cycles, as well as the impact of compensationincentive plans for our sales personnel. While seasonal and cyclical factors such as these are common in the software and technology industry, this patternshould not be considered a reliable indicator of our future revenue or financial performance. Many other factors, including general economic conditions, alsohave 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 mayaffect our business and financial results.Research and DevelopmentWe continue to enhance the features and performance of our existing solutions and to introduce new solutions through extensive R&D activities. In additionto the development of new solutions and the addition of capabilities to existing solutions, our R&D activities include quality assurance and advancedtechnical support for our customer services organization. In certain instances, primarily in our Cyber Intelligence segment, we may tailor our products to meetthe particular requirements of our11Table of Contentscustomers. R&D is performed primarily in the United States, Israel, the United Kingdom, Ireland, the Netherlands, Hungary, and Indonesia for our CustomerEngagement segment; and in Israel, Germany, Brazil, Cyprus, Taiwan, the Netherlands, Romania, and Bulgaria for our Cyber Intelligence segment.To support our research and development efforts, we make significant investments in R&D every year. We allocate our R&D resources in response to marketresearch and customer demand for additional features and solutions. Our development strategy involves rolling out initial releases of our products and addingfeatures over time. We incorporate product feedback received from our customers into our product development process. While the majority of our productsare developed internally, in some cases, we also acquire or license technologies, products, and applications from third parties based on timing and costconsiderations. See “Risk Factors—Risks Related to Our Business—Competition, Markets, and Operations—For certain products, components, or services,including our cloud hosting operations, we rely on third-party suppliers, manufacturers, and partners, and if these relationships are disrupted, lost, or must beterminated, we may not be able to obtain substitutes or may face other difficulties” 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 certaingovernment-sponsored programs, including those of the Israel Innovation Authority (“IIA”), formerly the Office of the Chief Scientist (“OCS”), and in otherjurisdictions for the support of R&D activities conducted in those locations. In the case of Israel, the Israeli law under which our IIA grants are made limits ourability to manufacture products, or transfer technologies, developed using these grants outside of Israel without permission from the IIA. See “RiskFactors—Risks Related to Our Business—Competition, Markets, and Operations—Because we have significant foreign operations and business, we aresubject 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 abilityto 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 foreignoperations.Manufacturing, Suppliers, and Service ProvidersWhile our primary focus is on developing and producing software, to accommodate customers’ desire for turnkey solutions, we also deliver solutions thatincorporate third-party hardware components. This applies mainly to our Cyber Intelligence segment, as the majority of the solutions from our CustomerEngagement segment are comprised of software and do not incorporate hardware components. We utilize both unaffiliated manufacturing subcontractors, aswell as our internal operations, to produce, assemble, and deliver solutions incorporating hardware components. These internal operations consist primarilyof installing our software on externally purchased hardware components, final assembly, repair, and testing, which involves the application of extensivequality control procedures to materials, components, subassemblies, and systems. We also perform system integration functions prior to shipping turnkeysolutions to our customers. Our internal operations are performed primarily in our German, Israeli, U.S. and Cypriot facilities for solutions in our CyberIntelligence segment, and in our U.S. facility for certain solutions in our Customer Engagement segment. Although we have occasionally experienced delaysand shortages in the supply of proprietary components in the past, we have typically been able to obtain adequate supplies of all material components in atimely manner from alternative sources, when necessary. We also rely on third parties to provide certain services to us or to our customers. We deploy ourcloud solutions on third-party cloud computing and hosting platforms. We provide our customers with service level commitments with respect to uptime andaccessibility for these hosted offerings. See “Risk Factors—Risks Related to Our Business—Competition, Markets, and Operations—For certain products,components, or services, including our cloud hosting operations, we rely on third-party suppliers, manufacturers, and partners, and if these relationships aredisrupted, lost, or must be terminated, we may not be able to obtain substitutes or may face other difficulties” under Item 1A of this report for a discussion ofrisks associated with our manufacturing operations and suppliers.EmployeesAs of January 31, 2019, we employed approximately 6,100 professionals, including certain contractors, with approximately 41%, 25%, 23%, and 11% of ouremployees 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 anycollective bargaining agreements. In some cases, our employees outside the United States are automatically subject to certain protections negotiated byorganized labor in those countries directly with the government or trade unions, or are automatically entitled to severance or other benefits mandated underlocal laws. For example, while we are not a party to any collective bargaining or other agreement with any labor organization in Israel, certain provisions ofthe12Table of Contentscollective 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 RightsGeneralOur 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 ourproprietary rights.PatentsAs of January 31, 2019, we had nearly 1,000 patents and patent applications worldwide, including more than 120 patent issuances or allowances during thepast year. We regularly review new areas of technology related to our businesses to determine whether they can and should be patented.LicensesOur customer and partner license agreements prohibit the unauthorized use, copying, and disclosure of our software technology and contain customerrestrictions and confidentiality terms. These agreements generally warrant that the software and proprietary hardware will materially comply with writtendocumentation 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, including our cloud hosting operations, we rely on third-party suppliers,manufacturers, and partners, and if these relationships are disrupted, lost, or must be terminated, we may not be able to obtain substitutes or may face otherdifficulties” under Item 1A of this report.While we employ many of our innovations exclusively in our own products and services, we also engage in outbound and inbound licensing of specificpatented technologies. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe, based onindustry practice, such licenses generally can be obtained on commercially reasonable terms.Trademarks and Service MarksWe 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 ourbusiness. Competitors and other companies could adopt similar marks or try to prevent us from using our marks, consequently impeding our ability to buildbrand identity and possibly leading to customer confusion. See “Risk Factors—Risks Related to Our Business—Information/Product Security andIntellectual Property—Our intellectual property may not be adequately protected” under Item 1A of this report for a more detailed discussion regarding therisks associated with the protection of our intellectual property.CompetitionWe 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., Genesys Telecommunications, Medallia Inc., NICE Systems Ltd.,Nuance Communications, Inc., Pegasystems Inc., divisions of larger companies, including Microsoft Corporation, Oracle Corporation, SAP, andSalesforce.com, Inc., as well as many smaller companies, which can vary across regions. In our Cyber Intelligence segment, our competitors include BAESystems plc, Elbit Systems Ltd., FireEye, Inc., Genetec Inc., IBM Corporation, JSI Telecom, Palantir Technologies, Inc., and Rohde & Schwarz GmbH & Co.,KG, as well as a number of smaller companies and divisions of larger companies that compete with us in certain regions or only with respect to portions of ourproduct portfolio.In each of our operating segments, we believe that we compete principally on the basis of:13Table of Contents•Product performance and functionality;•Product quality and reliability;•Breadth of product portfolio and pre-defined integrations;•Global presence, reputation, and high-quality customer service and support;•Specific domain expertise, 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 willincrease as other established and emerging companies enter our markets or we enter theirs, and as new products, services, technologies, and delivery methodsare introduced. 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 greaterresources 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 weface.Export RegulationsWe and our subsidiaries are subject to applicable export control regulations in countries from which we export goods and services. These controls may applyby 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 particularcountry apply, the level of control generally depends on the nature of the goods and services in question. For example, our Cyber Intelligence solutions tendto be more highly controlled than our Customer Engagement solutions. Where controls apply, the export of our products generally requires an export licenseor 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 harmour business, financial condition, and results of operations. These are not all the risks we face and other factors currently considered immaterial or unknownto 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 plannedspending. In particular, declines in information technology spending and limited or reduced government budgets have affected the markets for our solutionsin both the Customer Engagement market and the Cyber Intelligence market in certain periods and in certain regions. For the year ended January 31, 2019,approximately one third of our business was generated from contracts with various governments around the world, including national, regional, and localgovernment agencies. We expect that government contracts will continue to be a significant source of our revenue for the foreseeable future. Macroeconomicchanges, such as rising interest rates, significant changes in commodity prices, actual or threatened trade wars, or the implementation of the UnitedKingdom’s decision to exit the European Union (referred to as “Brexit”) may also impact demand for our products. Brexit could, among other outcomes, alsodisrupt the free movement of goods, services, and people between the U.K. and the E.U., have a detrimental impact on the U.K. and E.U. economy, andprovide some disruption to business activities in all sectors. Customers or partners who are facing business challenges, reduced budgets, liquidity issues, orother impacts from such macroeconomic changes are also more likely to defer purchase decisions or cancel or reduce orders, as well as to delay or default onpayments. If customers or partners significantly reduce their spending with us or significantly delay or fail to make payments to us, our business, results ofoperations, and financial condition would be materially adversely affected.14Table of ContentsThe industry in which we operate is characterized by rapid technological changes, evolving industry standards and challenges, and changing marketpotential 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 productsembodying new technology, new delivery platforms, the commoditization of older technologies, and the emergence of new industry standards andtechnological hurdles can exert pricing pressure on existing products and services and/or render them unmarketable or obsolete. For example, in our CyberIntelligence business, the increasing complexity and sophistication of security threats and prevalence of encrypted communications have createdsignificantly greater challenges for our customers and for our solutions to address. In our Customer Engagement business, we see a continued shift to cloud-based solutions as well as market saturation for more mature solutions. Moreover, the market potential and growth rates of the markets we serve are notuniform 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 newcustomer challenges by consistently developing new, innovative, high-quality products and services that meet or exceed the changing needs of ourcustomers. We must also successfully identify, enter, and appropriately prioritize areas of growing market potential, including by launching, successfullyexecuting, and driving demand for new and enhanced solutions and services, while simultaneously preserving our legacy businesses and migrating awayfrom areas of commoditization. We must also develop and maintain the expertise of our employees as the needs of the market and our solutions evolve. If weare unable to execute on these strategic priorities, we may lose market share or experience slower growth, and our profitability and other results of operationsmay 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 as new competitors expand into ours. Our competitors may beable to more quickly develop or adapt to new or emerging technologies, better respond to changes in customer needs or preferences, better identify and enterinto new areas of growth, or devote greater resources to the development, promotion, and sale of their products. Some of our competitors have, in relation tous, longer operating histories, larger customer bases, longer standing relationships with customers, superior brand recognition, superior margins, andsignificantly greater financial or other resources, especially in new markets we may enter. Consolidation among our competitors may also improve theircompetitive position. We also face competition from solutions developed internally by our customers or partners. To the extent that we cannot competeeffectively, our market share and results of operations, would 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 ofour products and services, and/or reduce our cost structure, including reducing headcount or investment in R&D, in order to remain competitive. If we areforced 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 thelong-term.Our future success depends on our ability to properly manage investments in our business and operations, execute on growth initiatives, and enhanceour existing operations and infrastructure.A key element of our long-term strategy is to continue to invest in and grow our business and operations, both organically and throughacquisitions. Investments in, among other things, new markets, new products, solutions, and technologies, R&D, infrastructure and systems, geographicexpansion, and headcount are critical components for achieving this strategy. However, such investments and efforts present challenges and risks and maynot be successful, especially in new areas or new markets in which we have little or no experience, and even if successful, may negatively impact ourprofitability in the short-term. To be successful in such efforts, we must be able to properly allocate limited investment dollars and other resources, prioritizeamong opportunities, projects, and implementations, balance the extent and timing of investments with the associated impact on profitability, balance ourfocus 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, or with the new solutions, in which we have invested.Our success also depends on our ability to execute on other growth initiatives we are pursuing. For example, in our Customer Engagement segment, inaddition to the other factors described in this section, our revenue and profitability objectives are highly dependent on our ability to continue to expand ourcloud business and cloud operations, including keeping pace with the market transition to cloud-based software, making new sales, and managing theconversion of our maintenance base. In our Cyber Intelligence segment, in addition to the other factors described in this section, our profitability objectivesare highly15Table of Contentsdependent on our ability to continue to shift our product mix towards software and away from professional services and hardware resales.Our success also depends on our ability to effectively and efficiently enhance our existing operations. Our existing infrastructure, systems, security,processes, and personnel may not be adequate for our current or future needs. System upgrades or new implementations can be complex, time-consuming, andexpensive and we cannot assure you that we will not experience problems during or following such implementations, including among others, potentialdisruptions in our operations or financial reporting.If we are unable to properly manage our investments, execute on growth initiatives, and enhance our existing operations and infrastructure, our results ofoperations 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, whichcould 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 andinvestments in the future. In many areas, we have seen the market for acquisitions become more competitive and valuations increase. Our competitors alsocontinue to make acquisitions in or adjacent to our markets and may have greater resources than we do, enabling them to pay higher prices. As a result, it maybe more difficult for us to identify suitable acquisition or investment targets or to consummate acquisitions or investments once identified on acceptableterms 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 growth strategy. Acquisitions and investments present significant challenges and risks to a buyer,including with respect to the transaction process, the integration of the acquired company or assets, and the post-closing operation of the acquired companyor assets. If we are unable to successfully address these challenges and risks, we may experience both a loss on the investment and damage to our existingbusiness, operations, financial results, and valuation.The potential challenges and risks associated with acquisitions and investments include, among others:•the effect of the acquisition on our strategic position and our reputation, including the impact of the market’s reception of the transaction;•the impact of the acquisition on our financial position and results, including our ability to maintain and/or grow our revenue and profitability;•risk that we fail to successfully implement our business plan for the combined business, including plans to accelerate growth or achieve theanticipated benefits of the acquisition, such as synergies or economies of scale;•risk of unforeseen or underestimated challenges or liabilities associated with an acquired company’s business or operations;•management distraction from our existing operations and priorities;•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 othersystems and processes;•retention risk with respect to key customers, suppliers, and employees and challenges in integrating 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 systems, processes, and internal controls over financial reporting.16Table of ContentsAcquisitions and/or investments may also result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, theexpenditure of available cash, and amortization expenses or write-downs related to intangible assets such as goodwill, any of which could have a materialadverse effect on our operating results or financial condition. Investments in immature businesses with unproven track records and technologies have anespecially high degree of risk, with the possibility that we may lose our entire investment or incur unexpected liabilities. Transactions that are notimmediately accretive to earnings may make it more difficult for us to maintain satisfactory profitability levels or compliance with the maximum leverageratio covenant under the revolving credit facility under our senior credit agreement (the “2017 Credit Agreement”). Large or costly acquisitions orinvestments may also diminish our capital resources and liquidity or limit our ability to engage in additional transactions for a period of time.The foregoing risks may be magnified as the cost, size, or complexity of an acquisition or acquired company increases, where the acquired company’sproducts, market, or business are materially different from ours, or where more than one transaction or integration is occurring simultaneously or within aconcentrated period of time. There can be no assurance that we will be successful in making additional acquisitions in the future or in integrating orexecuting on our business plan for existing or future acquisitions.Sales processes for sophisticated solutions and a broad solution portfolio 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 morecomprehensive system. Regardless of the size of a customer’s purchase, many of our solutions are sophisticated and may represent a significant investment forour customers. 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 minimumof 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 areoften made by competitive bid, which also increases the time and uncertainty associated with such opportunities. Customers may also require education onthe 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 canceling sales as a result of, among other things, their receipt of a competitiveproposal, changes in budgets and purchasing priorities, or the introduction or anticipated introduction of new or enhanced products by us or ourcompetitors 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 orrecoverable 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 offinalizing 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 salesopportunities into orders.Larger solution sales also require greater expertise in sales execution and transaction implementation than more basic product sales, including in establishingand maintaining appropriate contacts and relationships with customers and partners, product development, project management and implementation,staffing, integration, services, and support. Our ability to develop, sell, implement, and support larger solutions and a broad solution portfolio is acompetitive differentiator for us, which provides for diversification and more opportunities for growth, but also requires greater investment for us and presentschallenges, including, among others, challenges associated with competition for limited internal resources, complex customer requirements, and projectdeadlines.After the completion of a sale, our customers or partners may need assistance from us in making full use of the functionality of our solutions, in realizing allof their benefits, or in implementation generally. If we are unable to assist our customers and partners in realizing the benefits they expect from our solutionsand 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 operating17Table of Contentsresults 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 dealterms 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 termination clauses, also impact the timing of our ability to recognizerevenue. We recognize SaaS revenue over the term of the SaaS subscription, so as our SaaS revenue continues to grow and becomes a more significantcomponent of our overall revenue, we expect a greater amount of our revenue to be recognized over longer periods, in some cases several years, as comparedto the way revenue is recognized for perpetual licenses. This change in the pattern of recognition also means that increases or decreases in SaaS subscriptionactivity impacts the amount of revenue recognized in both current and future periods. Because these transaction-specific factors are difficult to predict inadvance, this also complicates the forecasting of revenue and creates challenges in managing our cloud transition and revenue mix. The deferral or loss ofone or more significant orders or a delay in a large implementation can also materially adversely affect our operating results, especially in a givenquarter. Larger transactions also increase the risk that our revenue and profitability becomes concentrated in a given period or over time. As with othersoftware-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. Thistrend has also complicated the process of accurately predicting revenue and other operating results, particularly on a quarterly basis. Finally, our business issubject 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 couldbe materially adversely affected. Approximately half of our sales are made through partners, distributors, resellers, and systems integrators. To remain successful, we must maintain ourexisting relationships as well as identify and establish new relationships with such third parties. We must often compete with other suppliers for theserelationships and our competitors often seek to establish exclusive relationships with these sales channels or to become a preferred partner for them. Ourability 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 findacceptable, 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 haveaffiliates that compete with us, or may also partner with our competitors or offer our products and those of our competitors as alternatives when presentingproposals to end customers. Our ability to achieve our revenue goals and growth depends to a significant extent on maintaining, enabling, and adding tothese 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, including our cloud hosting operations, we rely on third-party suppliers, manufacturers, and partners,which may create significant exposure for us. Although we generally use standard parts and components in our products, we do rely on non-affiliated suppliers and OEM partners for certain non-standardproducts or components which may be critical to our products, including both hardware and software, and on manufacturers of assemblies that areincorporated into our products. We also purchase technology, license intellectual property rights, and oversee third-party development and localization ofcertain products or components, in some cases, by or from companies that may compete with us or work with our competitors. While we endeavor to uselarger, more established suppliers, manufacturers, and partners wherever possible, in some cases, these providers may be smaller, less established companies,particularly in the case of new or unique technologies that we have not developed internally. If any of these suppliers, manufacturers, or partners experience financial, operational, manufacturing, or quality assurance difficulties, cease production orsale, or there is any other disruption in our supply, including as a result of the acquisition of a supplier or partner by a competitor, we will be required tolocate alternative sources of supply or manufacturing, to internally develop the applicable technologies, to redesign our products, and/or to remove certainfeatures from our products, any of which would be likely to increase expenses, create delivery delays, and negatively impact our sales. Although weendeavor to establish contractual protections with key providers, including source code escrows (where needed), warranties, and indemnities, we may not besuccessful in obtaining adequate protections, these agreements may be short-term in duration, and the counterparties may be unwilling or unable to standbehind such protections. Moreover, these types of contractual protections offer limited practical benefits to us in the event our relationship with a keyprovider 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. Wemake contractual commitments to customers on the basis of these relationships and, in some cases, also entrust these providers with both our own sensitivedata as well as the sensitive data of our customers (which may include sensitive end customer data). If these third-party providers do not perform as expectedor encounter service disruptions, cyber-attacks, data breaches, or other difficulties, we or our customers may be materially and adversely affected,18Table of Contentsincluding, among other things, by facing increased costs, potential liability to customers, end customers, or other third parties, regulatory issues, andreputational harm. If it is necessary to migrate these services to other providers as a result of poor performance, security issues or considerations, or otherfinancial or operational factors, it could result in service disruptions to our customers and significant time, expense, or exposure to us, any of which couldmaterially 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 retainexisting employees and attract new qualified employees, including in new markets and growth areas we may enter. Retention is an industry issue given thecompetitive technology labor market and as the millennial workforce continues to value multiple company experience over long tenure. As we grow, wemust also enhance and expand our management team to execute on new and larger agendas and challenges. The market for qualified personnel is competitivein the geographies in which we operate and may be limited especially in areas of emerging technology. We may be at a disadvantage to larger companieswith greater brand recognition or financial resources or to start-ups or other emerging companies in trending market sectors. Work visa restrictions, especiallyin the U.S., have also become significantly tighter in recent years, making it difficult or impossible to source qualified personnel from other countries or evento hire those already in the U.S. on current visas. Efforts we engage in to establish operations in new geographies where additional talent may be available,potentially at a lower cost, may be unsuccessful or fail to result in the desired cost savings.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 sales, 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 ourresults.We have significant operations and business outside the United States, including sales, research and development, manufacturing, customer services andsupport, 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 amountsof 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 risksassociated with:•foreign currency fluctuations;•political, security, and economic instability or corruption;•changes in and compliance with both international and local laws and regulations, including those related to trade compliance, anti-corruption,information security, data privacy and protection, tax, labor, 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; 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 sellour 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 inIsrael and the Middle East region have affected and may in the future affect our operations in19Table of ContentsIsrael. Violence within Israel or the outbreak of violent conflicts between Israel and its neighbors, including the Palestinians or Iran, may impede our abilityto manufacture, sell, and support our products or engage in R&D, or otherwise adversely affect our business or operations. Many of our employees in Israelare required to perform annual compulsory military service and are subject to being called to active duty at any time. Hostilities involving Israel may alsoresult in the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition ofIsrael and could materially adversely affect our results of operations. Restrictive laws, policies, or practices in certain countries directed toward Israel, Israeli goods, or companies having operations in Israel may also limit ourability to sell some of our products in certain countries. We receive grants from the IIA for the financing of a portion of our research and development expenditures in Israel. The availability in any given year ofthese IIA grants depends on IIA approval of the projects and related budgets that we submit to the IIA each year. The Israeli law under which these IIA grantsare made limits our ability to manufacture products, or transfer technologies, developed using these grants outside of Israel. This may limit our ability toengage in certain outsourcing or business combination transactions involving these products or require us to pay significant royalties or fees to the IIA inorder to obtain any IIA consent that may be required in connection with such transactions.Israeli tax requirements may also place practical limitations on our ability to sell or engage in other transactions involving our Israeli companies or assets, torestructure our Israeli business, or to access funds in Israel.Political factors related to our business or operations may adversely affect us.We may experience negative publicity, reputational harm, or other adverse impacts on our business as a result of offering certain types of Cyber Intelligencesolutions or if we sell such solutions to countries or customers that are considered disfavored by the media or political or social rights organizations, evenwhere such activities or transactions are permissible under applicable law. The risk of these adverse impacts may also result in lost opportunities that impactour results of operations. Some of our subsidiaries maintain security clearances domestically and abroad in connection with the development, marketing, sale, and/or support of ourCyber Intelligence solutions. These clearances are reviewed from time to time by these countries and could be deactivated, including for political reasonsunrelated 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 anentity 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 secureprojects in that country and might also experience greater challenges in selling such solutions even for non-secure projects in that country. Even if we areable to obtain and maintain applicable security clearances, government customers may decline to purchase our Cyber Intelligence solutions if they were notdeveloped or manufactured in that country or if they were developed or manufactured in other countries that are considered disfavored by such country. Contracting with government entities exposes us to additional risks inherent in the government procurement process.We provide products and services, directly and indirectly, to a variety of government entities, both domestically and internationally. Risks associated withlicensing and selling products and services to government entities include more extended sales and collection cycles, varying governmental budgetingprocesses, adherence to complex procurement regulations, and other government-specific contractual requirements, including possible renegotiation ortermination at the election of the government customer. We may be subject to audits and investigations relating to our government contracts and anyviolations could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, andsuspension or debarment from future government business, as well as harm to our reputation and financial results.We are subject to complex, evolving regulatory requirements that may be difficult and expensive to comply with and that could negatively impact ourbusiness. Our business and operations are subject to a variety of regulatory requirements in the United States and abroad, including, among other things, with respect totrade compliance, anti-corruption, information security, data privacy and protection, tax, labor, government contracts, and cyber intelligence. Compliancewith these regulatory requirements may be onerous, time-consuming, and expensive, especially where these requirements are inconsistent from jurisdiction tojurisdiction or where the jurisdictional reach of certain requirements is not clearly defined or seeks to reach across national borders. Regulatory requirementsin one jurisdiction may make it difficult or impossible to do business in another jurisdiction. We may also be unsuccessful in obtaining permits, licenses, orother authorizations required to operate our business, such as for the marketing or sale or import or export of our products and services. 20Table of ContentsWhile we endeavor to implement policies, procedures, and systems designed to achieve compliance with these regulatory requirements, we cannot assure youthat these policies, procedures, or systems will be adequate or that we or our personnel will not violate these policies and procedures or applicable laws andregulations. Violations of these laws or regulations may harm our reputation and deter government agencies and other existing or potential customers orpartners from purchasing our solutions. Furthermore, non-compliance with applicable laws or regulations could result in fines, damages, criminal sanctionsagainst 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 orgoverning the purchase and use of security solutions like ours, may also influence market demand for many of our products and/or customer requirements forspecific functionality and performance or technical standards. The domestic and international regulatory environment is subject to constant change, oftenbased on factors beyond our control or anticipation, including political climate, budgets, and current events, which could reduce demand for our products orrequire us to change or redesign products to maintain compliance or competitiveness.Increasing regulatory focus on information security and data privacy issues and expanding laws in these areas may result in increased compliancecosts, impact our business models, and expose us to increased liability.As a global company, Verint is subject to global privacy and data security laws, and regulations. These laws and regulations may be inconsistent acrossjurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. Government regulators, privacy advocates and class actionattorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result inadditional compliance obligations or new interpretations of existing laws and regulations. Globally, new and emerging laws, such as the General DataProtection Regulation (“GDPR”) in Europe, state laws in the U.S. on privacy, data and related technologies, such as the California Consumer Privacy Act, aswell as industry self-regulatory codes create new compliance obligations and expand the scope of potential liability, either jointly or severally with ourcustomers and suppliers. While we have invested in readiness to comply with applicable requirements, these new and emerging laws, regulations and codesmay affect our ability to reach current and prospective customers, to respond to both enterprise and individual customer requests under the laws (such asindividual rights of access, correction, and deletion of their personal information), and to implement our business models effectively. These new laws mayalso impact our products and services as well as our innovation in new and emerging technologies. These requirements, among others, may impact demandfor our offerings and force us to bear the burden of more onerous obligations in our contracts or otherwise increase our exposure to customers, regulators, orother third parties.Transferring personal information across international borders is becoming increasingly complex. For example, European data transfers outside the EuropeanEconomic Area are highly regulated. The mechanisms that we and many other companies rely upon for data transfers may be contested or invalidated. If themechanisms for transferring personal information from certain countries or areas, including Europe to the United States, should be found invalid or if othercountries implement more restrictive regulations for cross-border data transfers (or not permit data to leave the country of origin), such developments couldharm our business, financial condition and results of operations.Information / Product Security and Intellectual Property The mishandling or the perceived mishandling of sensitive information could harm our business. Some of our products are used by customers to compile and analyze highly sensitive or confidential information and data, including information or data usedin intelligence gathering or law enforcement activities as well as personally identifiable information. While our customers’ use of our products does notprovide us access to the customer’s sensitive or confidential information or data (or the information or data our customers may collect), we or our partnersmay receive or come into contact with such information or data, including personally identifiable information, when we are asked to perform services orsupport 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 orother hosted or managed services offerings. Customers are also increasingly focused on the security of our products and services and we continuously work toaddress these concerns, including through the use of encryption, access rights, and other customary security features, which vary based on the solution inquestion and customer requirements. We expect to receive, come into contact with, or become custodian of an increasing amount of customer data (includingend customer data) as our cloud business and cloud operations expand, increasing our exposure if we or one of our hosting partners experiences an issuerelating to the security or the proper handling of that information. We have implemented policies and procedures, and use information technology systems, tohelp ensure the proper handling of such information and data, including background screening of certain services personnel, non-disclosure agreements withemployees and partners, access rules, and controls on our information technology systems. We also evaluate the information security of potential21Table of Contentspartners and vendors as part of our selection process and attempt to negotiate adequate protections from such third parties in our contracts. However, thesepolicies, procedures, systems, and measures are designed to mitigate the risks associated with handling or processing sensitive data and cannot safeguardagainst all risks at all times. The improper handling of sensitive data, or even the perception of such mishandling (whether or not valid), or other securitylapses or breaches affecting us, our partners, or our products or services, could reduce demand for our products or services or otherwise expose us to financialor 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.Our solutions may contain defects or may develop operational problems. This risk is amplified for our more sophisticated solutions. New products and newproduct versions, 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 our products or services, including third partycomponents or services such as hosting. If we do not discover and remedy such defects, errors, or other operational or security problems until after a producthas been released to customers or partners, we may incur significant costs to correct such problems and/or become liable for substantial damages for productliability claims or other liabilities.Our solutions, including our cloud offerings, may be vulnerable to cyber-attacks even if they do not contain defects. If there is a successful cyber-attack onone 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, orreputation. We rely extensively on information technology systems to operate and manage our business and to process, maintain, and safeguard information, includinginformation belonging to our customers, partners, and personnel. This information may be processed and maintained on our internal information technologysystems or on systems hosted by third-party service providers. These systems, whether internal or external, may be subject to breaches, failures, or disruptionsas 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 expect to continueto 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 securitycontrols across our business groups and geographies. Despite our efforts, it is possible that our security systems, controls, and other procedures that we followor those employed by our third-party service providers, may not prevent breaches, failures, or disruptions. Such breaches, failures, or disruptions couldsubject us to the loss, compromise, destruction, or disclosure of sensitive or confidential information or intellectual property, either of our own information orIP or that of our customers (including end customers) or other third parties that may have been in our custody or in the custody of our third-party serviceproviders, financial losses from remedial actions, litigation, regulatory issues, liabilities to customers or other third parties, damage to our reputation, delaysin our ability to process orders, delays in our ability to provide products and services to customers, including SaaS or other hosted or managed servicesofferings, R&D or production downtimes, or delays or errors in financial reporting. Information system breaches or failures at one of our partners, includinghosting providers or those who support other cloud-based offerings, may also result in similar adverse consequences. Any of the foregoing could harm ourcompetitive 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 withpatents 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 suchpatents are issued, they will be, or that our existing patents are, sufficiently broad enough to protect our technologies, products, or services. Our intellectualproperty 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 andnon-disclosure provisions in agreements with employees and other third parties having access to our confidential information. There can be no assurance thatthese measures will adequately protect us from improper disclosure or misappropriation of our proprietary information.22Table of Contents Preventing unauthorized use or infringement of our intellectual property rights is difficult even in jurisdictions with well-established legal protections forintellectual property such as the United States. It may be even more difficult to protect our intellectual property in other jurisdictions where legal protectionsfor intellectual property rights are less established. If we are unable to adequately protect our intellectual property against unauthorized third-party use orinfringement, 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 disruptionsfor 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 ofour products infringed on their intellectual property rights and similar claims may be made in the future. Any allegation of infringement against us could betime consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause product shipment delays, or force us toenter into royalty or license agreements. If patent holders or other holders of intellectual property initiate legal proceedings against us, either with respect toour own intellectual property or intellectual property we license from third parties, we may be forced into protracted and costly litigation, regardless of themerits of these claims. We may not be successful in defending such litigation, in part due to the complex technical issues and inherent uncertainties inintellectual property litigation, and may not be able to procure any required royalty or license agreements on terms acceptable to us, or at all. Third partiesmay also assert infringement claims against our customers or partners. Subject to certain limitations, we generally indemnify our customers and partners withrespect to infringement by our products on the proprietary rights of third parties, which, in some cases, may not be limited to a specified maximum amountand for which we may not have sufficient insurance coverage or adequate indemnification in the case of intellectual property licensed from a third party. Ifany 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 sell, or incursignificant expenses in developing non-infringing alternatives. If we cannot obtain necessary licenses on commercially reasonable terms, our customers maybe 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 thefuture. 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 nowarranties on such software or protections in the event the open source software infringes a third party’s intellectual property rights. Although we endeavor tomonitor the use of open source software in our product development, we cannot assure you that past, present, or future products, including products inheritedin acquisitions, 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 ofthe source code of affected products. Any of these developments could materially adversely affect our business. 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 ouroperations. At March 15, 2019, we had total outstanding indebtedness of approximately $817.6 million under our 2017 Credit Agreement and our 1.50% convertiblesenior notes due 2021 (the “Notes”), meaning that we are significantly leveraged. In addition, we have the ability to borrow additional amounts under our2017 Credit Agreement, including the revolving credit facility, for a variety of purposes, including, among others, acquisitions and stock repurchases. Ourleverage 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 corporatepurposes;•require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability of our cash flow for otherpurposes;23Table of Contents•require us to repatriate cash for debt service from our foreign subsidiaries resulting in dividend tax costs or require us to adopt other disadvantageoustax 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 toreact to changes in market or industry conditions. In addition, because our indebtedness under our 2017 Credit Agreement bears interest at a variable rate, we are exposed to risk from fluctuations in interestrates. Interest rates on loans under the 2017 Credit Agreement are periodically reset, at our option, at either a Eurodollar Rate or an ABR rate (each as definedin the 2017 Credit Agreement), plus in each case a margin. The Financial Conduct Authority of the United Kingdom plans to phase out LIBOR by the end of2021, and we have approached the administrative agent under this facility to discuss the impact of the planned phase out. However, it is currently uncertainwhat, if any. alternative reference interest rates or other reforms will be enacted in response to the planned phase out, and we cannot assure you that analternative to LIBOR (on which the Eurodollar Rate is based) that we find acceptable will be available to us. The revolving credit facility under our 2017 Credit Agreement contains a financial covenant that requires us to satisfy a maximum consolidated leverageratio test. Our ability to comply with the leverage ratio covenant is dependent upon our ability to continue to generate sufficient earnings each quarter, or inthe 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 theseregards. Our 2017 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 mightbe considered beneficial to us. If certain events of default occur under our 2017 Credit Agreement, our lenders could declare all amounts outstanding to be immediately due and payable. Anacceleration of indebtedness under our 2017 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 2017 Credit Agreement were to occur, the lenders under our credit facilities would have the right to require us to repayall of our outstanding obligations under the facilities.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 oftheir Notes at 100% of the principal amount of the Notes, plus accrued and unpaid interest. Additionally, in the event the conditional conversion feature ofthe 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 electto 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/orwaiver under our debt agreements, raise additional capital through securities offerings, asset sales, or other transactions, or seek to refinance or restructure ourdebt. 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 will24Table of Contentsbe 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 torefinance our existing debt or secure new debt, increase our future cost of borrowing, and create third-party concerns about our financial condition or resultsof operations.If we are not able to generate sufficient cash domestically in order to fund our U.S. operations, strategic opportunities, and to service our debt, we mayincur withholding taxes in order to repatriate certain overseas cash balances, or we may need to raise additional capital in the future.On December 22, 2017 the Tax Cuts and Jobs Act (“2017 Tax Act”) was enacted in the United States. The 2017 Tax Act included significant changes tocorporate taxation in the United States including a mandatory one-time tax on accumulated earnings of foreign subsidiaries. As a result, all deferred foreignearnings not previously subject to U.S. income tax have now been taxed and we therefore do not expect to incur any significant additional U.S. taxes relatedto such amounts. However, certain unremitted earnings may be subject to foreign withholding tax upon repatriation to the United States.If the cash generated by our domestic operations, plus certain foreign cash which we would repatriate and for which we have accrued the related withholdingtax, is not sufficient to fund our domestic operations, our broader corporate initiatives such as acquisitions, and other strategic opportunities, and to serviceour outstanding indebtedness, we may need to raise additional funds through public or private debt or equity financings, or we may need to obtain new creditfacilities to the extent we choose not to repatriate additional 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 foreign cash andincur a significant tax cost (in addition to amounts previously accrued) or we may not be able to take advantage of strategic opportunities, develop newproducts, respond to competitive pressures, repurchase outstanding stock or repay our outstanding indebtedness. In any such case, our business, operatingresults or financial condition could be adversely impacted.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, havebeen consolidated into our financial statements. If CTI’s liabilities are greater than represented, if the contingent liabilities we have assumed become fixed, orif 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 ourbusiness or financial condition could be materially and adversely affected. Adjustments to the CTI consolidated group’s tax liability for periods prior to theCTI 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 liabilityin future periods. In addition, adjustments to the historical CTI consolidated group’s tax liability for periods prior to Verint’s IPO could affect the NOLsallocated to Verint in the IPO and cause us to incur additional tax liability in future periods.We are entitled to certain indemnification rights from the successor to CTI’s business operations (Mavenir Inc.) under the agreements entered into inconnection with the distribution by CTI to its shareholders of substantially all of its assets other than its interest in us (the “Comverse Share Distribution”)prior to the CTI Merger. However, there is no assurance that Mavenir will be willing and able to provide such indemnification if needed. If we becomeresponsible for liabilities not covered by indemnification or substantially in excess of amounts covered by indemnification, or if Mavenir becomes unwillingor unable to stand behind such protections, our financial condition and results of operations could be materially and adversely affected.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 ofearnings in countries with differing statutory tax rates, changes in valuation allowance on deferred tax assets (including our NOL carryforwards), changes inunrecognized tax benefits, or changes in tax laws or their interpretation. Any of these changes could have a material adverse effect on our profitability. Inaddition, the tax authorities in the jurisdictions in which we operate, including the United States, may from time to time review the pricing arrangementsbetween us and our foreign subsidiaries or among our foreign subsidiaries. An adverse determination by one or more tax authorities in this regard may have amaterial 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 NOLsinherited 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 anumber of factors, including changes in tax rates, laws or regulations,25Table of Contentswhether we generate sufficient future taxable income, and possible adjustments to the tax attributes of CTI or its non-Verint subsidiaries for periods prior tothe 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 bematerially adversely affected. When we cease to have NOLs available to us in a particular tax jurisdiction, either through their expiration, disallowance, orutilization, our cash tax liability will increase in that jurisdiction.In addition, on December 22, 2017, the 2017 Tax Act was enacted in the United States. The 2017 Tax Act significantly revised the Internal Revenue Code of1986, as amended, and it includes fundamental changes to taxation of U.S. multinational corporations. Compliance with the 2017 Tax Act requiressignificant complex computations not previously required by U.S. tax law.The key provisions of the 2017 Tax Act, which may significantly impact our current and future effective tax rates, include new limitations on the taxdeductions for interest expense and executive compensation, elimination of the alternative minimum tax (“AMT”) and the ability to refund unused AMTcredits over a four-year period, and new rules related to uses and limitations of NOL carryforwards. New international provisions add a new category ofdeemed income from our foreign operations, eliminate U.S. tax on foreign dividends (subject to certain restrictions), and add a minimum tax on certainpayments made to foreign related parties.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 U.S. generally accepted accounting principles (“GAAP”). These principles are subjectto interpretation by the SEC and other organizations that develop and interpret accounting principles. New accounting principles arise regularly,implementation of which can have a significant effect on and may increase the volatility of our reported operating results and may even retroactively affectpreviously reported operating results. In addition, the implementation of new accounting principles may require significant changes to our customer andvendor contracts, business processes, accounting systems, and internal controls over financial reporting. The costs and effects of these changes couldadversely impact our operating results, and difficulties in implementing new accounting principles could cause us to fail to meet our financial reportingobligations.Our internal controls over financial reporting may not prevent misstatements and material weaknesses or deficiencies could arise in the future whichcould 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 reportingand the preparation of consolidated financial statements for external reporting purposes in accordance with 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 controlsmay become inadequate because of changes in conditions, because the degree of compliance with policies or procedures decreases over time, or because ofunanticipated circumstances or other factors. As a result, although our management has concluded that our internal controls are effective as of January 31,2019, we cannot assure you that our internal controls will prevent or detect every misstatement, that material weaknesses or other deficiencies will not occuror be identified in the future, that this or future financial reports will not contain material misstatements or omissions, that future restatements will not berequired, 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 ourassets. Goodwill and other intangible assets totaled approximately $1.6 billion, or approximately 57% of our total assets, as of January 31, 2019. We test ourgoodwill for impairment at least annually, or more frequently if an event occurs indicating the potential for impairment, and we assess on an as-needed basiswhether there have been impairments in our other intangible assets. We make assumptions and estimates in this assessment which are complex and oftensubjective. These assumptions and estimates can be affected by a variety of factors, including external factors such as industry and economic trends, andinternal factors such as changes in our business strategy or our internal forecasts. To the extent that the factors described above change, we could be requiredto record additional non-cash impairment charges in the future, which could negatively affect our financial condition and results of operations.26Table of ContentsOur 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, Brazilian real, and Australia dollar, among others. Because our consolidated financial statements are presented inU.S. dollars, we must translate revenue, expenses, assets, and liabilities of entities using non-U.S. dollar functional currencies into U.S. dollars using currencyexchange rates in effect during or at the end of each reporting period, meaning that we are exposed to the impact of changes in currency exchange rates. Inaddition, our net income is impacted by the revaluation and settlement of monetary assets and liabilities denominated in currencies other than an entity’sfunctional currency, gains or losses on which are recorded within other income (expense), net. We attempt to mitigate a portion of these risks through foreigncurrency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and expense. However, our hedging activities are limited inscope 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 toproviding our financial outlooks could cause our actual results to differ materially from those anticipated in our outlooks, which could negatively affect theprice of our common stock.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 discussedin 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 technologicaladvances, acquisitions, major transactions, significant litigation or regulatory matters, stock repurchases, or management changes;•press or analyst publications, 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, our security solutions and customers, speculationregarding strategy or M&A, 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 intoin 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 insubstantial costs and divert management’s attention and resources, which could adversely affect our business.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesThe following describes our material properties as of the date of this report.We lease a total of approximately 1,155,000 square feet of office space covering approximately 80 offices around the world and we own an aggregate ofapproximately 79,000 square feet of office space at three sites in Scotland, Germany, and Indonesia.27Table of ContentsOther 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 thatwe 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 133,000 square feet of space at a facility in Alpharetta, Georgia under a lease that expires in 2026. The Alpharetta facility is usedprimarily 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 thatexpires in 2025. This Herzliya facility is used primarily for manufacturing, storage, development, sales, marketing, and support related to our CyberIntelligence operations, as well as for product development related to our Customer Engagement solutions.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 additionalinformation regarding our lease obligations, see Note 15, “Commitments and Contingencies” to our consolidated financial statements included under Item 8of 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 ourbusiness may require us to acquire additional facilities or modify existing facilities. We believe that alternative locations are available on commerciallyreasonable terms in all areas where we currently do business.Item 3. Legal ProceedingsIn March 2009, one of our former employees, Ms. Orit Deutsch, commenced legal actions in Israel against our primary Israeli subsidiary, Verint SystemsLimited (“VSL”), (Case Number 4186/09) and against our affiliate CTI (Case Number 1335/09). Also in March 2009, a former employee of Comverse Limited(CTI’s primary Israeli subsidiary at the time), Ms. Roni Katriel, commenced similar legal actions in Israel against Comverse Limited (Case Number 3444/09),and against CTI (Case Number 1334/09). In these actions, the plaintiffs generally sought to certify class action suits against the defendants on behalf ofcurrent and former employees of VSL and Comverse Limited who had been granted stock options in Verint and/or CTI and who were allegedly damaged as aresult of a suspension on option exercises during an extended filing delay period that is discussed in our and CTI’s historical public filings. On June 7, 2012,the Tel Aviv District Court, where the cases had been filed or transferred, allowed the plaintiffs to consolidate and amend their complaints against the threedefendants: VSL, CTI, and Comverse Limited.On October 31, 2012, CTI completed the Comverse Share Distribution, in which it distributed all of the outstanding shares of common stock of Comverse,Inc., its principal operating subsidiary and parent company of Comverse Limited, to CTI’s shareholders. In the period leading up to the Comverse ShareDistribution, CTI either sold or transferred substantially all of its business operations and assets (other than its equity ownership interests in Verint and in itsthen-subsidiary, Comverse, Inc.) to Comverse, Inc. or to unaffiliated third parties. As a result of these transactions, Comverse Inc. became an independentcompany and ceased to be affiliated with CTI, and CTI ceased to have any material assets other than its equity interests in Verint. Prior to the completion ofthe Comverse Share Distribution, the plaintiffs sought to compel CTI to set aside up to $150.0 million in assets to secure any future judgment, but the DistrictCourt did not rule on this motion. In February 2017, Mavenir Inc. became successor-in-interest to Comverse, Inc.On February 4, 2013, Verint acquired the remaining CTI shell company in the CTI Merger. As a result of the CTI Merger, Verint assumed certain rights andliabilities of CTI, including any liability of CTI arising out of the foregoing legal actions. However, under the terms of a Distribution Agreement entered intoin connection with the Comverse Share Distribution, we, as successor to CTI, are entitled to indemnification from Comverse, Inc. (now Mavenir) for anylosses we may suffer in our capacity as successor to CTI related to the foregoing legal actions.Following an unsuccessful mediation process, on August 28, 2016, the District Court (i) denied the plaintiffs’ motion to certify the suit as a class action withrespect 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 ofcurrent or former employees of Comverse Limited (now part of28Table of ContentsMavenir) or of VSL who held unexercised CTI stock options at the time CTI suspended option exercises. The court also ruled that the merits of the casewould be evaluated under New York law. As a result of this ruling (which excluded claims related to Verint stock options from the case), one of the originalplaintiffs in the case, Ms. Deutsch, was replaced by a new representative plaintiff, Mr. David Vaaknin. CTI appealed portions of the District Court’s ruling tothe Israeli Supreme Court. On August 8, 2017, the Israeli Supreme Court partially allowed CTI’s appeal and ordered the case to be returned to the DistrictCourt to determine whether a cause of action exists under New York law based on the parties’ expert opinions.Following a second unsuccessful round of mediation in mid to late 2018, the proceedings resumed. The plaintiffs have filed a motion to amend the classcertification motion and CTI has filed a corresponding motion to dismiss and a response. The next court hearing is scheduled for April 2019.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 theoutcome 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 ourconsolidated financial position, results of operations, or cash flows.Item 4. Mine Safety Disclosures Not applicable.29Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock trades on the NASDAQ Global Select Market under the symbol “VRNT”.HoldersThere were approximately 1,750 holders of record of our common stock at March 15, 2019. Such record holders include holders who are nominees for anundetermined number of beneficial owners.DividendsWe 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 intendto retain our earnings to finance the development of our business, repay debt, and for other corporate purposes. Any future determination as to the payment ofdividends on our common stock will be made by our board of directors at its discretion, subject to the limitations contained in our 2017 Credit Agreementand will depend upon our earnings, financial condition, capital requirements, and other relevant factors.For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report.Stock Performance GraphThe following table compares the cumulative total stockholder return on our common stock with the cumulative total return on the NASDAQ CompositeIndex and the NASDAQ Computer & Data Processing Services Index, assuming an investment of $100 on January 31, 2014 through January 31, 2019, andthe reinvestment of any dividends. The comparisons in the graph below are based upon the closing sale prices on NASDAQ for our common stock fromJanuary 31, 2014 through January 31, 2019. This data is not indicative of, nor intended to forecast, future performance of our common stock.30Table of ContentsJanuary 31, 2014 2015 2016 2017 2018 2019Verint Systems Inc. $100.00 $117.47 $80.57 $82.20 $91.88 $106.45NASDAQ Composite Index $100.00 $114.30 $115.10 $141.84 $189.26 $187.97NASDAQ Computer & DataProcessing Index $100.00 $105.64 $132.80 $154.15 $223.67 $227.03Note: This graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section nor shall itbe deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in suchfiling.Recent Sales of Unregistered SecuritiesNone.Purchases of Equity Securities by the Issuer and Affiliated PurchasersNone.On March 29, 2016, we announced that our board of directors had authorized a common stock repurchase program of up to $150 million over two years. Thisprogram expired on March 29, 2018. We made a total of $46.9 million in repurchases under the program.From time to time, we have purchased treasury stock from directors, officers, and other employees to facilitate income tax withholding and paymentrequirements upon vesting of equity awards during a Company-imposed trading blackout or lockup periods. There was no such activity during the threemonths ended January 31, 2019.Item 6. Selected Financial Data31Table of ContentsThe following selected consolidated financial data has been derived from our audited consolidated financial statements. The data below should be read inconjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 and our consolidated financialstatements 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) 2019 2018 2017 2016 2015Revenue $1,229,747 $1,135,229 $1,062,106 $1,130,266 $1,128,436Operating income $114,235 $48,630 $17,366 $67,852 $79,111Net income (loss) $70,220 $(3,454) $(26,246) $22,228 $36,402Net income (loss) attributable to Verint Systems Inc. $65,991 $(6,627) $(29,380) $17,638 $30,931Net income (loss) attributable to Verint Systems Inc.common shares $65,991 $(6,627) $(29,380) $17,638 $30,931Net income (loss) per share attributable to VerintSystems Inc.: Basic $1.02 $(0.10) $(0.47) $0.29 $0.53Diluted $1.00 $(0.10) $(0.47) $0.28 $0.52Weighted-average shares: Basic 64,913 63,312 62,593 61,813 58,096Diluted 66,245 63,312 62,593 62,921 59,374We have never declared a cash dividend to common stockholders.Consolidated Balance Sheet Data January 31,(in thousands) 2019 2018 2017 2016 2015Total assets $2,867,027 $2,580,620 $2,362,784 $2,355,735 $2,340,452Long-term debt, including current maturities $782,128 $772,984 $748,871 $738,087 $726,258Capital lease obligations, including current portions $4,282 $4,350 $68 $— $—Total stockholders’ equity $1,260,804 $1,132,336 $1,015,040 $1,068,164 $1,004,903The consolidated financial data as of and for the year ended January 31, 2019 reflects our February 1, 2018 adoption of ASU No. 2014-09, Revenue fromContracts with Customers (Topic 606), further details for which appear in Note 2, “Revenue Recognition” to our consolidated financial statements includedunder Item 8 of this report.During the five-year period ended January 31, 2019, we acquired a number of businesses, the operating results of which have been included in ourconsolidated financial statements since their respective acquisition dates. Further details regarding our business combinations for the three years endedJanuary 31, 2019 appear in Note 5, “Business Combinations” to our consolidated financial statements included under Item 8 of this report.In addition to business combinations, our consolidated operating results and consolidated financial condition during the five-year period ended January 31,2019 included the following other notable transactions and items:32Table of ContentsAs of and for theyear endedJanuary 31, Description2018 •Losses on early retirements of debt of $2.2 million, associated with refinancing and amending our Credit Agreement. •Provisional deferred income tax expense of $15.0 million related to withholding on foreign earnings which may be repatriated. 2015 •An income tax benefit of $44.4 million resulting from the reduction of a valuation allowance on our deferred income tax assetsrecorded in connection with a business combination. •Losses on early retirements of debt of $12.5 million, primarily associated with an amendment to our Credit Agreement and theearly partial retirement of our term loans.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 thisreport. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and all of which could be affectedby uncertainties and risks. Our actual results may differ materially from the results contemplated in these forward-looking statements as a result of manyfactors including, but not limited to, those described in “Risk Factors” under Item 1A of this report.OverviewOur BusinessVerint is a global leader in Actionable Intelligence solutions. In a world of massive information growth, our solutions empower organizations with crucial,actionable insights and enable decision makers to anticipate, respond, and take action. Today, over 10,000 organizations in more than 180 countries,including over 85 percent of the Fortune 100, use Verint’s Actionable Intelligence solutions, deployed in the cloud and on premises, to make more informed,timely, and effective decisions.Our Actionable Intelligence leadership is powered by innovative, enterprise-class software built with artificial intelligence, analytics, automation, and deepdomain expertise established by working closely with some of the most sophisticated and forward-thinking organizations in the world. We believe we haveone of the industry’s strongest R&D teams focused on actionable intelligence consisting of 1,900 professionals. Our innovative solutions are backed-up by astrong IP portfolio with close to 1,000 patents and patent applications worldwide across data capture, artificial intelligence, unstructured data analytics,predictive analytics and automation.Verint’s Actionable Intelligence strategy is focused on two use cases and the company has two operating segments: Customer Engagement Solutions andCyber Intelligence Solutions. For the years ended January 31, 2019, 2018, and 2017, our Customer Engagement segment represented approximately 65%,65%, and 66% of our total revenue, respectively, while for those same years, our Cyber Intelligence segment represented approximately 35%, 35%, and 34%of our total revenue, respectively.Key Trends and Factors That May Impact our PerformanceWe see the following trends and factors which may impact our performance:Customer Engagement•Reducing Complexity and Enhancing Agility. Many organizations have complex environments that were assembled over many years, withmultiple legacy systems from many different vendors deployed in silos across the enterprise. To reduce complexity and simplify operations, theseorganizations are looking for new solutions that are open and flexible and make it easier to address evolving requirements, while protecting theirlegacy investments. Organizations are also seeking open platforms that address their customer engagement needs across many enterprise functions,33Table of Contentsincluding the contact center, back-office and branch operations, self-service, e-commerce, customer experience, marketing, IT, and compliance.•Modernizing Customer Engagement IT Architectures. Many organizations are looking to modernize their legacy customer engagementoperations by transitioning to the cloud, adopting modern architectures that facilitate the orchestration of disparate systems and the sharing of dataacross enterprise functions. Organizations which are at different stages of migrating to the cloud and other modernization initiatives are also lookingfor vendors that can help them evolve customer engagement at their own pace with minimal disruption to their operations.•Automating Customer Engagement Operations. Many organizations are seeking solutions that incorporate machine learning and analytics toreduce manual work and increase workforce efficiency through automation. They also seek to empower their customers with self-service backed byAI-powered bots and human/bot collaboration, to elevate the customer experience in a fast, personalized way.Cyber Intelligence•Security Threats Becoming Increasingly Pervasive and Complex. Governments, critical infrastructure providers, and enterprises face many typesof security threats from criminal and terrorist organizations and foreign governments. Some of these security threats come from well-organized andwell-funded organizations that utilize new and increasingly sophisticated methods. As a result, security and intelligence organizations find it moredifficult and complicated to detect, investigate and neutralize threats. Many of these organizations are seeking to deploy more advanced datamining solutions that can help them capture and analyze data from multiple sources to effectively and efficiently address the challenge of increasedsophistication and complexity.•Shortage of Security Analysts Increasing the Need for Automation. Security organizations are using data mining solutions to help conductinvestigations and generate actionable insights. Typically, data mining solutions require security organizations to employ intelligence analysts anddata scientists to operate them. However, there is a shortage of such qualified personnel globally leading to elongated investigations and increasedrisk that security threats go undetected or are not addressed. To overcome this challenge, many security organizations are seeking advanced datamining solutions that automate functions historically performed manually to improve the quality and speed of investigations and intelligenceproduction. These organizations are also increasingly seeking artificial intelligence and other advanced data analysis tools to gain intelligencefaster with fewer analysts and data scientists.•Need for Predictive Intelligence as a Force Multiplier. Predictive intelligence is generated by correlating massive amounts of data from a widerange of disparate sources to uncover previously unknown connections, identify suspicious behaviors using advanced analytics, and predict futureevents. Predictive intelligence is a force multiplier, enabling security organizations to allocate resources more effectively to prioritize variousoperational tasks based on actionable intelligence. Security organizations are seeking advanced data mining solutions that can generate accurateand actionable predictive intelligence to shorten investigation times and empower their teams with greater insights.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 Item1A of this report for a more complete description of risks that may impact future revenue and profitability.Critical Accounting Policies and EstimatesAn appreciation of our critical accounting policies is necessary to understand our financial results. The accounting policies outlined below are considered tobe critical because they can materially affect our operating results and financial condition, as these policies may require us to make difficult and subjectivejudgments regarding uncertainties. The accuracy of these estimates and the likelihood of future changes depend on a range of possible outcomes and anumber of underlying variables, many of which are beyond our control, and there can be no assurance that our estimates are accurate.Revenue RecognitionWe derive and report our revenue in two categories: (a) product revenue, including licensing of software products and sale of hardware products (whichinclude software that works together with the hardware to deliver the product’s essential functionality), and (b) service and support revenue, includingrevenue from installation services, post-contract customer support (“PCS”), project management, hosting services, SaaS, managed services, productwarranties, business advisory consulting and34Table of Contentstraining services. We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects theconsideration that we expect to receive in exchange for those goods or services. We generate all of our revenue from contracts with customers.We account for revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). Ourrevenue recognition policies require us to make significant judgments and estimates. In applying our revenue recognition policy, we must determine whichportions of our revenue are recognized at a point in time (generally product revenue) and which portions must be deferred and recognized over time(generally services and support revenue). We analyze various factors including, but not limited to, the selling price of undelivered services when sold on astand-alone basis, our pricing policies, the creditworthiness of our customers, and contractual terms and conditions in helping us to make such judgmentsabout revenue recognition. Changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a givenperiod.Our contracts with customers often include promises to transfer multiple products and services to a customer. Typically, our customer contracts includeperpetual or term-based licenses, professional services, and PCS. In contracts with multiple performance obligations, we identify each performance obligationand evaluate whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are notdistinct at contract inception are combined. Contracts that include software customization may result in the combination of the customization services withthe software license as one distinct performance obligation. The transaction price is generally in the form of a fixed fee at contract inception, and excludestaxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by usfrom a customer.We allocate the transaction price to each distinct performance obligation based on the estimated standalone selling price (“SSP”) for each performanceobligation. Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable, such aswhen we do not sell the product or service separately, we estimate the SSP of each performance obligation based on either a cost-plus-margin approach or anadjusted market assessment approach. We may have more than one SSP for individual products and services due to the stratification of those products andservices by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determiningthe SSP.We then look to how control transfers to the customer in order to determine the timing of revenue recognition. Software and product revenue is typicallyrecognized when the software is delivered and/or made available for download as this is the point the user of the software can direct the use of, and obtainsubstantially all of the remaining benefits from the functional intellectual property. We do not recognize software revenue related to the renewal of softwarelicenses earlier than the beginning of the renewal period. In contracts that include customer acceptance, we recognize revenue when we have delivered thesoftware and received customer acceptance. We recognize revenue from PCS performance obligations, which includes software updates on a when-and-if-available basis, telephone support, and bug fixes or patches, over the term of the customer support agreement, which is typically one year. Revenue related toprofessional services and customer education services is typically recognized as the services are performed.Some of our customer contracts require significant customization of the product to meet the particular requirements specified by each customer. The contractpricing is stated as a fixed amount and generally results in the transfer of control of the applicable performance obligation over time. We recognize revenuebased on the proportion of labor hours expended to the total hours expected to complete the performance obligation. The determination of the total laborhours expected to complete the performance obligation on fixed fee contracts involves significant judgment. We incorporate revisions to hour and costestimates when the causal facts become known. We measure our estimate of completion on fixed-price contracts, which in turn determines the amount ofrevenue we recognize, based primarily on actual hours incurred to date and our estimate of remaining hours necessary to complete the contract.Our products are generally not sold with a right of return and credits and incentives granted have been minimal in both amount and frequency. Shipping andhandling activities that are billed to customers and occur after control over a product has transferred to a customer are accounted for as fulfillment costs andare included in cost of revenue. Historically, these expenses have not been material.Accounting for Business CombinationsWe 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 fromindependent valuation specialists. The purchase price allocation process35Table of Contentsrequires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, contractual support obligationsassumed, contingent consideration arrangements, 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 historicalexperience 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 developedtechnologies;•expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects whencompleted;•the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be usedin 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 areassuming from the acquired business. The estimated fair value of the support obligations is determined utilizing a cost build-up approach, which determinesfair value by estimating the costs related to fulfilling the obligations plus a reasonable profit margin. The estimated costs to fulfill the support obligations arebased on the historical direct costs related to providing the support services. The sum of these costs and operating profit represents an approximation of theamount that we would be required to pay a third party to assume the support obligations.Impairment of Goodwill and Other Intangible AssetsWe 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 basisas 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 31,2019, our reporting units are Customer Engagement, Cyber Intelligence (excluding situational intelligence solutions), and Situational Intelligence, which isa 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 areporting unit is less than its carrying amount. If we elect to bypass a qualitative assessment, or if our qualitative assessment indicates that goodwillimpairment is more likely than not, we perform quantitative impairment testing. For quantitative impairment testing performed prior to February 1, 2018, weperformed a two-step test by first comparing the carrying value of the reporting unit to its fair value. If the carrying value exceeded the fair value, a secondstep was performed to compute the goodwill impairment. Effective with our February 1, 2018 adoption of ASU No. 2017-04, Intangibles-Goodwill and Other(Topic 350) - Simplifying the Test for Goodwill Impairment, if our quantitative testing determines that the carrying value of a reporting unit exceeds its fairvalue, goodwill impairment is recognized in an amount equal to that excess, limited to the total goodwill allocated to that reporting unit, eliminating theneed for the second step.For reporting units where we decide to perform a qualitative assessment, we assess and make judgments regarding a variety of factors which potentiallyimpact the fair value of a reporting unit, including general economic conditions, industry and market-specific conditions, customer behavior, cost factors, ourfinancial performance and trends, our strategies and business plans, capital requirements, management and personnel issues, and our stock price, amongothers. 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 reportingunit’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 areporting unit exceeds its carrying amount.For reporting units where we perform quantitative impairment testing, we utilize one or more of three primary approaches to assess fair value: (a) an income-based approach, using projected discounted cash flows, (b) a market-based approach, using36Table of Contentsvaluation multiples of comparable companies, and (c) a transaction-based approach, using valuation multiples for recent acquisitions of similar businessesmade 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 ourfuture cost structure, (d) discount rates for our estimated cash flows, (e) selection of peer group companies for the comparable public company and thecomparable 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 discretefinancial 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 anyindicators are present, we perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the assets inquestion to their carrying amounts. If the undiscounted cash flows used in the test for recoverability are less than the long-lived assets carrying amount, wedetermine 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. Theimpairment 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 ourbusiness strategy or our internal forecasts. Although we believe the assumptions, judgments, and estimates we have used in our assessments are reasonableand 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, 2018 qualitative goodwill impairment review of each reporting unit, we determined that it is more likely than not that the fairvalue of each of our reporting units substantially exceeds the respective carrying amounts. Accordingly, there was no indication of impairment and aquantitative goodwill impairment test was not performed. Based on our November 1, 2017 quantitative goodwill impairment reviews, we concluded that theestimated fair values of all of our reporting units significantly exceeded their carrying values. Our Customer Engagement, Cyber Intelligence, and SituationalIntelligence reporting units carried goodwill of $1.3 billion, $124.9 million, and $22.3 million, respectively, at January 31, 2019.Income TaxesWe account for income taxes under the asset and liability method, which includes the recognition of deferred tax assets and liabilities for the expected futuretax consequences of events that have been included in our consolidated financial statements. Under this approach, deferred taxes are recorded for the futuretax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes representsincome taxes paid or payable for the current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases ofour 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 orrates are not anticipated.We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our income tax provision involves the applicationof complex tax laws and requires significant judgment and estimates. On December 22, 2017, the 2017 Tax Act was enacted in the United States. The 2017Tax Act significantly revised the Internal Revenue Code of 1986, as amended, and it included fundamental changes to taxation of U.S. multinationalcorporations. Compliance with the 2017 Tax Act requires significant complex computations not previously required by U.S. tax law.We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and we establish a valuationallowance 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 isdependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negativeevidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxplanning 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.37Table of ContentsWe 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 atax return by assessing whether they are more likely than not sustainable, based solely on their technical merits, upon examination, and including resolutionof 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 ismore 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 taxbenefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction ofdeferred tax assets. Our policy is to include interest (expense and/or income) and penalties related to unrecognized income tax benefits as a component of theprovision for income taxes.ContingenciesWe recognize an estimated loss from a claim or loss contingency when and if information available prior to issuance of the financial statements indicates thatit 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 bereasonably estimated. Accounting for claims and contingencies requires the use of significant judgment and estimates. One notable potential source of losscontingencies is pending or threatened litigation. Legal counsel and other advisors and experts are consulted on issues related to litigation as well as onmatters related to contingencies occurring in the ordinary course of business.Accounting for Stock-Based CompensationWe 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, 2019, restricted stock units were our predominant stock-based payment award. The fair value of these awardsis equivalent to the market value of our common stock on the grant date.We periodically award restricted stock units to executive officers and certain employees that vest upon the achievement of specified performance goals ormarket conditions. The recognition of the compensation costs of the performance-based awards with performance goals requires an assessment of theprobability that the specified performance criteria will be achieved. At each reporting date, we update our assessment of the probability that the specifiedperformance criteria will be achieved and adjust our estimate of the fair value of the award, if necessary. For the performance-based awards with marketconditions, the condition is incorporated into the grant date fair value valuation of the award and compensation costs are recognized even if the marketcondition is not satisfied.Changes in assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognized. Theassumptions we use in calculating the fair value of stock-based payment awards represent our best estimates, which involve inherent uncertainties and theapplication of judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially differentin the future.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 operatingincome are typically highest in the fourth quarter and lowest in the first quarter (prior to the impact of unusual or nonrecurring items). Moreover, revenue andoperating 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. Inaddition, 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 believethat these seasonal and cyclical factors primarily reflect customer spending patterns and budget cycles, as well as the impact of incentive compensation plansfor our sales personnel. While seasonal and cyclical factors such as these are common in the software and technology industry, this pattern should not beconsidered a reliable indicator of our future revenue or financial performance. Many other factors, including general economic conditions, may also have animpact on our business and financial results.Overview of Operating Results 38Table of ContentsThe following table sets forth a summary of certain key financial information for the years ended January 31, 2019, 2018, and 2017: Year Ended January 31,(in thousands, except per share data) 2019 2018 2017Revenue $1,229,747 $1,135,229 $1,062,106Operating income $114,235 $48,630 $17,366Net income (loss) attributable to Verint Systems Inc. $65,991 $(6,627) $(29,380)Net income (loss) per common share attributable to Verint Systems Inc.: Basic $1.02 $(0.10) $(0.47) Diluted $1.00 $(0.10) $(0.47)Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Our revenue increased approximately $94.5 million, or 8%, from $1,135.2 millionin the year ended January 31, 2018 to $1,229.7 million in the year ended January 31, 2019. The increase consisted of a $55.0 million increase in productrevenue and a $39.5 million increase in service and support revenue. In our Customer Engagement segment, revenue increased approximately $56.2 million,or 8%, from $740.1 million in the year ended January 31, 2018 to $796.3 million in the year ended January 31, 2019. The increase consisted of a $37.5million increase in product revenue and an $18.7 million increase in service and support revenue. In our Cyber Intelligence segment, revenue increasedapproximately $38.3 million, or 10%, from $395.2 million in the year ended January 31, 2018 to $433.5 million in the year ended January 31, 2019. Theincrease consisted of a $20.8 million increase in service and support revenue and $17.5 million increase in product revenue. For additional details on ourrevenue by segment, see “—Revenue by Operating Segment”. Revenue in the Americas, EMEA, and APAC represented approximately 54%, 26%, and 20%of our total revenue, respectively, in the year ended January 31, 2019, compared to approximately 53%, 31%, and 16%, respectively, in the year endedJanuary 31, 2018. Further details of changes in revenue are provided below.Operating income was $114.2 million in the year ended January 31, 2019 compared to $48.6 million in the year ended January 31, 2018. This increase inoperating income was primarily due to a $92.1 million increase in gross profit, reflecting increased gross profit in both of our segments and a decrease inamortization of acquired technology intangible assets, partially offset by a $26.5 million increase in operating expenses, which primarily consisted of an$18.5 million increase in net research and development expenses and an $11.2 million increase in selling, general and administrative expenses, partiallyoffset by a $3.2 million decrease in amortization of other acquired intangible assets. Further details of changes in operating income are provided below.Net income attributable to Verint Systems Inc. was $66.0 million, and diluted net income per common share was $1.00, in the year ended January 31, 2019,compared to a net loss attributable to Verint Systems Inc. of $6.6 million, and net loss per common share of $0.10, in the year ended January 31, 2018. Theseimproved operating results in the year ended January 31, 2019 were primarily due to a $65.6 million increase in operating income, as described above, and a$14.9 million decrease in our provision for income taxes primarily resulting from a decrease in accrued withholding taxes and the release of certain valuationallowances, partially offset by a $6.8 million increase in total other expense, net, and a $1.1 million increase in net income attributable to our noncontrollinginterests. Further details of these changes are provided below.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 fluctuationsin applicable foreign currency exchange rates. When comparing average exchange rates for the year ended January 31, 2019 to average exchange rates for theyear ended January 31, 2018, the U.S. dollar strengthened relative to the Brazilian real and Australian dollar resulting in an overall decrease in our revenueon a U.S. dollar-denominated basis. Furthermore, the U.S. dollar weakened relative to our hedged Israeli shekel rate, euro, and British pound sterling,resulting in an overall increase in operating expenses on a U.S. dollar-denominated basis. For the year ended January 31, 2019, had foreign exchange ratesremained unchanged from rates in effect for the year ended January 31, 2018, our revenue would have been approximately $0.7 million higher and our cost ofrevenue and operating expenses on a combined basis would have been approximately $7.8 million lower, which would have resulted in a $8.5 millionincrease in operating income.As of January 31, 2019, we employed approximately 6,100 professionals, including part-time employees and certain contractors, compared to approximately5,200 at January 31, 2018.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Our revenue increased approximately $73.1 million, or 7%, from $1,062.1 millionin the year ended January 31, 2017 to $1,135.2 million in the year ended January 31, 2018. The increase consisted of a $52.0 million increase in service andsupport revenue and a $21.1 million increase in product revenue. 39Table of ContentsIn our Cyber Intelligence segment, revenue increased approximately $39.0 million, or 11%, from $356.2 million in the year ended January 31, 2017 to$395.2 million in the year ended January 31, 2018. The increase consisted of a $20.9 million increase in service and support revenue and $18.1 millionincrease in product revenue. In our Customer Engagement segment, revenue increased approximately $34.2 million, or 5%, from $705.9 million in the yearended January 31, 2017 to $740.1 million in the year ended January 31, 2018. The increase consisted of a $31.1 million increase in service and supportrevenue and a $3.1 million increase in product revenue. For additional details on our revenue by segment, see “—Revenue by Operating Segment”. Revenuein the Americas, EMEA, and APAC represented approximately 53%, 31%, and 16% of our total revenue, respectively, in the year ended January 31, 2018,compared to approximately 54%, 30%, and 16%, respectively, in the year ended January 31, 2017. Further details of changes in revenue are provided below.Operating income was $48.6 million in the year ended January 31, 2018 compared to $17.4 million in the year ended January 31, 2017. This increase inoperating income was primarily due to a $48.9 million increase in gross profit, reflecting increased gross profit in both of our segments, partially offset by an$17.7 million increase in operating expenses, which primarily consisted of a $19.6 million increase in net research and development expenses and an $8.0million increase in selling, general and administrative expenses, partially offset by a $9.9 million decrease in amortization of other acquired intangible assets.Further details of changes in operating income are provided below.Net loss attributable to Verint Systems Inc. was $6.6 million, and net loss per common share was $0.10, in the year ended January 31, 2018, compared to a netloss attributable to Verint Systems Inc. of $29.4 million, and net loss per common share of $0.47, in the year ended January 31, 2017. The decrease in net lossattributable to Verint Systems Inc. and net loss per common share in the year ended January 31, 2018 was primarily due to a $31.2 million increase inoperating income, as described above, a $1.5 million increase in interest income, and a $12.8 million increase in other income. These were partially offset bya $1.0 million increase in interest expense, a $2.1 million loss on extinguishment of debt, and a $19.6 million increase in our provision for income taxesprimarily resulting from a $15.0 million accrual for withholding taxes on foreign cash we may repatriate in the future.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 fluctuationsin applicable foreign currency exchange rates. When comparing average exchange rates for the year ended January 31, 2018 to average exchange rates forthe year ended January 31, 2017, the U.S. dollar weakened relative to the euro, Australian dollar and the Singapore dollar, resulting in an overall increase inour revenue on a U.S. dollar-denominated basis. Furthermore, the U.S. dollar weakened relative to our Israeli shekel rate (hedged and unhedged), resulting inan overall increase in operating expenses on a U.S. dollar-denominated basis. For the year ended January 31, 2018, had foreign exchange rates remainedunchanged from rates in effect for the year ended January 31, 2017, our revenue would have been approximately $4.8 million lower and our cost of revenueand operating expenses on a combined basis would have been approximately $10.7 million lower, which would have resulted in a $5.9 million increase inoperating income.As of January 31, 2018, we employed approximately 5,200 professionals, including part-time employees and certain contractors, compared to approximately5,100 at January 31, 2017.Revenue by Operating SegmentAs described in Note 2, “Revenue Recognition” to our consolidated financial statements under Item 8 of this report, calculated revenue for the year endedJanuary 31, 2019 without the adoption of ASU No. 2014-09 would have been lower than the revenue we are reporting under the new accounting guidance.However, the lower calculated revenue results not only from the impact of the new accounting guidance, but also from changes we made to our businesspractices in anticipation, and as a result, of the new accounting guidance. These business practice changes adversely impact the calculation of revenue underthe prior accounting guidance and include, among other things, the way we manage our professional services projects, offer and deploy our solutions,structure certain customer contracts, and make pricing decisions. While the many variables, required assumptions, and other complexities associated withthese business practice changes make it impractical to precisely quantify the impact of these changes, we believe that calculated revenue under the prioraccounting guidance, but absent these business practice changes, would have been closer to the revenue we are reporting under the new accountingguidance. 40Table of ContentsThe following table sets forth revenue for each of our operating segments for the years ended January 31, 2019, 2018, and 2017: Year Ended January 31, % Change(in thousands) 2019 2018 2017 2019 - 2018 2018 - 2017Customer Engagement $796,287 $740,067 $705,897 8% 5%Cyber Intelligence 433,460 395,162 356,209 10% 11%Total revenue $1,229,747 $1,135,229 $1,062,106 8% 7% Customer Engagement Segment Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Customer Engagement revenue increased approximately $56.2 million, or 8%,from $740.1 million in the year ended January 31, 2018 to $796.3 million in the year ended January 31, 2019. The increase consisted of a $37.5 millionincrease in product revenue and an $18.7 million increase in service and support revenue. The application of ASU No. 2014-09 primarily resulted indifferences in the timing and amount of revenue recognition for term-based licenses, which under the new accounting standard are recognized at a point intime similar to perpetual licenses rather than over time, minimum guaranteed amounts related to usage-based licenses, and professional services for whichpayment is contingent upon the achievement of milestones. Excluding the impact of ASU No. 2014-09, Customer Engagement revenue increasedapproximately $26.2 million, or 4%, from $740.1 million in the year ended January 31, 2018 to $766.3 million in the year ended January 31, 2019,consisting of a $19.2 million increase in product revenue and a $7.0 million increase in service and support revenue. As noted at the top of this section, as aresult of the adoption of ASU No. 2014-09, we made certain changes to our Customer Engagement contracting and business processes that would haveotherwise not occurred under the prior revenue recognition guidance and we believe that absent these changes, revenue under the prior accounting guidancewould have been closer to the revenue we are reporting under the new accounting guidance. Under either accounting standard, the increase in productrevenue primarily reflects a higher aggregate value of executed perpetual and term-based license arrangements, which comprises the majority of our productrevenue and which can fluctuate from period to period. The increase in service and support revenue was primarily attributable to an increase in our customerinstalled base, and the related support and SaaS revenue generated from this customer base. We continue to experience steady growth in services and supportrevenue, while product revenue growth is less predictable as the timing of our software license revenue can create significant fluctuations in our results assome large contracts can represent a significant share of our product revenue for a given period. Our business combinations can also affect our revenue mixdepending on the nature of the underlying business acquired. Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Customer Engagement revenue increased approximately $34.2 million, or 5%,from $705.9 million in the year ended January 31, 2017 to $740.1 million in the year ended January 31, 2018. The increase consisted of a $31.1 millionincrease in service and support revenue and a $3.1 million increase in product revenue. The increase in service and support revenue was primarily attributableto growth in sales of our cloud-based solutions during the year ended January 31, 2018. The increase in product revenue primarily reflects a modest increasein product deliveries during the year ended January 31, 2018. During the year ended January 31, 2018, we continued to experience a shift in our revenue mixfrom product revenue to service and support revenue as a result of several factors, including a higher component of service offerings in our standardarrangements (including licenses sold through cloud deployment), an increase in services associated with customer product upgrades, and growth in ourcustomer installed base, both organically and as a result of business combinations.Cyber Intelligence Segment Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Cyber Intelligence revenue increased approximately $38.3 million, or 10%, from$395.2 million in the year ended January 31, 2018 to $433.5 million in the year ended January 31, 2019. The increase consisted of a $20.8 million increasein service and support revenue and an $17.5 million increase in product revenue. The increase in service and support revenue was primarily attributable to anincrease in support revenue from existing customers and an increase in revenue from our SaaS offerings, partially offset by a decrease in progress realizedduring the current year on long-term projects for which revenue is recognized over time using the percentage of completion (“POC”) method. The increase inproduct revenue was primarily due to the adoption of ASU No. 2014-09 which resulted in differences in the timing and amount of revenue recognition forsoftware licenses and a long-term customization project that was accepted by the customer during the year ended January 31, 2019, which had beenpreviously recognized under prior revenue recognition accounting standards and an increase in product deliveries, including software licenses recognizedover time, partially offset by a decrease in progress realized during the current period on long-term projects with revenue recognized over time using the POCmethod. Excluding the impact of ASU No. 2014-09, Cyber Intelligence revenue increased approximately41Table of Contents$20.5 million, or 5%, from $395.2 million in the year ended January 31, 2018 to $415.7 million in the year ended January 31, 2019. The increase consistedof a $20.8 million increase in service and support revenue, partially offset by a $0.3 million decrease in product revenue. As noted at the top of this section,as a result of the adoption of ASU No. 2014-09, we made certain changes to our Cyber Intelligence software licensing offerings that would have otherwise notoccurred under the prior revenue recognition guidance and we believe that absent these changes, revenue under the prior accounting guidance would havebeen closer to the revenue we are reporting under the new accounting guidance.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Cyber Intelligence revenue increased approximately $39.0 million, or 11%, from$356.2 million in the year ended January 31, 2017 to $395.2 million in the year ended January 31, 2018. The increase consisted of a $20.9 million increasein service and support revenue and an $18.1 million increase in product revenue. The increase in service and support revenue was primarily attributable to anincrease in progress realized during the year on projects with revenue recognized using the POC method, some of which commenced in previous years, anincrease in support services revenue from new and existing customers, and an increase in revenue from our SaaS offerings. The increase in product revenuewas primarily due to an increase in product deliveries and, to a lesser extent, an increase in progress realized during the year on projects with revenuerecognized using the POC method, some of which commenced in previous years.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 thevariety of customized configurations for each product we sell, we are unable to quantify the amount of any revenue increase attributable to a change in theprice 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 (whichinclude software that works together with the hardware to deliver the product’s essential functionality), and (b) service and support revenue, includingrevenue from installation services, post-contract customer support, project management, hosting services, cloud deployments, SaaS, 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, 2019, 2018, and 2017: Year Ended January 31, % Change(in thousands) 2019 2018 2017 2019 - 2018 2018 - 2017Product revenue $454,650 $399,662 $378,504 14% 6%Service and support revenue 775,097 735,567 683,602 5% 8%Total revenue $1,229,747 $1,135,229 $1,062,106 8% 7% Product Revenue Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Product revenue increased approximately $55.0 million, or 14%, from $399.7million for the year ended January 31, 2018 to $454.7 million for the year ended January 31, 2019, resulting from a $37.5 million increase in our CustomerEngagement segment and a $17.5 million increase in our Cyber Intelligence segment.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Product revenue increased approximately $21.2 million, or 6%, from $378.5million for the year ended January 31, 2017 to $399.7 million for the year ended January 31, 2018, resulting from an $18.1 million increase in our CyberIntelligence segment and a $3.1 million increase in our Customer Engagement segment.For additional information see “—Revenue by Operating Segment”. Service and Support Revenue 42Table of ContentsYear Ended January 31, 2019 compared to Year Ended January 31, 2018. Service and support revenue increased approximately $39.5 million, or 5%, from$735.6 million for the year ended January 31, 2018 to $775.1 million for the year ended January 31, 2019, resulting from a $20.8 million increase in ourCyber Intelligence segment and an $18.7 million increase in our Customer Engagement segment.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Service and support revenue increased approximately $52.0 million, or 8%, from$683.6 million for the year ended January 31, 2017 to $735.6 million for the year ended January 31, 2018, resulting from a $31.1 million increase in ourCustomer Engagement segment and a $20.9 million increase in our Cyber Intelligence segment.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 for the years endedJanuary 31, 2019, 2018, and 2017: Year Ended January 31, % Change(in thousands) 2019 2018 2017 2019 - 2018 2018 - 2017Cost of product revenue $129,922 $131,989 $123,279 (2)% 7%Cost of service and support revenue 293,888 276,582 261,978 6% 6%Amortization of acquired technology 25,403 38,216 37,372 (34)% 2%Total cost of revenue $449,213 $446,787 $422,629 1% 6% We exclude certain costs of both product revenue and service and support revenue, including shared support costs, stock-based compensation, and assetimpairment 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 oursoftware solutions. Cost of product revenue also includes amortization of capitalized software development costs, employee compensation and relatedexpenses associated with our global operations, facility costs, and other allocated overhead expenses. In our Cyber Intelligence segment, cost of productrevenue also includes employee compensation and related expenses, contractor and consulting expenses, and travel expenses, in each case for resourcesdedicated to project management and associated product delivery.As with many other technology companies, our software products tend to have higher gross margins than our hardware products, so the mix of products wesell in a particular period can have a significant impact on our gross margins in that period. Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Cost of product revenue decreased approximately $2.1 million, or 2%, from$132.0 million for the year ended January 31, 2018 to $129.9 million for the year ended January 31, 2019, primarily due to a decrease in third-party hardwarecosts and travel expenses related to on-site deliveries in our Cyber Intelligence segment. Our overall product gross margins increased from 67% in the yearended January 31, 2018 to 71% in the year ended January 31, 2019. Product gross margins in our Customer Engagement segment increased from 81% in theyear ended January 31, 2018 to 84% in the year ended January 31, 2019 primarily due to a change in product mix. Product gross margins in our CyberIntelligence segment increased from 57% in the year ended January 31, 2018 to 61% in the year ended January 31, 2019 primarily due to a decrease in third-party hardware costs as a result of a change in product mix and the implementation of a hardware cost reduction initiative for certain products. This decreasein third-party hardware costs was partially offset by the adoption of ASU No. 2014-09, which impacted product gross margins primarily due to a change in thetiming of cost of product revenue recognition for certain customer contracts requiring significant customization, because unlike prior guidance, the newguidance precludes the deferral of costs simply to obtain an even profit margin over the contract term. Excluding the impact of the adoption of ASU No.2014-09, our overall product gross margins increased to 70% in the year ended January 31, 2019 from 67% in the year ended January 31, 2018.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Cost of product revenue increased approximately $8.7 million, or 7%, from $123.3million for the year ended January 31, 2017 to $132.0 million for the year ended January 31, 2018, primarily due to increased contractor expenses and, to alesser extent, an increase in material costs in our Cyber Intelligence segment, driven primarily by increased revenue activity as discussed above. Our overallproduct gross margins43Table of Contentswere 67% in each of the years ended January 31, 2018 and 2017. Product gross margins in our Customer Engagement segment decreased slightly from 82%in the year ended January 31, 2017 to 81% in the year ended January 31, 2018 primarily due to a change in product mix. Product gross margins in our CyberIntelligence segment were 57% in each of the years ended January 31, 2018 and 2017. 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, andtravel expenses relating to installation, training, consulting, and maintenance services. Cost of service and support revenue also includes stock-basedcompensation expenses, facility costs, and other overhead expenses. In accordance with GAAP and our accounting policy, the cost of service and supportrevenue is generally expensed as incurred in the period in which the services are performed. Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Cost of service and support revenue increased approximately $17.3 million, or6%, from $276.6 million in the year ended January 31, 2018 to $293.9 million in the year ended January 31, 2019. The increase was primarily due toincreased employee compensation and related expenses in both our Customer Engagement and Cyber Intelligence segments as a result of additional servicesemployee headcount to support the delivery of our services and support revenue, and an increase in costs associated with providing our cloud-basedsolutions, which corresponds with growth in cloud-based revenue. Our overall service and support gross margins were 62% in each of the years endedJanuary 31, 2019 and 2018. Cost of service and support revenue under the prior revenue recognition guidance did not differ materially from cost of serviceand support revenue under ASU No. 2014-09 in the year ended January 31, 2019.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Cost of service and support revenue increased approximately $14.6 million, or6%, from $262.0 million in the year ended January 31, 2017 to $276.6 million in the year ended January 31, 2018. Cost of service and support revenueincreased in our Customer Engagement segment primarily due to costs associated with providing our cloud-based solutions, which corresponds with growthin cloud-based revenue, and an increase in costs attributable to the use of contractors during the year ended January 31, 2018. Cost of service and supportrevenue increased in our Cyber Intelligence segment primarily due to costs associated with increased use of contractors as a result of increased revenueactivity as discussed above. Our overall service and support gross margins were 62% in each of the years ended January 31, 2018 and 2017.Amortization of Acquired Technology Amortization of acquired technology consists of amortization of technology assets acquired in connection with business combinations.Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Amortization of acquired technology decreased approximately $12.8 million, or34%, from $38.2 million in the year ended January 31, 2018 to $25.4 million in the year ended January 31, 2019. The decrease was attributable to acquiredtechnology intangible assets from historical business combinations becoming fully amortized during the year ended January 31, 2019, partially offset byamortization expense of acquired technology-based intangible assets associated with recent business combinations.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Amortization of acquired technology increased approximately $0.8 million, or2%, from $37.4 million in the year ended January 31, 2017 to $38.2 million in the year ended January 31, 2018. The increase was attributable to amortizationexpense of acquired technology-based intangible assets associated with business combinations that closed during the year ended January 31, 2018, as well asbusiness combinations that closed during the year ended January 31, 2017 for which a full year of amortization expense is reflected in the year ended January31, 2018. This increase was partially offset by a decrease in amortization expense as a result of acquired technology intangible assets from historical businesscombinations becoming fully amortized during the year ended January 31, 2018.Further discussion regarding our business combinations appears in Note 5, “Business Combinations” to our consolidated financial statements included underItem 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 certainsoftware development costs that are capitalized, as well as reimbursements under government programs. Software development costs are capitalized upon theestablishment of technological feasibility and continue to be capitalized through the general release of the related software product.44Table of Contents The following table sets forth research and development, net for the years ended January 31, 2019, 2018, and 2017: Year Ended January 31, % Change(in thousands) 2019 2018 2017 2019 - 2018 2018 - 2017Research and development, net $209,106 $190,643 $171,070 10% 11% Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Research and development, net increased approximately $18.5 million, or 10%,from $190.6 million in the year ended January 31, 2018 to $209.1 million in the year ended January 31, 2019. The increase was primarily due to a $14.0million increase in employee compensation and related expenses and a $4.1 million increase in allocated overhead costs as a result of increased R&Dheadcount, and a $5.7 million increase in contractor expenses primarily in our Cyber Intelligence segment, partially offset by a $3.3 million decrease instock-based compensation expenses as a result of a change in bonus payment structure, a $1.7 million decrease in capitalized software development costs,and a $0.5 million decrease in R&D reimbursements received from government programs in the year ended January 31, 2019 compared to the year endedJanuary 31, 2018.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Research and development, net increased approximately $19.5 million, or 11%,from $171.1 million in the year ended January 31, 2017 to $190.6 million in the year ended January 31, 2018. The increase was primarily due to a $12.7million increase in employee compensation and related expenses as a result of increased R&D headcount, a $3.6 million increase in contractor expensesprimarily in our Cyber Intelligence segment, and a $1.5 million increase in stock-based compensation expenses for R&D employees.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 costs, 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, 2019, 2018, and 2017: Year Ended January 31, % Change(in thousands) 2019 2018 2017 2019 - 2018 2018 - 2017Selling, general and administrative $426,183 $414,960 $406,952 3% 2% Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Selling, general and administrative expenses increased approximately $11.2million, or 3%, from $415.0 million in the year ended January 31, 2018 to $426.2 million in the year ended January 31, 2019. This increase was primarilyattributable to a $10.6 million increase in employee compensation expenses due to increased headcount as a result of recent business combinations, a $3.3million increase in stock-based compensation expense as a result of a change in bonus payment structure, a $2.9 million increase in travel related expensesdue primarily to increased travel expenses in our Customer Engagement segment, and a $1.9 million increase in depreciation expense on fixed assets used forgeneral administration purposes. Additionally, selling, general and administrative expenses increased by $4.7 million due to the change in the fair value ofour obligations under contingent consideration arrangements, from a net benefit of $8.3 million in the year ended January 31, 2018 to a net benefit of $3.6million during the year ended January 31, 2019, as the result of revised outlooks for several unrelated arrangements. These increases were partially offset by a$6.8 million decrease in allocated overhead costs, a $3.4 million decrease in facility expenses primarily due to the early termination of a facility lease in theEMEA region during the prior year, and a $2.7 million decrease in contractor expenses primarily due to the substantial completion of certain business agilityinitiatives in the prior year.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Selling, general and administrative expenses increased approximately $8.0million, or 2%, from $407.0 million in the year ended January 31, 2017 to $415.0 million in the year ended January 31, 2018. This increase was primarilyattributable to the following:•$8.5 million increase in employee compensation and related expenses attributed primarily to additional personnel driven by business combinations;•$5.0 million increase in professional fees resulting primarily from legal services provided in connection with business combinations;45Table of Contents•$4.7 million increase in contractor expenses due primarily to business agility initiatives, including upgrading our business information systems;•$3.3 million charge for impairments of certain acquired customer-related intangible assets in our Customer Engagement segment;•$2.4 increase in stock-based compensation expense due primarily to business combinations that closed during the year ended January 31, 2018, as wellas business combinations that closed during the year ended January 31, 2017 for which a full year of stock-based compensation expense is reflected inthe year ended January 31, 2018;•$2.0 million increase in software subscription expenses related to internal-use software; and•$1.8 million increase in rent expense associated with business combinations that closed during the year ended January 31, 2018, as well as businesscombinations that closed during the year ended January 31, 2017 for which a full year of rent expense is reflected in the year ended January 31, 2018.These increases were partially offset by a $15.6 million decrease in selling, general, and administrative expenses resulting from changes in fair value of ourobligations under contingent consideration arrangements from a net expense of $7.3 million during the year ended January 31, 2017 to net benefit of $8.3million in the year ended January 31, 2018. The impact of contingent consideration arrangements on our operating results can vary over time as we revise ouroutlook for achieving the performance targets underlying the arrangements. This impact on our operating results may be more significant in some periodsthan in others, depending on a number of factors, including the magnitude of the change in the outlook for each arrangement separately as well as the numberof contingent consideration arrangements in place, the liabilities requiring adjustment in that period, and the net effect of those adjustments. Additionally,selling, general, and administrative expenses decreased by $4.6 million as a result of increased capitalization of costs associated with development ofinternal-use software during the year ended January 31, 2018 compared to the prior year.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, 2019, 2018, and 2017: Year Ended January 31, % Change(in thousands) 2019 2018 2017 2019 - 2018 2018 - 2017Amortization of other acquired intangible assets $31,010 $34,209 $44,089 (9)% (22)% Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Amortization of other acquired intangible assets decreased approximately $3.2million, or 9%, from $34.2 million in the year ended January 31, 2018 to $31.0 million in the year ended January 31, 2019 as a result of acquired customer-related intangible assets from historical business combinations becoming fully amortized, partially offset by an increase in amortization expense fromacquired intangible assets from business combinations that closed during the year ended January 31, 2019, as well as business combinations that closedduring the prior year, for which a full year of amortization expense is reflected in the current year.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Amortization of other acquired intangible assets decreased approximately $9.9million, or 22%, from $44.1 million in the year ended January 31, 2017 to $34.2 million in the year ended January 31, 2018 as a result of acquired customer-related intangible assets from historical business combinations becoming fully amortized, partially offset by an increase in amortization expense fromacquired intangible assets from business combinations that closed during the year ended January 31, 2018, as well as business combinations that closedduring the prior year, for which a full year of amortization expense is reflected in the year ended January 31, 2018.Further discussion regarding our business combinations appears in Note 5, “Business Combinations” to our consolidated financial statements included underItem 8 of this report. Other Expense, Net The following table sets forth total other expense, net for the years ended January 31, 2019, 2018, and 2017:46Table of Contents Year Ended January 31, % Change(in thousands) 2019 2018 2017 2019 - 2018 2018 - 2017Interest income $4,777 $2,477 $1,048 93% 136%Interest expense (37,344) (35,959) (34,962) 4%3%Losses on early retirements of debt — (2,150) — —%*Other (expense) income: Foreign currency (losses) gains (5,519) 6,760 (2,743) (182)%(346)%Gains (losses) on derivatives 2,511 (17) (322) **Other, net (898) (841) (3,861) 7%*Total other (expense) income, net (3,906) 5,902 (6,926) (166)%(185)%Total other expense, net $(36,473) $(29,730) $(40,840) 23%(27)% * Percentage is not meaningful. Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Total other expense, net, increased by $6.8 million from $29.7 million in the yearended January 31, 2018 to $36.5 million in the year ended January 31, 2019. Interest expense increased to $37.3 million in the year ended January 31, 2019 from $36.0 million in the year ended January 31, 2018 primarily due to higherinterest rates on outstanding borrowings during the year ended January 31, 2019, partially offset by a $1.0 million reversal of accrued interest related to alegal matter which was settled in the year ended January 31, 2019.During the year ended January 31, 2018, we entered into a new credit agreement (the “2017 Credit Agreement”), which was subsequently amended, andterminated our Prior Credit Agreement (as defined in Note 7, “Long-Term Debt” to our consolidated financial statements included under Item 8 of this report).In connection with these transactions, we recorded $2.2 million of losses on early retirements of debt. There were no comparable charges in the year endedJanuary 31, 2019.We recorded $5.5 million of net foreign currency losses in the year ended January 31, 2019 compared to $6.8 million of net foreign currency gains in the yearended January 31, 2018. Foreign currency losses in the year ended January 31, 2019 resulted primarily from the strengthening of the U.S. dollar against theeuro from January 31, 2018 to January 31, 2019, resulting in foreign currency losses on euro denominated net assets in certain entities which use a U.S. dollarfunctional currency and foreign currency losses on U.S. dollar-denominated net liabilities in certain entities which use a euro functional currency, thestrengthening of the U.S. dollar against the Singapore dollar, resulting in foreign currency losses on Singapore dollar-denominated net assets in certainentities which use a U.S. dollar functional currency, the strengthening of the U.S. dollar against the British pound sterling, resulting in foreign currency losseson U.S. dollar-denominated net liabilities in certain entities which use a British pound sterling functional currency, and the strengthening of the U.S. dollaragainst the Australian dollar, resulting in foreign currency losses on U.S. dollar-denominated net liabilities in certain entities which use an Australian dollarfunctional currency. In the year ended January 31, 2019, there were net gains on derivative financial instruments (not designated as hedging instruments) of $2.5 million,compared to insignificant net losses on such instruments for the year ended January 31, 2018. The net gains in the current period primarily reflected gains onan interest rate swap and contracts executed to hedge movements in the exchange rate between the U.S. dollar and the Singapore dollar.Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Total other expense, net, decreased by $11.1 million from $40.8 million in theyear ended January 31, 2017 to $29.7 million in the year ended January 31, 2018. Interest expense increased to $36.0 million in the year ended January 31, 2018 from $35.0 million in the year ended January 31, 2017 primarily due to higherinterest rates on outstanding borrowings during the year ended January 31, 2018.During the year ended January 31, 2018 we entered into the 2017 Credit Agreement with certain lenders and terminated our Prior Credit Agreement. Inconnection with these transactions, we recorded a $2.2 million loss on early retirement of debt. There were no comparable charges in the year ended January31, 2017.We recorded $6.8 million of net foreign currency gains in the year ended January 31, 2018 compared to $2.7 million of net losses in the year endedJanuary 31, 2017. Foreign currency gains in the year ended January 31, 2018 resulted primarily from the weakening of the U.S. dollar against the euro,resulting in foreign currency gains on euro denominated net assets in certain entities which use a U.S. dollar functional currency, the weakening of the U.S.dollar against the Singapore dollar, resulting in47Table of Contentsforeign currency gains on Singapore dollar-denominated net assets in certain entities which use a U.S. dollar functional currency, and the weakening of theU.S. dollar against the British pound sterling, resulting in foreign currency gains on U.S. dollar-denominated net liabilities in certain entities which use aBritish pound sterling functional currency. In the year ended January 31, 2018, there were insignificant net losses on derivative financial instruments (not designated as hedging instruments), comparedto net losses of $0.3 million on such instruments for the year ended January 31, 2017. The net losses in the prior year reflected losses on contracts executed tohedge movements in the exchange rate between the U.S. dollar and the Brazilian real.Other net expenses decreased to $0.8 million in the year ended January 31, 2018 from $3.9 million in the year ended January 31, 2017. In the year endedJanuary 31, 2017, we recorded a write-off of a $2.4 million cost-basis investment in our Cyber Intelligence segment, with no comparable charges in the yearended January 31, 2018. Also contributing to the decrease in other net expenses was resolution of a previously accrued sales tax contingency in our APACregion during the year ended January 31, 2018.Provision for Income Taxes The following table sets forth our provision for income taxes for the years ended January 31, 2019, 2018, and 2017: Year Ended January 31,(in thousands) 2019 2018 2017Provision for income taxes $7,542 $22,354 $2,772 Year Ended January 31, 2019 compared to Year Ended January 31, 2018. Our effective income tax rate was 9.7% for the year ended January 31, 2019,compared to an effective income tax rate of 118.3% for the year ended January 31, 2018. For the year ended January 31, 2019, our effective income tax ratewas lower than the U.S. federal statutory income tax rate of 21.0% due to a net reduction in valuation allowances of $24.1 million, the mix and levels ofincome and losses among taxing jurisdictions, and changes in unrecognized income tax benefits. The net reduction in valuation allowance is primarilyrelated to reductions in U.S. valuation allowances as a result of deferred tax liabilities recorded in connection with business combinations, and the utilizationof significant NOLs, which reduced our deferred tax assets. As a result, we ended the year in a net federal deferred tax liability position in the U.S. Thedeferred income tax liabilities recorded in connection with business combinations were primarily attributable to acquired intangible assets to the extent theamortization will not be deductible for income tax purposes. Under accounting guidelines, because the amortization of the intangible assets in future periodsprovides a source of taxable income, we expect to realize a portion of our existing deferred income tax assets. As such, we reduced the valuation allowancerecorded on our deferred income tax assets to the extent of the deferred income tax liabilities recorded. Because the valuation allowance related to existingVerint deferred income tax assets, the impact of the release was reflected as a discrete income tax benefit and not as a component of the business combinationaccounting.In accordance with the provisions of SAB No. 118, as of January 31, 2018 we considered amounts related to the 2017 Tax Act to be reasonably estimated.During the year ended January 31, 2019, we refined and completed the accounting for the 2017 Tax Act as we obtained, prepared, and analyzed additionalinformation and as additional legislative, regulatory, and accounting guidance and interpretations became available, resulting in no adjustment under SABNo. 118.For the year ended January 31, 2018, our effective income tax rate was higher than the U.S. federal statutory income tax rate of 33.8% due to withholding taxexpense of $15.0 million, a benefit of $5.4 million related to the revaluation of U.S. deferred tax items resulting from the 2017 Tax Act, the mix and levels ofincome and losses among taxing jurisdictions, and changes in unrecognized income tax benefits. Our statutory rate for the year ended January 31, 2018 was33.8% due to the 2017 Tax Act, which included a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%. Section 15 of theInternal Revenue Code stipulates that our fiscal year ending January 31, 2018 had a blended corporate tax rate of 33.8% which is based on the applicable taxrates before and after the 2017 Tax Act and the number of days in the period. As a result of the 2017 Tax Act, we recorded a Transition Tax on previouslyuntaxed foreign earnings. The Transition tax resulted in no impact to the tax provision as we used a portion of the NOL carryforward and released valuationallowances on the associated deferred tax assets resulting in a net impact of $0 to the tax provision. Foreign earnings subject to the Transition Tax will not besubject to further U.S. taxation upon repatriation. Therefore, we may repatriate certain foreign cash, a portion of which will be subject to a withholding tax. Assuch, withholding tax of $15 million was recorded. Also, we remeasured U.S. deferred tax items to reflect the reduced rate under the 2017 Tax Act resulting inthe $5.4 million benefit. 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 greater than the pre-tax losses in our domestic and foreign jurisdictions where we maintained valuation allowances anddid not record the related income tax benefits. The result was an income tax provision of $22.4 million on a pre-tax income of48Table of Contents$18.9 million, which represented an effective income tax rate of 118.3%. Excluding the net impact of the 2017 Tax Act, the result was an income taxprovision of $12.7 million on pre-tax income of $18.9 million, resulting in an effective income tax rate of 67.3%Year Ended January 31, 2018 compared to Year Ended January 31, 2017. Our effective income tax rate was 118.3% for the year ended January 31, 2018,compared to a negative effective income tax rate of 11.8% for the year ended January 31, 2017. For the year ended January 31, 2018, our effective income taxrate was higher than the U.S. federal statutory income tax rate of 33.8% due to withholding tax expenses of $15 million, a benefit of $5.4 million related tothe revaluation of U.S. deferred tax items, the mix and levels of income and losses among taxing jurisdictions, and changes in unrecognized income taxbenefits. Our statutory rate for the year ended January 31, 2018 is 33.8% due to the 2017 Tax Act as discussed above.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% due to the release of $10.4million of valuation allowances, and the mix and levels of income and losses among taxing jurisdictions, offset by changes in unrecognized income taxbenefits. We maintain valuation allowances on our net U.S. deferred income tax assets related to federal and certain state jurisdictions. In connection withbusiness combinations during the year ended January 31, 2017, we recorded deferred income tax liabilities primarily attributable to acquired intangibleassets to the extent the amortization will not be deductible for income tax purposes. Pre-tax income in our profitable jurisdictions, where we recorded incometax 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 wherewe 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 lossof $23.5 million, which represented a negative effective income tax rate of 11.8%.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 periodicallycollected 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 andbenefits, as well as general operating expenses for marketing, facilities and overhead costs, and capital expenditures. We also utilize cash for debt service andperiodically for business acquisitions. Cash generated from operations, along with our existing cash, cash equivalents, and short-term investments, are ourprimary sources of operating liquidity, and we believe that our operating liquidity is sufficient to support our current business operations, including debtservice and capital expenditure requirements.On June 29, 2017, we entered into the 2017 Credit Agreement with certain lenders, and terminated our Prior Credit Agreement. The 2017 Credit Agreementwas amended on January 31, 2018 (the “2018 Amendment”). Further discussion of our 2017 Credit Agreement and 2018 Amendment appears below, under“Financing Arrangements”.We have historically expanded our business in part by investing in strategic growth initiatives, including acquisitions of products, technologies, andbusinesses. We may finance such acquisitions using cash, debt, stock, or a combination of the foregoing, however, we have used cash as consideration forsubstantially all of our historical business acquisitions, including approximately $90 million and $103 million of net cash expended for businessacquisitions during the years ended January 31, 2019 and 2018, respectively.We continually examine our options with respect to terms and sources of existing and future short-term and long-term capital resources to enhance ouroperating results and to ensure that we retain financial flexibility, and may from time to time elect to raise capital through the issuance of additional equity orthe incurrence of additional debt.A considerable portion of our operating income is earned outside the United States. Cash, cash equivalents, short-term investments, and restricted cash, cashequivalents, and bank time deposits (excluding any long-term portions) held by our subsidiaries outside of the United States were $399.4 million and $346.2million as of January 31, 2019 and 2018, respectively, and are generally used to fund the subsidiaries’ operating requirements and to invest in growthinitiatives, including business acquisitions. These subsidiaries also held long-term restricted cash and cash equivalents, and restricted bank time deposits of$23.1 million and $28.4 million at January 31, 2019 and 2018, respectively.49Table of ContentsWe currently intend to continue to indefinitely reinvest a portion of the earnings of our foreign subsidiaries, which, as a result of the 2017 Tax Act, may nowbe repatriated without incurring additional U.S. federal income taxes. Should other circumstances arise whereby we require more capital in the United States than is generated by our domestic operations, or should we otherwiseconsider it in our best interests, we could repatriate future earnings from foreign jurisdictions, which could result in higher effective tax rates. As noted above,we currently intend to indefinitely reinvest a portion of the earnings of our foreign subsidiaries to finance foreign activities. Except to the extent of the U.S.tax provided on earnings of our foreign subsidiaries as of January 31, 2019, and withholding taxes of $15.0 million accrued as of January 31, 2019, withrespect to certain identified cash that may be repatriated to the U.S., we have not provided tax on the outside basis difference of foreign subsidiaries nor havewe provided for any additional withholding or other tax that may be applicable should a future distribution be made from any unremitted earnings of foreignsubsidiaries. 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 thetotal amount of income and withholding taxes that would have to be provided on such earnings.The following table summarizes our total cash and cash equivalents, restricted cash and cash equivalents, restricted bank time deposits, and short-terminvestments, as well as our total debt, as of January 31, 2019 and 2018: January 31,(in thousands) 2019 2018Cash and cash equivalents $369,975 $337,942Restricted cash and cash equivalents, and restricted bank time deposits (excluding long term portions) 42,262 33,303Short-term investments 32,329 6,566Total cash, cash equivalents, restricted cash and cash equivalents, restricted bank time deposits, and short-terminvestments $444,566 $377,811Total debt, including current portions $782,128 $772,984 Consolidated Cash Flow Activity The following table summarizes selected items from our consolidated statements of cash flows for the years ended January 31, 2019, 2018, and 2017: Year Ended January 31,(in thousands) 2019 2018 2017Net cash provided by operating activities $215,251 $176,327 $172,415Net cash used in investing activities (175,723) (146,194) (116,442)Net cash used in financing activities (21,881) (5,503) (56,919)Effect of foreign currency exchange rate changes on cash and cash equivalents (3,158) 4,251 (4,167)Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cashequivalents $14,489 $28,881 $(5,113)Our operating activities generated $215.3 million of cash during the year ended January 31, 2019, which was partially offset by $197.6 million of net cashused 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 $215.3 million of net cash during the year ended January 31, 2019, compared to $176.3 million generated during the yearended January 31, 2018. Our improved operating cash flow in the current year was primarily due to higher operating income, partially offset by the net effectof changes in operating assets and liabilities and the net effect of non-cash items, as compared to the prior year.Operating activities generated $176.3 million of net cash during the year ended January 31, 2018, compared to $172.4 million generated during the yearended January 31, 2017. Our improved operating cash flow in the year ended January 31, 2018 reflected, in part, $3.6 million of lower combined interest andnet income tax payments, compared to the prior year.50Table of ContentsOur cash flow from operating activities can fluctuate from period to period due to several factors, including the timing of our billings and collections, thetiming and amounts of interest, income tax and other payments, and our operating results.Net Cash Used in Investing ActivitiesDuring the year ended January 31, 2019, our investing activities used $175.7 million of net cash, including $90.0 million of net cash utilized for businessacquisitions, $39.0 million of payments for property, equipment, and capitalized software development costs, $25.9 million of net purchases of short-terminvestments, and a $21.3 million increase in restricted bank time deposits during the period. Restricted bank time deposits are typically short-term depositsused to secure bank guarantees in connection with sales contracts, the amounts of which will fluctuate from period to period. The cash used by theseinvesting activities was partially offset by proceeds from settlements of our derivative financial instruments not designated as hedges. During the year ended January 31, 2018, our investing activities used $146.2 million of net cash, including $103.0 million of net cash utilized for businessacquisitions, $38.7 million of payments for property, equipment, and capitalized software development costs, $3.2 million of net purchases of short-terminvestments, and $1.7 million of net cash used by other investing activities.During the year ended January 31, 2017, our investing activities used $116.4 million of net cash, including $141.8 million of net cash utilized for businessacquisitions, and $29.9 million of payments for property, equipment, and capitalized software development costs. Partially offsetting those uses were $52.6million of net proceeds from sales, maturities, and purchases of short-term investments and a $3.0 million decrease in restricted bank time deposits during theperiod associated with several large sales contracts.We had no significant commitments for capital expenditures at January 31, 2019. Net Cash Used in Financing Activities For the year ended January 31, 2019, our financing activities used $21.9 million of net cash, the most significant portions of which were $10.7 million for thefinancing portion of payments under contingent consideration arrangements related to prior business combinations, $6.0 million for repayments ofborrowings and other financing obligations, dividend payments of $4.4 million to the noncontrolling interest holders in our joint venture, which serves as asystems integrator for certain Asian markets, and $0.2 million paid for costs related to the 2017 Credit Agreement.For the year ended January 31, 2018, our financing activities used $5.5 million of net cash. Under the 2017 Credit Agreement, we received net proceeds of$424.5 million from the 2017 Term Loan, the majority of which was used to repay all $406.9 million that remained outstanding under the 2014 Term Loans(both the 2017 Term Loan and the 2014 Term Loans are as defined in Note 7, “Long-Term Debt” to our consolidated financial statements included underItem 8 of this report) at June 29, 2017 upon termination of the Prior Credit Agreement. In addition, under the 2018 Amendment, $19.9 million of the 2017Term Loan was considered extinguished and replaced by new loans. We also used $5.1 million for repayments of borrowings and other financing obligationsduring the year. Other financing activities during the year included payments of $7.5 million for the financing portion of payments under contingentconsideration arrangements related to prior business combinations, $7.1 million paid for debt issuance costs related to the 2017 Credit Agreement, anddividend payments of $3.3 million to the noncontrolling interest holders in our joint venture.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 $46.9million for stock repurchases under our share repurchase program, $3.3 million for repayments of borrowings and other financing obligations, $3.2 million forthe financing portion of payments under contingent consideration arrangements related to prior business combinations, and dividend payments of $2.4million to the noncontrolling interest holders in our joint venture. 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 operationswill be sufficient to meet anticipated operating costs, required payments of principal and interest, working capital needs, ordinary course capitalexpenditures, research and development spending, and other commitments for at least the next 12 months. Currently, we have no plans to pay any cashdividends on our common stock, which are not permitted under our 2017 Credit Agreement.51Table of ContentsOur liquidity could be negatively impacted by a decrease in demand for our products and service and support, including the impact of changes in customerbuying behavior due to circumstances over which we have no control. If we determine to make additional business acquisitions or otherwise requireadditional funds, we may need to raise additional capital, which could involve the issuance of additional equity or debt securities or increase our borrowingsunder our credit facility.On March 29, 2016, we announced that our board of directors had authorized a common stock repurchase program of up to $150 million over two yearsfollowing the date of announcement. This program expired on March 29, 2018. We made a total of $46.9 million in repurchases and we did not acquire anyshares of treasury stock during the year ended January 31, 2019 under the program.Financing Arrangements1.50% Convertible Senior NotesOn 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 bythe holders pursuant to their terms. Net proceeds from the Notes after underwriting discounts were $391.9 million. The Notes pay interest in cashsemiannually 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 wereused to partially repay certain indebtedness under the Prior Credit Agreement.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 inright of payment to our indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to theextent 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 andduring 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 ofapproximately $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. Theconversion rate has not changed since issuance of the Notes, although throughout the term of the Notes, the conversion rate may be adjusted upon theoccurrence 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 commonstock, 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 theimmediately 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 eachsuch 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 bindingshare 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 surrendertheir Notes for conversion regardless of whether any of the foregoing conditions have been satisfied. Holders of the Notes may require us to purchase for cashall 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 beingpurchased, plus accrued and unpaid interest.As of January 31, 2019, the Notes were not convertible.Note Hedges and Warrants52Table of ContentsConcurrently with the issuance of the Notes, we entered into convertible note hedge transactions (the “Note Hedges”) and sold warrants (the “Warrants”). Thecombination 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 Hedgesand Warrants are each separate instruments from the Notes.Note HedgesPursuant to the Note Hedges, we purchased call options on our common stock, under which we have the right to acquire from the counterparties up toapproximately 6,205,000 shares of our common stock, subject to customary anti-dilution adjustments, at a price of $64.46, which equals the initialconversion price of the Notes. Our exercise rights under the Note Hedges generally trigger upon conversion of the Notes and the Note Hedges terminate uponmaturity 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 acombination 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 theNote Hedges, which was recorded as a reduction to additional paid-in capital. As of January 31, 2019, we had not purchased any shares of our common stockunder the Note Hedges.WarrantsWe sold the Warrants to several counterparties. The Warrants provide the counterparties rights to acquire from us up to approximately 6,205,000 shares of ourcommon 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, ifthe 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 avalue 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 stockexceeds 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 ofJanuary 31, 2019, no Warrants had been exercised and all Warrants remained outstanding.Credit Agreements On June 29, 2017, we entered into the 2017 Credit Agreement with certain lenders, and terminated the Prior Credit Agreement.The 2017 Credit Agreement provides for $725.0 million of senior secured credit facilities, comprised of a $425.0 million term loan maturing on June 29,2024 (the “2017 Term Loan”) and a $300.0 million revolving credit facility maturing on June 29, 2022 (the “2017 Revolving Credit Facility”), subject toincrease and reduction from time to time according to the terms of the 2017 Credit Agreement. The majority of the proceeds from the 2017 Term Loan wereused to repay all $406.9 million that remained outstanding under the 2014 Term Loans at June 29, 2017 upon termination of the Prior Credit Agreement.There were no borrowings under our Prior Revolving Credit Facility (as defined in Note 7, “Long-Term Debt” to our consolidated financial statementsincluded under Item 8 of this report) at June 29, 2017.The maturity dates of the 2017 Term Loan and 2017 Revolving Credit Facility will be accelerated to March 1, 2021, if on such date any Notes remainoutstanding.The 2017 Term Loan was subject to an original issuance discount of approximately $0.5 million. This discount is being amortized as interest expense overthe term of the 2017 Term Loan using the effective interest method.Interest rates on loans under the 2017 Credit Agreement are periodically reset, at our option, at either a Eurodollar Rate or an ABR rate (each as defined in the2017 Credit Agreement), plus in each case a margin.We are required to pay a commitment fee with respect to unused availability under the 2017 Revolving Credit Facility at a rate per annum determined byreference to our Consolidated Total Debt to Consolidated EBITDA (each as defined in the 2017 Credit Agreement) leverage ratio (the “Leverage Ratio”).The 2017 Term Loan requires quarterly principal payments of approximately $1.1 million, which commenced on August 1, 2017, with the remaining balancedue on June 29, 2024. Optional prepayments of loans under the 2017 Credit Agreement are generally permitted without premium or penalty.On January 31, 2018, we entered into the 2018 Amendment to our 2017 Credit Agreement, providing for, among other things, a reduction of the interest ratemargins on the 2017 Term Loan from 2.25% to 2.00% for Eurodollar loans, and from 1.25% to 1.00% for ABR loans. The vast majority of the impact of the2018 Amendment was accounted for as a debt modification. For53Table of Contentsthe portion of the 2017 Term Loan which was considered extinguished and replaced by new loans, we wrote off $0.2 million of unamortized deferred debtissuance costs as a loss on early retirement of debt during the three months ended January 31, 2018. The remaining unamortized deferred debt issuance costsand discount are being amortized over the remaining term of the 2017 Term Loan.For loans under the 2017 Revolving Credit Facility, the margin is determined by reference to our Leverage Ratio.As of January 31, 2019, the interest rate on the 2017 Term Loan was 4.52%. Taking into account the impact of the original issuance discount and relateddeferred debt issuance costs, the effective interest rate on the 2017 Term Loan was approximately 4.70% at January 31, 2019.In February 2016, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risksassociated with the variable interest rate on the term loans under our Prior Credit Agreement, under which we pay interest at a fixed rate of 4.143% andreceive 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 “2016Swap”). Although the Prior Credit Agreement was terminated on June 29, 2017, the 2016 Swap remains in effect, and serves as an economic hedge to partiallymitigate the risk of higher borrowing costs under the 2017 Credit Agreement resulting from increases in market interest rates. The 2016 Swap is no longerformally designated as a cash flow hedge for accounting purposes, and therefore settlements are reported within other (expense) income, net on theconsolidated statement of operations, not within interest expense.In April 2018, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risksassociated with the variable interest rate on our 2017 Term Loan for periods following the termination of the 2016 Swap, under which we will pay interest at afixed rate of 2.949% and receive variable interest of three-month LIBOR (subject to a minimum of 0.00%), on a notional amount of $200.0 million (the“2018 Swap”). The effective date of the 2018 Swap is September 6, 2019, and settlements with the counterparty will occur on a quarterly basis, beginning onNovember 1, 2019. The 2018 Swap will terminate on June 29, 2024.During the operating term of the 2018 Swap, if we elect three-month LIBOR at the periodic interest rate reset dates for at least $200.0 million of our 2017Term Loan, the annual interest rate on that amount of the 2017 Term Loan will be fixed at 4.949% (including the impact of our current 2.00% interest ratemargin on Eurodollar loans) for the applicable interest rate period.The 2018 Swap is designated as a cash flow hedge and as such, changes in its fair value are recognized in accumulated other comprehensive income (loss) inthe consolidated balance sheet and are reclassified into the statement of operations within interest expense in the period in which the hedged transactionaffects earnings.Our obligations under the 2017 Credit Agreement are guaranteed by each of our direct and indirect existing and future material domestic wholly ownedrestricted subsidiaries, and are secured by a security interest in substantially all of our assets and the assets of the guarantor subsidiaries, subject to certainexceptions.The 2017 Credit Agreement contains certain customary affirmative and negative covenants for credit facilities of this type. The 2017 Credit Agreement alsocontains a financial covenant that, solely with respect to the 2017 Revolving Credit Facility, requires us to maintain a Leverage Ratio of no greater than 4.50to 1. At January 31, 2019, our Leverage Ratio was approximately 2.3 to 1. The limitations imposed by the covenants are subject to certain exceptions asdetailed in the 2017 Credit Agreement.The 2017 Credit Agreement provides for events of default with corresponding grace periods that we believe are customary for credit facilities of this type.Upon an event of default, all of our obligations owed under the 2017 Credit Agreement may be declared immediately due and payable, and the lenders’commitments to make loans under the 2017 Credit Agreement may be terminated.Contractual ObligationsAt January 31, 2019, our contractual obligations were as follows: 54Table of Contents Payments Due by Period(in thousands) Total < 1 year 1-3 years 3-5 years > 5 yearsLong-term debt obligations, including interest $938,966 $29,098 $455,189 $45,308 $409,371Operating lease obligations 129,379 22,769 41,099 32,034 33,477Capital lease obligations 4,597 1,343 2,382 872 —Purchase obligations 158,712 120,349 22,332 16,031 —Other long-term obligations 286 47 94 94 51Total contractual obligations $1,231,940 $173,606 $521,096 $94,339 $442,899The long-term debt obligations reflected above include projected interest payments over the term of our outstanding debt as of January 31, 2019, assuminginterest rates consistent with those in effect for our 2017 Term Loan as of January 31, 2019.Operating lease obligations reflected above exclude future sublease income from certain space we have subleased to third parties. As of January 31, 2019,total expected future sublease income was $4.5 million and will range from $0.6 million to $0.9 million on an annual basis through February 2025.We entered into leases for infrastructure equipment that qualify as capital leases during the years ended January 31, 2019 and 2018.Our purchase obligations are associated with agreements for purchases of goods or services generally including agreements that are enforceable and legallybinding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and theapproximate timing of the transactions. Agreements to purchase goods or services that have cancellation provisions with no penalties are excluded from thesepurchase obligations.Our consolidated balance sheet at January 31, 2019 included $33.1 million of non-current tax reserves, net of related benefits (including interest andpenalties of $4.6 million) for uncertain tax positions. However, these amounts are not included in the table above because we are unable to reasonablyestimate the timing of payments for these obligations. We do not expect to make any significant payments for these uncertain tax positions within the next12 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 companiesbased upon achievement of performance targets following the acquisition dates.For the year ended January 31, 2019, we made $13.6 million of payments under contingent consideration arrangements. As of January 31, 2019, potentialfuture cash payments under contingent consideration arrangements, including consideration earned in completed performance periods which is still to bepaid, total $150.1 million, the estimated fair value of which was $61.3 million, including $28.4 million reported in accrued expenses and other currentliabilities, and $32.9 million reported in other liabilities. The performance periods associated with these potential payments extend through January 2022. Off-Balance Sheet Arrangements As of January 31, 2019, we did not have any off-balance sheet arrangements that we believe have or are reasonably likely to have a current or future effect onour financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that arematerial to investors. Recent Accounting Pronouncements See also Note 1, “Summary of Significant Accounting Policies” to our consolidated financial statements included under Item 8 of this report for additionalinformation about recent accounting pronouncements recently adopted and those not yet effective.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 tomarket risk related to changes in interest rates and foreign currency exchange rate fluctuations. To manage the volatility relating to interest rate and foreigncurrency risks, we periodically enter into derivative instruments55Table of Contentsincluding foreign currency forward exchange contracts and interest rate swap agreements. It is our policy to use derivative instruments only to the extentconsidered necessary to meet our risk management objectives. We use derivative instruments solely to reduce the financial impact of these risks and do notuse derivative instruments for speculative purposes.Interest Rate Risk on Our DebtIn 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 Notesprior to maturity upon the occurrence of certain conditions. Upon conversion, we would be required to pay the holders, at our election, cash, shares ofcommon stock, or a combination of both. Concurrent with the issuance of the Notes, we entered into the Note Hedges and sold the Warrants. These separatetransactions 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 risk exposure. However, the fair values of the Notes are subject tointerest 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 ourcommon 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 thefixed 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 fordisclosure purposes.On June 29, 2017, we entered into the 2017 Credit Agreement with certain lenders and terminated our Prior Credit Agreement. The 2017 Credit Agreementprovides for $725.0 million of senior secured credit facilities, comprised of the $425.0 million 2017 Term Loan maturing on June 29, 2024 and the $300.0million 2017 Revolving Credit Facility maturing on June 29, 2022, subject to increase and reduction from time to time according to the terms of the 2017Credit Agreement.Interest rates on loans under the 2017 Credit Agreement are periodically reset, at our option, at either a Eurodollar Rate or an ABR rate (each as defined in the2017 Credit Agreement), plus in each case a margin. The margin for the 2017 Term loan is fixed at 2.00% for Eurodollar loans, and 1.00% for ABR loans. Forloans under the Revolving Credit Facility, the margin is determined by reference to our Consolidated Total Debt to Consolidated EBITDA (each defined inthe 2017 Credit Agreement) leverage ratio. As of January 31, 2019, we have $418.6 million of outstanding term loan borrowings and no outstandingborrowings under the revolving credit facility. As of January 31, 2019, the interest rate on our term loan borrowings was 4.52%.Because the interest rates applicable to borrowings under the 2017 Credit Agreement are variable, we are exposed to market risk from changes in theunderlying index rates, which affect our cost of borrowing. To partially mitigate risks associated with the variable interest rates on the term loan borrowingsunder the Prior Credit Agreement, in February 2016, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financialinstitution 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 aspread of 2.75%, on a notional amount of $200.0 million (the “2016 Swap”). Although the Prior Credit Agreement was terminated on June 29, 2017, the 2016Swap remains in effect, and serves as an economic hedge to partially mitigate the risk of higher borrowing costs under the 2017 Credit Agreement resultingfrom increases in market interest rates. Settlements with the counterparty under the 2016 Swap occur quarterly, and the agreement will terminate onSeptember 6, 2019.Prior to June 29, 2017, the 2016 Swap was designated as a cash flow hedge for accounting purposes. On June 29, 2017, concurrent with the execution of the2017 Credit Agreement and termination of the Prior Credit Agreement, the 2016 Swap was no longer designated as a cash flow hedge for accounting purposesand, because occurrence of the specific forecasted variable cash flows which had been hedged by the 2016 Swap agreement was no longer probable, the $0.9million fair value of the 2016 Swap at that date was reclassified from accumulated other comprehensive income (loss) into the consolidated statement ofoperations as income within other income (expense), net. Ongoing changes in the fair value of the 2016 Swap agreement are now recognized within otherincome (expense), net in the consolidated statement of operations, not within interest expense. As of January 31, 2019, the fair value of the 2016 Swap was again of $2.1 million.In April 2018, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risksassociated with the variable interest rate on our 2017 Term Loan for periods following the termination of the 2016 Swap in September 2019, under which wewill pay interest at a fixed rate of 2.949% and receive variable interest of three-month LIBOR (subject to a minimum of 0.00%), on a notional amountof $200.0 million (the “2018 Swap”). The effective date of the 2018 Swap is September 6, 2019, and settlements with the counterparty will occur on aquarterly basis, beginning on November 1, 2019. The 2018 Swap is designated as a cash flow hedge for accounting purposes and will terminate on June 29,2024. As of January 31, 2019, the fair value of the 2018 Swap was a loss of $4.0 million.56Table of ContentsDuring the operating term of the 2018 Swap, if we elect three-month LIBOR at the periodic interest rate reset dates for at least $200.0 million of our 2017Term Loan, the annual interest rate on that amount of the 2017 Term Loan will be fixed at 4.949% (including the impact of our current 2.00% interest ratemargin on Eurodollar loans) for the applicable interest rate period. The periodic interest rates on borrowings under the 2017 Credit Agreement are currently a function of several factors, the most important of which is LIBOR,which is the rate we elect for the vast majority of our periodic interest rate reset events.The Financial Conduct Authority of the United Kingdom plans to phase out LIBOR by the end of 2021, and we have approached the administrative agentunder this facility to discuss the impact of the planned phase out. However, it is currently uncertain what, if any, alternative reference interest rates or otherreforms will be enacted in response to the planned phase out, and we cannot assure you that an alternative to LIBOR (on which the Eurodollar Rate is based)that we find acceptable will be available to us.Excluding the impact of the interest swap agreement, upon our borrowings as of January 31, 2019, for each 1.00% increase in the applicable LIBOR rate, ourannual interest expense would increase by approximately $4.2 million.Interest Rate Risk on Our InvestmentsWe invest in cash, cash equivalents, bank time deposits, and marketable debt securities. Market interest rate changes increase or decrease the interest incomewe generate from these interest-bearing assets. Our cash, cash equivalents, and bank time deposits are primarily maintained at high credit-quality financialinstitutions around the world, and our marketable debt security investments are restricted to highly rated corporate debt securities. We have not invested inmarketable debt securities with remaining maturities in excess of twelve months or in marketable equity securities during the three-year period endedJanuary 31, 2019.The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk. We haveinvestment guidelines relative to diversification and maturities designed to maintain safety and liquidity.As of January 31, 2019 and 2018, we had cash and cash equivalents totaling approximately $370.0 million and $337.9 million, respectively, consisting ofdemand deposits, bank time deposits with maturities of 90 days or less, money market accounts, and marketable debt securities with remaining maturities of90 days or less. At such dates we also held $65.5 million and $61.7 million, respectively, of restricted cash, cash equivalents, and restricted bank timedeposits (including long-term portions) which were not available for general operating use. These restricted balances primarily represent deposits to securebank 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 $32.3 million and $6.6 million at January 31, 2019 and 2018, respectively, consisting of bank time deposits andmarketable 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 theimpact a change in interest rates would have on the value of the investment portfolio assuming, during the year ending January 31, 2019, average short-terminterest rates increase or decrease by 50 basis points relative to average rates realized during the year ended January 31, 2018. Such a change would cause ourprojected interest income from cash, cash equivalents, restricted cash and cash equivalents, bank time deposits, and short-term investments to increase ordecrease by approximately $2.3 million, assuming a similar level of investments in the year ending January 31, 2020 as in the year ended January 31, 2019.Due to the short-term nature of our cash and cash equivalents, time deposits, money market accounts, and marketable debt securities, their carrying valuesapproximate their market values and are not generally subject to price risk due to fluctuations in interest rates.Foreign Currency Exchange RiskThe functional currency for most of our foreign subsidiaries is the applicable local currency, although we have several subsidiaries with functional currenciesthat 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 areexposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars for consolidated reportingpurposes. If there are changes in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars57Table of Contentsresults in an unrealized gain or loss which is recorded as a component of accumulated other comprehensive loss within stockholders’ equity.For the year ended January 31, 2019, a significant portion of our operating expenses, primarily labor expenses, were denominated in the local currencieswhere our foreign operations are located, primarily Israel, the United Kingdom, Germany, Australia, and Singapore. We also generate some portion of ourrevenue in foreign currencies, mainly the euro, British pound sterling, Singapore dollar, and Australian dollar. As a result, our consolidated U.S. dollaroperating results are subject to potential material adverse impact from fluctuations in foreign currency exchange rates between the U.S. dollar and the othercurrencies 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. Changesin the functional currency value of these assets and liabilities result in gains or losses which are reported within other income (expense), net in ourconsolidated statement of operations. We recorded net foreign currency losses of $5.5 million and $2.7 million, for the years ended January 31, 2019, and2017, respectively, and gains of $6.8 million, for the year ended January 31, 2018.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 payrolland payroll-related expenses denominated in Israeli shekels. These contracts are generally limited to durations of approximately 12 months or less. We havealso periodically entered into foreign currency forward contracts to manage exposures resulting from forecasted customer collections denominated incurrencies other than the respective entity’s functional currency and exposures from cash, cash equivalents, and short-term investments and accounts payabledenominated in currencies other than the applicable functional currency.During the year ended January 31, 2019, we recorded $1.9 million of net gains on foreign currency forward contracts not designated as hedges for accountingpurposes. For the year ended January 31, 2018, net losses on foreign currency forward contracts not designated as hedges for accounting purposes were $2.5million, and we recorded net losses of $0.3 million on such contracts for the year ended January 31, 2017. We had $0.7 million of net unrealized losses onoutstanding foreign currency forward contracts as of January 31, 2019, with notional amounts totaling $123.0 million. We had $2.4 million of net unrealizedgains on outstanding foreign currency forward contracts as of January 31, 2018, with notional amounts totaling $153.5 million.A sensitivity analysis was performed on all of our foreign exchange derivatives as of January 31, 2019. This sensitivity analysis was based on a modelingtechnique 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 nochanges 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 derivativesby approximately $4.1 million. Conversely, a 10% decrease in the relative value of the U.S. dollar would increase the estimated the fair value of thesefinancial instruments by approximately $5.1 million.The counterparties to our foreign currency forward contracts are multinational commercial banks. While we believe the risk of counterparty nonperformanceis not material, past disruptions in the global financial markets have impacted some of the financial institutions with which we do business. A sustaineddecline in the financial stability of financial institutions as a result of disruption in the financial markets could affect our ability to secure creditworthycounterparties for our foreign currency hedging programs.58Table of ContentsItem 8. Financial Statements and Supplementary DataVERINT SYSTEMS INC. AND SUBSIDIARIESIndex to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm60Consolidated Balance Sheets as of January 31, 2019 and 201861Consolidated Statements of Operations for the Years Ended January 31, 2019, 2018 and 201762Consolidated Statements of Comprehensive Income (Loss) for the Years Ended January 31, 2019, 2018, and 201763Consolidated Statements of Stockholders’ Equity for the Years Ended January 31, 2019, 2018, and 201764Consolidated Statements of Cash Flows for the Years Ended January 31, 2019, 2018, and 201765Notes to Consolidated Financial Statements6759Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Verint Systems Inc.Melville, New YorkOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Verint Systems Inc. and subsidiaries (the “Company”) as of January 31, 2019 and 2018,the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the periodended January 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, inall material respects, the financial position of the Company as of January 31, 2019 and 2018, and the results of its operations and its cash flows for each of thethree years in the period ended January 31, 2019, 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) (PCAOB), the Company’sinternal control over financial reporting as of January 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated March 27, 2019, expressed an unqualified opinion on theCompany’s internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ DELOITTE & TOUCHE LLPNew York, New YorkMarch 27, 2019We have served as the Company’s auditor since 2001.60Table of ContentsVERINT SYSTEMS INC. AND SUBSIDIARIESConsolidated Balance Sheets January 31, (in thousands, except share and per share data)2019 2018Assets Current Assets: Cash and cash equivalents$369,975 $337,942Restricted cash and cash equivalents, and restricted bank time deposits42,262 33,303Short-term investments 32,329 6,566Accounts receivable, net of allowance for doubtful accounts of $3.8 million and $2.2 million, respectively375,663 296,324Contract assets 63,389 —Inventories24,952 19,871Deferred cost of revenue10,302 6,096Prepaid expenses and other current assets87,474 82,090 Total current assets1,006,346 782,192Property and equipment, net100,134 89,089Goodwill1,417,481 1,388,299Intangible assets, net225,183 226,093Capitalized software development costs, net13,342 9,228Long-term deferred cost of revenue4,630 2,804Deferred income taxes 21,040 30,878Other assets78,871 52,037 Total assets$2,867,027 $2,580,620 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable$71,621 $84,639Accrued expenses and other current liabilities208,481 220,265Current maturities of long-term debt4,343 4,500Contract liabilities377,376 196,107 Total current liabilities661,821 505,511Long-term debt777,785 768,484Long-term contract liabilities30,094 24,519Deferred income taxes 43,171 35,305Other liabilities93,352 114,465 Total liabilities1,606,223 1,448,284Commitments and Contingencies Stockholders' Equity: Preferred stock - $0.001 par value; authorized 2,207,000 shares at January 31, 2019 and 2018, respectively; none issued. — —Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 66,998,000 and 65,497,000 shares; outstanding65,333,000 and 63,836,000 shares at January 31, 2019 and 2018, respectively67 65Additional paid-in capital1,586,266 1,519,724Treasury stock, at cost - 1,665,000 and 1,661,000 shares at January 31, 2019 and 2018, respectively(57,598) (57,425)Accumulated deficit(134,274) (238,312)Accumulated other comprehensive loss(145,225) (103,460)Total Verint Systems Inc. stockholders' equity1,249,236 1,120,592Noncontrolling interests11,568 11,744 Total stockholders' equity1,260,804 1,132,336 Total liabilities and stockholders' equity$2,867,027 $2,580,620See notes to consolidated financial statements.61Table of ContentsVERINT SYSTEMS INC. AND SUBSIDIARIESConsolidated Statements of Operations Year Ended January 31, (in thousands, except per share data) 2019 2018 2017Revenue: Product $454,650 $399,662 $378,504Service and support 775,097 735,567 683,602 Total revenue 1,229,747 1,135,229 1,062,106Cost of revenue: Product 129,922 131,989 123,279Service and support 293,888 276,582 261,978Amortization of acquired technology 25,403 38,216 37,372 Total cost of revenue 449,213 446,787 422,629Gross profit 780,534 688,442 639,477Operating expenses: Research and development, net 209,106 190,643 171,070Selling, general and administrative 426,183 414,960 406,952Amortization of other acquired intangible assets 31,010 34,209 44,089 Total operating expenses 666,299 639,812 622,111Operating income 114,235 48,630 17,366Other income (expense), net: Interest income 4,777 2,477 1,048Interest expense (37,344) (35,959) (34,962)Losses on early retirements of debt — (2,150) —Other (expense) income, net (3,906) 5,902 (6,926) Total other expense, net (36,473) (29,730) (40,840)Income (loss) before provision for income taxes 77,762 18,900 (23,474)Provision for income taxes 7,542 22,354 2,772Net income (loss) 70,220 (3,454) (26,246)Net income attributable to noncontrolling interests 4,229 3,173 3,134Net income (loss) attributable to Verint Systems Inc. $65,991 $(6,627) $(29,380) Net income (loss) per common share attributable to Verint Systems Inc.: Basic $1.02 $(0.10) $(0.47)Diluted $1.00 $(0.10) $(0.47) Weighted-average common shares outstanding: Basic 64,913 63,312 62,593Diluted 66,245 63,312 62,593 See notes to consolidated financial statements.62Table of ContentsVERINT SYSTEMS INC. AND SUBSIDIARIESConsolidated Statements of Comprehensive Income (Loss) Year Ended January 31,(in thousands) 2019 2018 2017Net income (loss) $70,220 $(3,454) $(26,246)Other comprehensive (loss) income, net of reclassification adjustments: Foreign currency translation adjustments (34,485) 49,810 (42,130)Net increase from available-for-sale securities — — 110Net (decrease) increase from foreign exchange contracts designated as hedges (4,774) 3,042 2,750Net (decrease) increase from interest rate swap designated as a hedge (4,028) (1,021) 1,021Benefit (provision) for income taxes on net (decrease) increase from foreign exchange contracts and interestrate swap designated as hedges 1,466 85 (693)Other comprehensive (loss) income (41,821) 51,916 (38,942)Comprehensive income (loss) 28,399 48,462 (65,188)Comprehensive income attributable to noncontrolling interests 4,173 3,693 2,854Comprehensive income (loss) attributable to Verint Systems Inc. $24,226 $44,769 $(68,042) See notes to consolidated financial statements.63VERINT SYSTEMS INC. AND SUBSIDIARIESConsolidated Statements of Stockholders’ Equity Verint Systems Inc. Stockholders’ Equity Common Stock AdditionalPaid-in Capital AccumulatedOtherComprehensive Loss Total VerintSystems Inc.Stockholders’Equity TotalStockholders’Equity(in thousands) Shares ParValue TreasuryStock AccumulatedDeficit Non-controllingInterests Balances as of January 31, 2016 62,266 $63 $1,387,955 $(10,251) $(201,436) $(116,194) $1,060,137 $8,027 $1,068,164Net (loss) income — — — — (29,380) — (29,380) 3,134 (26,246)Other comprehensive loss — — — — — (38,662) (38,662) (280) (38,942)Stock-based compensation - equity-classified awards — — 55,123 — — — 55,123 — 55,123Exercises of stock options 1 — 7 — — — 7 — 7Common stock issued for stockawards and stock bonuses 1,458 1 6,952 — — — 6,953 — 6,953Treasury stock acquired (1,306) — — (46,896) — — (46,896) — (46,896)Dividends to noncontrolling interest — — — — — — — (2,421) (2,421)Tax effects from stock award plans — — (702) — — — (702) — (702)Balances as of January 31, 2017 62,419 64 1,449,335 (57,147) (230,816) (154,856) 1,006,580 8,460 1,015,040Net (loss) income — — — — (6,627) — (6,627) 3,173 (3,454)Other comprehensive income — — — — — 51,396 51,396 520 51,916Stock-based compensation - equity-classified awards — — 57,414 — — — 57,414 — 57,414Common stock issued for stockawards and stock bonuses 1,424 1 12,975 — — — 12,976 — 12,976Treasury stock acquired (7) — — (278) — — (278) — (278)Initial noncontrolling interestrelated to business combination — — — — — — — 2,300 2,300Capital contributions bynoncontrolling interest — — — — — — — 595 595Dividends to noncontrolling interest — — — — — — — (3,304) (3,304)Cumulative effect of adoption ofASU No. 2016-16 — — — — (869) — (869) — (869)Balances as of January 31, 2018 63,836 65 1,519,724 (57,425) (238,312) (103,460) 1,120,59211,744 1,132,336Net income — — — — 65,991 — 65,991 4,229 70,220Other comprehensive loss — — — — — (41,765) (41,765) (56) (41,821)Stock-based compensation - equity-classified awards — — 57,659 — — — 57,659 — 57,659Common stock issued for stockawards and stock bonuses 1,501 2 8,883 — — — 8,885 — 8,885Treasury stock acquired (4) — — (173) — — (173) — (173)Capital contributions bynoncontrolling interest — — — — — — — 60 60Dividends to noncontrolling interest — — — — — — — (4,409) (4,409)Cumulative effect of adoption ofASU No. 2014-09 — — — — 38,047 — 38,047 — 38,047Balances as of January 31, 2019 65,333 $67 $1,586,266 $(57,598) $(134,274) $(145,225) $1,249,236 $11,568 $1,260,804 See notes to consolidated financial statements.64Table of ContentsVERINT SYSTEMS INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows Year Ended January 31,(in thousands) 2019 2018 2017Cash flows from operating activities: Net income (loss) $70,220 $(3,454) $(26,246)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 88,915 105,730 114,257Provision for doubtful accounts 2,746 559 1,791Stock-based compensation, excluding cash-settled awards 66,657 69,296 65,421Amortization of discount on convertible notes 11,850 11,243 10,668Benefit from deferred income taxes (3,017) (7,533) (16,941)Excess tax benefits from stock award plans — — (6)Non-cash (gains) losses on derivative financial instruments, net (2,511) 17 323Losses on early retirements of debt — 2,150 —Other non-cash items, net (2,328) (428) 7,666Changes in operating assets and liabilities, net of effects of business combinations: Accounts receivable (21,520) (23,512) (353)Contract assets 5,751 — —Inventories (8,208) (2,865) (286)Deferred cost of revenue 1,400 282 7,124Prepaid expenses and other assets (6,153) (2,030) 4,941Accounts payable and accrued expenses (15,648) 10,158 (9,521)Contract liabilities 32,919 9,686 8,705Other liabilities (7,328) 8,599 4,987Other, net 1,506 (1,571) (115)Net cash provided by operating activities 215,251 176,327 172,415 Cash flows from investing activities: Cash paid for business combinations, including adjustments, net of cash acquired (90,022) (102,978) (141,803)Purchases of property and equipment (31,686) (35,530) (27,540)Purchases of investments (59,065) (11,875) (36,761)Maturities and sales of investments 33,118 8,721 89,342Settlements of derivative financial instruments not designated as hedges 1,335 (1,558) (349)Cash paid for capitalized software development costs (7,320) (3,126) (2,338)Change in restricted bank time deposits, including long-term portion (21,304) 362 3,007Other investing activities (779) (210) —Net cash used in investing activities (175,723) (146,194) (116,442) Cash flows from financing activities: Proceeds from borrowings, net of original issuance discount — 444,341 —Repayments of borrowings and other financing obligations (5,983) (431,888) (3,308)Payments of equity issuance, debt issuance, and other debt-related costs (206) (7,137) (249)Proceeds from exercises of stock options 4 — 7Dividends paid to noncontrolling interest (4,409) (3,304) (2,421)Purchases of treasury stock (173) — (46,896)Excess tax benefits from stock award plans — — 6Payments of contingent consideration for business combinations (financing portion) and other financingactivities (11,114) (7,515) (4,058)Net cash used in financing activities (21,881) (5,503) (56,919)Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents (3,158) 4,251 (4,167)Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents 14,489 28,881 (5,113)Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year 398,210 369,329 374,44265Table of ContentsCash, cash equivalents, restricted cash, and restricted cash equivalents, end of year $412,699 $398,210 $369,329 Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end ofperiod to the condensed consolidated balance sheets: Cash and cash equivalents $369,975 $337,942 $307,363Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank timedeposits 40,152 32,955 8,237Restricted cash and cash equivalents included in other assets 2,572 27,313 53,729Total cash, cash equivalents, restricted cash, and restricted cash equivalents $412,699 $398,210 $369,329See notes to consolidated financial statements.66Table of ContentsVERINT SYSTEMS INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements1.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. In a world of massive information growth, our solutions empower organizations with crucial,actionable insights and enable decision makers to anticipate, respond, and take action. Today, over 10,000 organizations in more than 180 countries,including over 85 percent of the Fortune 100, use Verint’s Actionable Intelligence solutions, deployed in the cloud and on premises, to make more informed,timely, and effective decisions.Our Actionable Intelligence leadership is powered by innovative, enterprise-class software built with artificial intelligence, analytics, automation, and deepdomain expertise established by working closely with some of the most sophisticated and forward-thinking organizations in the world. Our research anddevelopment (“R&D”) team is focused on actionable intelligence and is comprised of approximately 1,900 professionals. Our innovative solutions arebacked-up by a strong IP portfolio with close to 1,000 patents and patent applications worldwide across data capture, artificial intelligence, unstructured dataanalytics, predictive analytics and automation.Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of selling and support partners.Principles of Consolidation The accompanying consolidated financial statements include the accounts of Verint Systems Inc., our wholly owned or otherwise controlled subsidiaries, anda 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. Noncontrollinginterests in less than wholly owned subsidiaries are reflected within stockholders’ equity on our consolidated balance sheet, but separately from ourstockholders’ equity. We hold an option to acquire the noncontrolling interests in two majority owned subsidiaries and 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 notrecognize noncontrolling interests in these subsidiaries.We include the results of operations of acquired companies from the date of acquisition. All significant intercompany transactions and balances areeliminated.Equity investments in companies in which we have less than a 20% ownership interest and cannot exercise significant influence, and which do not havereadily determinable fair values, are accounted for at cost, adjusted for changes resulting from observable price changes in orderly transactions for anidentical or similar investment of the same issuer, less any impairment. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires our management to makeestimates and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date ofthe consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from thoseestimates.Restricted Cash and Cash Equivalents, and Restricted Bank Time DepositsRestricted cash and cash equivalents, and restricted bank time deposits are pledged as collateral or otherwise restricted as to use for vendor payables, generalliability insurance, workers’ compensation insurance, warranty programs, and other obligations.InvestmentsOur 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 of67Table of ContentsJanuary 31, 2019 we held no marketable debt securities. As of January 31, 2018, we held $2.0 million of marketable debt securities. Investments withmaturities in excess of one year are included in other assets.Accounts Receivable, NetTrade accounts receivable are comprised of invoiced amounts due from customers for which we have an unconditional right to collect and are not interest-bearing. Credit is extended to customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or othersecurity to support accounts receivable.Please refer to Note 2, “Revenue Recognition” under the heading “Financial Statement Impact of Adoption” for a description of the presentation changesmade to accounts receivable on our consolidated balance sheet as of February 1, 2018, with the adoption of the new revenue accounting standard.Concentrations of Credit RiskFinancial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, bank time deposits, short-term investments, trade accounts receivable, and contract assets (unbilled amounts previously included in accounts receivable). We invest our cash in bankaccounts, certificates of deposit, and money market accounts with major financial institutions, in U.S. government and agency obligations, and in debtsecurities of corporations. By policy, we seek to limit credit exposure on investments through diversification and by restricting our investments to highlyrated securities.We grant credit terms to our customers in the ordinary course of business. Concentrations of credit risk with respect to trade accounts receivable and contractassets are generally limited due to the large number of customers comprising our customer base and their dispersion across different industries and geographicareas. There are two customers in our Cyber Intelligence segment that combined accounted for $84.3 million and $99.7 million of our aggregated accountsreceivable and contract assets, at January 31, 2019 and 2018, respectively. These customers are governmental agencies outside of the U.S. which we believepresent insignificant credit risk.Allowance for Doubtful AccountsWe estimate the collectability of our accounts receivable balances each accounting period and adjust our allowance for doubtfulaccounts accordingly. Considerable judgment is required in assessing the collectability of accounts receivable, including consideration of thecreditworthiness of each customer, their collection history, and the related aging of past due accounts receivable balances. We evaluate specific accountswhen we learn that a customer may be experiencing a deteriorating financial condition due to lower credit ratings, bankruptcy, or other factors that may affectits 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, 2019, 2018, and 2017: Year Ended January 31,(in thousands) 2019 2018 2017Allowance for doubtful accounts, beginning of year $2,217 $1,842 $1,170Provisions charged to expense 2,746 559 1,791Amounts written off (1,172) (482) (1,484)Other, including fluctuations in foreign exchange rates (14) 298 365Allowance for doubtful accounts, end of year $3,777 $2,217 $1,842InventoriesInventories are stated at the lower of cost or market. Cost is determined using the weighted-average method of inventory accounting. The valuation of ourinventories 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, ortechnological developments could have a significant impact on the value of our inventory and reported operating results. Charges for excess and obsoleteinventories are included within cost of revenue.68Table of ContentsProperty and Equipment, netProperty and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method basedover 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 typically 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. Capital leased assets are amortized over therelated lease term.The cost of maintenance and repairs of property and equipment is charged to operations as incurred. When assets are retired ordisposed of, the cost and accumulated depreciation or amortization thereon are removed from the consolidated balance sheet and any resulting gain or loss isrecognized in the consolidated statement of operations.Segment ReportingOperating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by theenterprise’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 (“CustomerEngagement”) and Cyber Intelligence Solutions (“Cyber Intelligence”). Organizing our business through two operating segments allows us to align ourresources and domain expertise to effectively address the Actionable Intelligence market. We determine our reportable segments based on a number of factorsour management uses to evaluate and run our business operations, including similarities of customers, products, and technology. Our Chief Executive Officeris our CODM, who regularly reviews segment revenue and segment operating contribution when assessing the financial performance of our segments andallocating resources.We measure the performance of our operating segments based upon segment revenue and segment contribution.Segment revenue includes adjustments associated with revenue of acquired companies which are not recognizable within GAAP revenue. These adjustmentsprimarily relate to the acquisition-date excess of the historical carrying value over the fair value of acquired companies’ future maintenance and serviceperformance obligations. As the obligations are satisfied, we report our segment revenue using the historical carrying values of these obligations, which webelieve better reflects our ongoing maintenance and service revenue streams, whereas GAAP revenue is reported using the obligations’ acquisition-date fairvalues. Segment revenue adjustments can also result from aligning an acquired company’s historical revenue recognition policies to our policies.Segment contribution includes segment revenue and expenses incurred directly by the segment, including material costs, service costs, research anddevelopment and selling, marketing, and administrative expenses. When determining segment contribution, we do not allocate certain operating expenses,which are provided by shared resources or are otherwise generally not controlled by segment management. These expenses are reported as “Shared supportexpenses” when reconciling segment contribution to operating income, the majority of which are expenses for administrative support functions, such asinformation technology, human resources, finance, legal, and other general corporate support, and for occupancy expenses. These unallocated expenses alsoinclude procurement, manufacturing support, and logistics expenses.In addition, segment contribution does not include amortization of acquired intangible assets, stock-based compensation, and other expenses that either canvary significantly in amount and frequency, are based upon subjective assumptions, or in certain cases are unplanned for or difficult to forecast, such asrestructuring expenses and business combination transaction and integration expenses, all of which are not considered when evaluating segmentperformance.Revenue from transactions between our operating segments is not material.Please refer to Note 16, “Segment, Geographic, and Significant Customer Information” for further details regarding our operating segments.Goodwill, Other Acquired Intangible Assets, and Long-Lived AssetsFor business combinations, the purchase prices are allocated to the tangible assets and intangible assets acquired and liabilities assumed based on theirestimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded69Table of Contentsas 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 basisas 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 31,2019, our reporting units are Customer Engagement, Cyber Intelligence (excluding situational intelligence solutions), and Situational Intelligence, which isa 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 areporting unit is less than its carrying amount. If we elect to bypass a qualitative assessment, or if our qualitative assessment indicates that goodwillimpairment is more likely than not, we perform quantitative impairment testing. For quantitative impairment testing performed prior to February 1, 2018, weperformed a two-step test by first comparing the carrying value of the reporting unit to its fair value. If the carrying value exceeded the fair value, a secondstep was performed to compute the goodwill impairment. Effective with our February 1, 2018 adoption of Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment, if our quantitative testing determines that the carrying valueof a reporting unit exceeds its fair value, goodwill impairment is recognized in an amount equal to that excess, limited to the total goodwill allocated to thatreporting unit, eliminating the need for the second step.We utilize some or all of three primary approaches to assess the fair value of a reporting unit: (a) an income-based approach, using projected discounted cashflows, (b) a market-based approach, using valuation multiples of comparable companies, and (c) a transaction-based approach, using valuation multiples forrecent 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 transactionapproach), (b) estimates of future growth rates, (c) estimates of our future cost structure, (d) discount rates for our estimated cash flows, (e) selection of peergroup 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 theirestimated 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 areexpected to be realized, which typically is on a straight-line basis. The fair values assigned to identifiable intangible assets acquired in businesscombinations are determined primarily by using the income approach, which discounts expected future cash flows attributable to these assets to present valueusing estimates and assumptions determined by management. The acquired identifiable finite-lived intangible assets are being amortized primarily on astraight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.Fair Value MeasurementsAccounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value. An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant tothe 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 orliabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can becorroborated 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 valuationinputs may result in transfers within the fair value measurement hierarchy. We did not identify any transfers between levels of the fair value measurementhierarchy during the years ended January 31, 2019 and 2018. 70Table of ContentsFair Values of Financial InstrumentsOur recorded amounts of cash and cash equivalents, restricted cash and cash equivalents, and restricted bank time deposits, accounts receivable, contractassets, investments, and accounts payable approximate fair value, due to the short-term nature of these instruments. We measure certain financial assets andliabilities 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 mostadvantageous market for the asset or liability in an orderly transaction between market participants.Derivative Financial InstrumentsAs part of our risk management strategy, when considered appropriate, we use derivative financial instruments including foreign currency forward contractsand interest rate swap agreements to hedge against certain foreign currency and interest rate exposures. Our intent is to mitigate gains and losses caused bythe underlying exposures with offsetting gains and losses on the derivative contracts. By policy, we do not enter into speculative positions with derivativeinstruments.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 thesederivatives 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 financialstrength 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 RecognitionWe account for revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was adopted on February 1, 2018,using the modified retrospective transition method. For further discussion of our accounting policies related to revenue see Note 2, “Revenue Recognition.”Cost of RevenueOur cost of revenue includes costs of materials, compensation and benefit costs for operations and service personnel, subcontractor costs, royalties andlicense fees related to third-party software included in our products, cloud infrastructure costs, depreciation of equipment used in operations and service,amortization of capitalized software development costs and certain purchased intangible assets, and related overhead costs. Costs that relate to satisfied (orpartially satisfied) performance obligations in customer contracts (i.e. costs that relate to past performance) are expensed as incurred. Please refer to Note 2,“Revenue Recognition” under the heading “Costs to Obtain and Fulfill Contracts” for further details regarding customer contract costs.Research and Development, netWith the exception of certain software development costs, all research and development costs are expensed as incurred, and consist primarily of personneland consulting costs, travel, depreciation of research and development equipment, and related overhead and other costs associated with research anddevelopment activities.We receive non-refundable grants from the Israeli Innovation Authority (“IIA”), formerly the Israel Office of the Chief Scientist (“OCS”), that fund a portionof our research and development expenditures. We currently only enter into non-royalty-bearing arrangements with the IIA which do not require us to payroyalties. Funds received from the IIA are recorded as a reduction to research and development expense. Royalties, to the extent paid, are recorded as part ofour cost of revenue.We also periodically derive benefits from participation in certain government-sponsored programs in other jurisdictions, for the support of research anddevelopment activities conducted in those locations.Software Development CostsCosts incurred to acquire or develop software to be sold, leased or otherwise marketed are capitalized after technological feasibility is established, andcontinue to be capitalized through the general release of the related software product. Amortization of capitalized costs begins in the period in which therelated product is available for general release to customers71Table of Contentsand 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 SoftwareWe capitalize costs associated with software that is acquired, internally developed or modified solely to meet our internal needs. Capitalization begins whenthe preliminary project stage has been completed and management with the relevant authority authorizes and commits to the funding of the project. Thesecapitalized costs include external direct costs utilized in developing or obtaining the applications and expenses for employees who are directly associatedwith the development of the applications. Capitalization of such costs continues until the project is substantially complete and is ready for its intendedpurpose. Capitalized costs of computer software developed for internal use are generally amortized over estimated useful lives of four years on a straight-linebasis, which best represents the pattern of the software’s use.Income TaxesWe account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected futuretax consequences of events that have been included in our consolidated financial statements. Under this approach, deferred taxes are recorded for the futuretax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes representsincome taxes paid or payable for the current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases ofour 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 orrates are not anticipated.We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our income tax provision involves the applicationof complex tax laws and requires significant judgment and estimates. On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted inthe United States. The 2017 Tax Act significantly revised the Internal Revenue Code of 1986, as amended, and it included fundamental changes to taxationof U.S. multinational corporations. Compliance with the 2017 Tax Act requires significant complex computations not previously required by U.S. tax law.We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and establish valuation allowanceswhen 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 dependentupon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence inmaking this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planningstrategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more-likely-than-not realizable, weestablish 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 atax return by assessing whether they are more-likely-than-not sustainable, based solely on their technical merits, upon examination and including resolutionof 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 ismore-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 taxbenefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction ofdeferred tax assets. Our policy is to include interest (expense and/or income) and penalties related to unrecognized income tax benefits as a component of theprovision for income taxes.Functional Currencies and Foreign Currency Transaction Gains and LossesThe functional currency for most of our foreign subsidiaries is the applicable local currency, although we have several subsidiaries with functional currenciesthat 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 resultingassets or liabilities are further translated at each reporting date and at settlement. Gains and losses recognized upon such translations are included withinother income (expense), net in the consolidated statements of operations. We recorded net foreign currency losses of $5.5 million for the year endedJanuary 31, 2019, net foreign currency gains of $6.8 million for the year ended January 31, 2018, and net foreign currency losses of $2.7 million for the yearended January 31, 2017.72Table of ContentsFor consolidated reporting purposes, in those instances where a foreign subsidiary has a functional currency other than the U.S. dollar, revenue and expensesare 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 CompensationWe recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of the award. Werecognize the fair value of the award as compensation expense over the period during which an employee is required to provide service in exchange for theaward.For performance stock units for which vesting is in part dependent on total shareholder return, the fair value of the award is estimated on the date of grantusing a Monte Carlo Simulation. Expected volatility and expected term are input factors for that model and may require significant management judgment.Expected volatility is estimated utilizing daily historical volatility for Verint common stock price and the constituents of the specific comparator index overa period commensurate with the remaining award performance period. The risk-free interest rate used is equal to the implied daily yield of the zero-couponU.S. Treasury bill that corresponds with the remaining performance period of the award as of the valuation date.Net Income (Loss) Per Common Share Attributable to Verint Systems Inc.Shares used in the calculation of basic net income (loss) per common share are based on the weighted-average number of common shares outstanding duringthe accounting period. Shares used in the calculation of basic net income per common share include vested but unissued shares underlying awards ofrestricted stock units when all necessary conditions for earning those shares have been satisfied at the award’s vesting date, but exclude unvested shares ofrestricted stock because they are contingent upon future service conditions.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 7, “Long-Term Debt”. We currently intend to settle theprincipal 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, areassumed 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 potentialcommon shares is anti-dilutive and therefore excluded.Recent Accounting PronouncementsNew Accounting Pronouncements Recently AdoptedIn May 2014, the Financial Accounting Standards Board (“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 requires entities to recognize revenue when control of thepromised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange forthose goods or services. We adopted ASU No. 2014-09 as of February 1, 2018 using the modified retrospective transition method. Please refer to Note 2,“Revenue Recognition” for further details.In January 2016, the FASB issued ASU No. 2016‑01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assetsand Financial Liabilities, associated with the recognition and measurement of financial assets and liabilities, with further clarifications made in February2018 with the issuance of ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognitionand Measurement of Financial Assets and Financial Liabilities. The amended guidance requires certain equity investments that are not consolidated and notaccounted for under the equity method to be measured at fair value with changes in fair value recognized in net income rather than as a component ofaccumulated other comprehensive income (loss). It further states that an entity may choose to measure equity investments that do not have readilydeterminable fair values using a quantitative approach, or measurement alternative, which is equal to its cost minus impairment, if any, plus or minus changesresulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We adopted this amendedguidance on February 1, 2018, using a prospective transition approach, which did not have an impact on our consolidated financial statements.73Table of ContentsWe concluded that all equity investments within the scope of ASU No. 2016-01, previously accounted for under the cost method, do not have readilydeterminable fair values. Accordingly, the value of these investments beginning February 1, 2018 has been measured using the measurement alternative, asnoted above. As of January 31, 2019, the carrying amount of our equity investments without readily determinable fair values was $3.8 million. During theyear ended January 31, 2019, we did not recognize any impairments or other adjustments.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 thestatement of cash flows. The clarifications provided by this guidance did not have a material impact on our consolidated statement of cash flows.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 cashflows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cashequivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalentswhen reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We retrospectively adopted ASU No. 2016-18 on February 1, 2018 and as a result, we now include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling thebeginning-of-period and end-of-period total amounts presented on the condensed consolidated statements of cash flows. Prior to adoption of this newguidance, we reported changes in restricted cash and restricted cash equivalents as cash flows from investing activities. We typically have restrictions oncertain amounts of cash and cash equivalents, primarily consisting of amounts used to secure bank guarantees in connection with sales contract performanceobligations, and expect to continue to have similar restrictions in the future.As a result of the adoption of ASU No. 2016-18, we adjusted the previously reported consolidated statements of cash flows for the years ended January 31,2018 and 2017 as follows: Year Ended January 31, 2018 As PreviouslyReported Adjustments As AdjustedNet cash provided by operating activities $176,327 $— $176,327Net cash used in investing activities (144,481) (1,713) (146,194)Net cash used in financing activities (5,503) — (5,503)Foreign currency effect on cash, cash equivalents, restricted cash, and restricted cashequivalents 4,236 15 4,251Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cashequivalents 30,579 (1,698) 28,881Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 307,363 61,966 369,329Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $337,942 $60,268 $398,210 Year Ended January 31, 2017 As PreviouslyReported Adjustments As AdjustedNet cash provided by operating activities $172,415 $— $172,415Net cash used in investing activities (156,028) 39,586 (116,442)Net cash used in financing activities (56,919) — (56,919)Foreign currency effect on cash, cash equivalents, restricted cash, and restricted cashequivalents (4,210) 43 (4,167)Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cashequivalents (44,742) 39,629 (5,113)Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 352,105 22,337 374,442Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $307,363 $61,966 $369,32974Table of ContentsIn January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies thedefinition 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. If an entity determines that substantially all of the fair value of the gross assets acquired is concentrated in a singleidentifiable asset or a group of similar identifiable assets, then the set of transferred assets and activities is not a business. If this threshold is not met, in orderto be considered a business the set of transferred assets and activities must include, at a minimum, an input and a substantive process that togethersignificantly contribute to the ability to create outputs. We prospectively adopted ASU No. 2017-01 on February 1, 2018, and the adoption had no impact onour consolidated financial statements.In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. 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’scarrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. We elected to early adopt this standard as of February 1, 2018 andthe effects of adoption were not material to our consolidated financial statements.In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.This update better aligns risk management activities and financial reporting for hedging relationships, simplifies hedge accounting requirements, andimproves disclosures of hedging arrangements. We early adopted this standard on February 1, 2018 on a prospective basis. The effects of this standard on ourconsolidated financial statements were not material.New Accounting Pronouncements Not Yet EffectiveIn August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting forImplementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs incloud computing arrangements. This standard is effective for annual reporting periods beginning after December 15, 2019, including interim reportingperiods within those annual reporting periods, with early adoption permitted. We are currently reviewing this standard to assess the impact on ourconsolidated financial statements.In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes toThe Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. This standard is effectivefor annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods, with earlyadoption permitted. We are currently reviewing this standard to assess the impact on our consolidated financial statements.In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based PaymentAccounting, to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - StockCompensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of theguidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Thisstandard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reportingperiods, with early adoption permitted. While we continue to assess the potential impact of this standard, we do not expect the adoption of this standard tohave a material impact on our 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 formost financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for lossesfor trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, thelosses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for annual periods, andfor interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standardto assess the impact on our consolidated financial statements.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 leaseterms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a leaseby a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to berecognized on the balance sheet, the new guidance will require both types of leases to be recognized on the balance sheet. The ASU is effective for interim75Table of Contentsand annual periods beginning after December 15, 2018, with early adoption permitted. A modified retrospective transition approach is required, applying thenew standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliestcomparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the entity must recast itscomparative period financial statements and provide disclosures required by the new standard for the comparative periods. We adopted the new standard onFebruary 1, 2019 using the effective date as our date of initial application. Consequently, financial information will not be updated and disclosures requiredunder the new standard will not be provided for dates and periods before February 1, 2019.The new standard provides a number of optional practical expedients in transition. We elected the transition package of practical expedients available in thestandard, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costsand the practical expedient to not account for lease and non-lease components separately. We did not elect the use-of-hindsight or the practical expedientpertaining to land easements; the latter not being applicable to us.We currently anticipate that the adoption of this new standard will materially affect our consolidated balance sheets by recognizing new right-of-use (“ROU”)assets and lease liabilities for operating leases. We expect adoption of the standard will result in the recognition of ROU assets of approximately $90.0million to $100.0 million and lease liabilities of approximately $100.0 million to $110.0 million at February 1, 2019, with the most significant impact fromrecognition of ROU assets and lease liabilities related to our office space operating leases. The impact on our results of operations and cash flows is notexpected to be material. We are implementing a new lease accounting system and updating our processes and controls in preparation for the adoption of thenew standard, including the requirement to provide significant new disclosures about our leasing activities. Please refer to Note 15, “Commitments andContingencies” for additional information about our leases, including the future minimum lease payments for our operating leases at January 31, 2019.2.REVENUE RECOGNITIONOn February 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method appliedto those contracts that were not completed as of February 1, 2018. Results for reporting periods beginning after February 1, 2018 are presented under ASU No.2014-09, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under prior guidance. Forcontracts that were modified before the effective date of ASU No. 2014-09, we recorded the aggregate effect of all modifications when identifyingperformance obligations and allocating the transaction price in accordance with the practical expedient provided for under the new guidance, which permitsan entity to record the aggregate effect of all contract modifications that occur before the beginning of the earliest period presented in accordance with thenew standard when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction priceto the satisfied and unsatisfied performance obligations.Under the new standard, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects theconsideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for contracts that are within thescope of new standard, we perform the following five steps:1) Identify the contract(s) with a customerA contract with a customer exists when (i) we enter into an enforceable contract with the customer that defines each party’s rights regarding thegoods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance, and(iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’sintent and ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which is basedon a variety of factors including the customer’s historical payment experience or in the case of a new customer, published credit and financialinformation pertaining to the customer. Our customary business practice is to enter into legally enforceable written contracts with our customers. Themajority of our contracts are governed by a master agreement between us and the customer, which sets forth the general terms and conditions of anyindividual contract between the parties, which is then supplemented by a customer purchase order to specify the different goods and services, theassociated prices, and any additional terms for an individual contract. Multiple contracts with a single counterparty entered into at the same time areevaluated to determine if the contracts should be combined and accounted for as a single contract.2) Identify the performance obligations in the contract76Table of ContentsPerformance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are bothcapable of being distinct, whereby the customer can benefit from the goods or services either on its own or together with other resources that arereadily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services isseparately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, we must applyjudgment to determine whether promised goods or services are capable of being distinct and are distinct in the context of the contract. If thesecriteria are not met the promised goods or services are accounted for as a combined performance obligation. Generally, our contracts do not includenon-distinct performance obligations, but certain Cyber Intelligence customers require design, development, or significant customization of ourproducts to meet their specific requirements, in which case the products and services are combined into one distinct performance obligation.3) Determine the transaction priceThe transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to thecustomer. We assess the timing of transfer of goods and services to the customer as compared to the timing of payments to determine whether asignificant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when thedifference between payment and transfer of deliverables is a year or less, which is the case in the majority of our customer contracts. The primarypurpose of our invoicing terms is not to receive or provide financing from or to customers. Our Cyber Intelligence contracts may require an advancepayment to encourage customer commitment to the project and protect us from early termination of the contract. To the extent the transaction priceincludes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing eitherthe expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration isincluded in the transaction price, if we assessed that a significant future reversal of cumulative revenue under the contract will not occur. Typically,our contracts do not provide our customers with any right of return or refund, and we do not constrain the contract price as it is probable that therewill not be a significant revenue reversal due to a return or refund.4) Allocate the transaction price to the performance obligations in the contractIf the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if aseries of distinct goods or services that are substantially the same qualifies as a single performance obligation in a contract with variableconsideration, we must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. We allocatethe variable amount to one or more distinct performance obligations but not all or to one or more distinct services that forms a part of a singleperformance obligation, when the payment terms of the variable amount relate solely to our efforts to satisfy that distinct performance obligationand it results in an allocation that is consistent with the overall allocation objective of ASU No. 2014-09. Contracts that contain multipleperformance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling pricebasis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or servicethat forms part of a single performance obligation. We determine standalone selling price (“SSP”) based on the price at which the performanceobligation is sold separately. If the SSP is not observable through past transactions, we estimate the SSP taking into account available informationsuch as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives, and internallyapproved pricing guidelines related to the performance obligation.5) Recognize revenue when (or as) the entity satisfies a performance obligationWe satisfy performance obligations either over time or at a point in time depending on the nature of the underlying promise. Revenue is recognizedat the time the related performance obligation is satisfied by transferring a promised good or service to a customer. In the case of contracts thatinclude customer acceptance criteria, revenue is not recognized until we can objectively conclude that the product or service meets the agreed-uponspecifications in the contract.We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods orservices we transfer to our customers. Revenue is measured based on consideration specified in a contract with a customer, and excludes taxes assessed by agovernmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer.Shipping and handling activities that are billed to the customer and occur after control over a product has transferred to a customer are accounted for asfulfillment costs and are included in cost of revenue. Historically, these expenses have not been material.77Table of ContentsNature of Goods and ServicesWe derive and report our revenue in two categories: (a) product revenue, including licensing of software products, and the sale of hardware products, and (b)service and support revenue, including revenue from installation services, post-contract customer support (“PCS”), project management, hosting services,cloud deployments, SaaS, managed services, product warranties, business advisory consulting, and training services.Our software licenses typically provide for a perpetual right to use our software, though we also sell term-based software licenses that provide our customerswith the right to use our software for only a fixed term, in most cases between a one- and three-year time frame. Generally, our contracts do not providesignificant services of integration and customization and installation services are not required to be purchased directly from us. The software is deliveredbefore related services are provided and is functional without professional services, updates and technical support. We have concluded that the softwarelicense is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or madeavailable for download to the customer. We rarely sell our software licenses on a standalone basis and as a result SSP is not directly observable and must beestimated. We apply the adjusted market assessment approach, considering both market conditions and entity specific factors such as assessment of historicaldata of bundled sales of software licenses with other promised goods and services in order to maximize the use of observable inputs. Software SSP isestablished based on an appropriate discount from our established list price, taking into consideration whether there are certain stratifications of thepopulation with different pricing practices. Revenue for hardware is recognized at a point in time, generally upon shipment or delivery.Contracts that require us to significantly customize our software are generally recognized over time as we perform because our performance does not create anasset with an alternative use and we have an enforceable right to payment plus a reasonable profit for performance completed to date. Revenue is recognizedover time based on the extent of progress towards completion of the performance obligation. We use labor hours incurred to measure progress for thesecontracts because it best depicts the transfer of the asset to the customer. Under the labor hours incurred measure of progress, the extent of progress towardscompletion is measured based on the ratio of labor hours incurred to date to the total estimated labor hours at completion of the distinct performanceobligation. Due to the nature of the work performed in these arrangements, the estimation of total labor hours at completion is complex, subject to manyvariables and requires significant judgment. If circumstances arise that change the original estimates of revenues, costs, or extent of progress towardcompletion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions arereflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known. We use theexpected cost plus a margin approach to estimate the SSP of our significantly customized solutions.Professional services revenues primarily consist of fees for deployment and optimization services, as well as training, and are generally recognized over timeas the customer simultaneously receives and consumes the benefits of the professional services as the services are performed. Professional services that arebilled on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognizedover time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the relatedperformance obligation. We determine SSP for our professional services based on the price at which the performance obligation is sold separately, which isobservable through past transactions.Our SaaS contracts are typically comprised of a right to access our software, maintenance, and hosting fees. We do not provide the customer the contractualright to take possession of the software at any time during the hosting period under these contracts. The customer can only benefit from the SaaS license andthe maintenance when combined with the hosting service as the hosting service is the only way for the customer to access the software and benefit from themaintenance services. Accordingly, each of the license, maintenance, and hosting services is not considered a distinct performance obligation in the contextof the contract, and are combined into a single performance obligation (“SaaS services”) and recognized ratably over the contract period. Our SaaS customercontracts can consist of fixed, variable, and usage based fees. Typically, we invoice a portion of the fees at the outset of the contract and then monthly orquarterly thereafter. Certain SaaS contracts include a nonrefundable upfront fee for setup services, which are not distinct from the SaaS services. Non-distinctsetup services represent an advanced payment for future SaaS services, and are recognized as revenue when those SaaS services are satisfied, unless thenonrefundable fee is considered to be a material right, in which case the nonrefundable fee is recognized over the expected benefit period, which includesanticipated SaaS renewals. We determine SSP for our SaaS services based on the price at which the performance obligation is sold separately, which isobservable through past SaaS renewal transactions. We satisfy our SaaS services by providing access to our software over time and processing transactions forusage based contracts. For non-usage based fees, the period of time over which we perform is commensurate with the contract term because that is the periodduring78Table of Contentswhich we have an obligation to provide the service. The performance obligation is recognized on a time elapsed basis, by month for which the services areprovided.Customer support revenue is derived from providing telephone technical support services, bug fixes and unspecified software updates and upgrades tocustomers on a when-and-if-available basis. Each of these performance obligations provide benefit to the customer on a standalone basis and are distinct inthe context of the contract. Each of these distinct performance obligations represent a stand ready obligation to provide service to a customer, which isconcurrently delivered and has the same pattern of transfer to the customer, which is why we account for these support services as a single performanceobligation. We recognize support services ratably over the contractual term, which typically is one year, and develop SSP for support services based onstandalone renewal contracts.Our Customer Engagement solutions are generally sold with a warranty of one year for hardware and 90 days for software. Our Cyber Intelligence solutionsare generally sold with warranties that typically range from 90 days to three years and, in some cases, longer. These warranties do not represent an additionalperformance obligation as services beyond assuring that the software license and hardware complies with agreed-upon specifications are not provided.Disaggregation of RevenueThe following table provides information about disaggregated revenue for our Customer Engagement and Cyber Intelligence segments by product revenueand service and support revenue, as well as by the recurring or nonrecurring nature of revenue for each business segment. Recurring revenue is the portion ofour revenue that we believe is likely to be renewed in the future, and primarily consists of initial and renewal PCS, SaaS, term-based licenses, managedservices, sales-and-usage based royalties, and subscription licenses recognized over time. The recurrence of these revenue streams in future periods dependson a number of factors including contractual periods and customers' renewal decisions. Nonrecurring revenue primarily consists of our perpetual licenses,long-term customization projects that are recognized over time as control transfers to the customer using a percentage of completion (“POC”) method,consulting, implementation and installation services, training, and hardware. Year Ended January 31, 2019(in thousands) CustomerEngagement CyberIntelligence TotalRevenue: Product $221,721 $232,929 $454,650Service and support 574,566 200,531 775,097Total revenue $796,287 $433,460 $1,229,747 Revenue by recurrence: Recurring revenue $465,671 $165,265 $630,936Nonrecurring revenue 330,616 268,195 598,811Total revenue $796,287 $433,460 $1,229,747The following table provides a further disaggregation of revenue for our Customer Engagement segment. Cloud revenue primarily consists of SaaS andmanaged services revenue recognized over time and term-based licenses, which are recognized at a point in time.(in thousands) Year EndedJanuary 31,2019Customer Engagement revenue: Cloud $150,743Other 645,544 Total Customer Engagement revenue $796,287Contract BalancesThe following table provides information about accounts receivable, contract assets, and contract liabilities from contracts with customers:79Table of Contents(in thousands) January 31,2019Accounts receivable, net $375,663Contract assets 63,389Long-term contract assets (included in other assets) 1,375Contract liabilities 377,376Long-term contract liabilities 30,094We receive payments from customers based upon contractual billing schedules, and accounts receivable are recorded when the right to considerationbecomes unconditional. Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right isconditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to our significantlycustomized solutions as the right to consideration is subject to the contractually agreed upon billing schedule. We expect billing and collection of a majorityof our contract assets to occur within the next twelve months and had no asset impairment related to contract assets in the period. There are two customers inour Cyber Intelligence segment that accounted for a combined $34.9 million and $62.3 million of our contract assets (unbilled amounts previously includedin accounts receivable) at January 31, 2019 and January 31, 2018, respectively. These customers are governmental agencies outside of the U.S. which webelieve present insignificant credit risk. Contract liabilities represent consideration received or consideration which is unconditionally due from customersprior to transferring goods or services to the customer under the terms of the contract.Revenue recognized during the year ended January 31, 2019 from amounts included in contract liabilities at February 1, 2018 was $303.0 million. Duringthe year ended January 31, 2019, we transferred $60.3 million to accounts receivable from contract assets recognized at February 1, 2018, as a result of theright to the transaction consideration becoming unconditional. We recognized $63.8 million of contract assets during the year ended January 31, 2019.Contract assets recognized during the period primarily related to our rights to consideration for work completed but not billed on long-term CyberIntelligence contracts.Remaining Performance ObligationsThe majority of our arrangements are for periods of up to three years, with a significant portion being one year or less. We had $1.0 billion of remainingperformance obligations as of January 31, 2019. We elected to exclude amounts of variable consideration attributable to sales- or usage-based royalties inexchange for a license of our IP from the remaining performance obligations. We currently expect to recognize approximately 65% of our remaining revenuebacklog over the next twelve months and the remainder thereafter. The timing and amount of revenue recognition for our remaining performance obligationsis influenced by several factors, including seasonality, the timing of PCS renewals, and the revenue recognition for certain projects, particularly in our CyberIntelligence segment, that can extend over longer periods of time, delivery under which, for various reasons, may be delayed, modified, or canceled. Further,we have historically generated a large portion of our business each quarter by orders that are sold and fulfilled within the same reporting period. Therefore,the amount of remaining obligations may not be a meaningful indicator of future results.Costs to Obtain and Fulfill ContractsWe capitalize commissions paid to internal sales personnel and agent commissions that are incremental to obtaining customer contracts. We have determinedthat these commissions are in fact incremental and would not have occurred absent the customer contract. Capitalized sales and agent commissions areamortized on a straight-line basis over the period the goods or services are transferred to the customer to which the assets relate, which ranges from immediateto as long as six years, if commission amounts paid upon renewal are not commensurate with amounts paid on the initial contract. A portion of the initialcommission payable on the majority of Customer Engagement contracts is amortized over the anticipated PCS renewal period, which is generally four to sixyears, due to commissions paid on PCS renewal contracts not being commensurate with amounts paid on the initial contract.Total capitalized costs to obtain contracts were $36.3 million as of January 31, 2019, of which $6.5 million is included in prepaid expenses and other currentassets and $29.8 million is included in other assets on our consolidated balance sheet. During the year ended January 31, 2019, we expensed $45.7 million,of sales and agent commissions, which are included in selling, general and administrative expenses and there was no impairment loss recognized for thesecapitalized costs.We capitalize costs incurred to fulfill our contracts when the costs relate directly to the contract and are expected to generate resources that will be used tosatisfy the performance obligation under the contract and are expected to be recovered through80Table of Contentsrevenue generated under the contract. Costs to fulfill contracts are expensed to cost of revenue as we satisfy the related performance obligations. Totalcapitalized costs to fulfill contracts were $14.9 million as of January 31, 2019, of which $10.3 million is included in deferred cost of revenue and $4.6million is included in long-term deferred cost of revenue on our consolidated balance sheet. Deferred cost of revenue is classified in its entirety as current orlong-term based on whether the related revenue will be recognized within twelve months of the origination date of the arrangement. The amounts capitalizedprimarily relate to nonrecurring costs incurred in the initial phase of our SaaS arrangements (i.e., setup costs), which consist of costs related to the installationof systems and processes and prepaid third-party cloud infrastructure costs. Capitalized setup costs are amortized on a straight-line basis over the expectedperiod of benefit, which includes anticipated contract renewals or extensions, consistent with the transfer to the customer of the services to which the assetrelates. During the year ended January 31, 2019, we amortized $18.3 million of contract fulfillment costs.Financial Statement Impact of AdoptionWe adopted ASU No. 2014-09 utilizing the modified retrospective method. The cumulative impact of applying the new guidance to all contracts withcustomers that were not completed as of February 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. As a result ofapplying the modified retrospective method to adopt the new standard, the following adjustments were made to accounts on the consolidated balance sheetas of February 1, 2018:(in thousands) Balance atJanuary 31,2018 Adjustments fromAdopting ASU No.2014-09 Balance atFebruary 1, 2018Assets: Accounts receivable, net $296,324 $53,682 $350,006Contract assets — 69,217 69,217Deferred cost of revenue 6,096 2,056 8,152Prepaid expenses and other current assets 82,090 (829) 81,261Long-term deferred cost of revenue 2,804 2,193 4,997Deferred income taxes 30,878 (2,248) 28,630Other assets 52,037 14,912 66,949 Liabilities: Accrued expenses and other current liabilities 220,265 (46,062) 174,203Contract liabilities 196,107 139,517 335,624Long-term contract liabilities 24,519 6,518 31,037Deferred income taxes 35,305 963 36,268 Stockholders' Equity: Total stockholders' equity 1,132,336 38,047 1,170,383In connection with the adoption of the new revenue recognition accounting standard, we decreased our accumulated deficit by $38.0 million, due touncompleted contracts at February 1, 2018, for which $17.2 million of revenue will not be recognized in future periods under the new standard. Uponadoption, we deferred $4.2 million of previously expensed contract costs and reversed $2.9 million of expenses due to the new standard precluding therecognition or deferral of costs to simply obtain an even profit margin over the contract term, which was acceptable under prior contract accounting guidance.We capitalized $16.9 million of incremental sales commission costs at the adoption date directly related to obtaining customer contracts and are amortizingthese costs as we satisfy the underlying performance obligations, which for certain contracts can include anticipated renewal periods. The acceleration ofrevenue that was deferred under prior guidance as of February 1, 2018, was primarily attributable to being able to recognize minimum guaranteed amountsupon delivery of our software rather than over the term of the arrangement, the ability to recognize professional services revenue in advance of achievingbilling milestones, no longer requiring the separation of promised goods or services, such as software licenses, technical support, or unspecified update rightson the basis of vendor specific objective evidence, and the impact of allocating the transaction price to the performance obligations in the contract on arelative basis using SSP rather than allocating under the residual method, which allocates the entire arrangement discount to the delivered performanceobligations.81Table of ContentsThe net change in deferred income taxes of $3.2 million is primarily due to the deferred tax effects resulting from the adjustment to accumulated deficit forthe cumulative effect of applying ASU No. 2014-09 to active contracts as of the adoption date.We made certain presentation changes to our consolidated balance sheet on February 1, 2018 to comply with ASU No. 2014-09. Prior to adoption of the newstandard, we offset accounts receivable and contract liabilities (previously presented as deferred revenue on our consolidated balance sheet) for unpaiddeferred performance obligations included in contract liabilities. Under the new standard, we record accounts receivable and related contract liabilities fornoncancelable contracts with customers when the right to consideration is unconditional. Upon adoption, the right to consideration in exchange for goods orservices that have been transferred to a customer when that right is conditional on something other than the passage of time were reclassified from accountsreceivable to contract assets. In addition, we reclassified amounts related to billings in excess of costs and estimated earnings on uncompleted contracts,which under prior guidance was included in accrued expenses and other liabilities on our consolidated balance sheet, to contract liabilities upon adoption.Impact of ASU No. 2014-09 on Financial Statement Line ItemsThe impact of adoption of ASU No. 2014-09 on our consolidated balance sheet as of January 31, 2019 and on our consolidated statement of operations forthe year ended January 31, 2019 was as follows: January 31, 2019(in thousands) As Reported Balances withoutAdoption of ASUNo. 2014-09 Effect of ChangeHigher (Lower)Consolidated Balance Sheet Assets: Accounts receivable, net $375,663 $260,630 $115,033Contract assets 63,389 — 63,389Deferred cost of revenue 10,302 11,574 (1,272)Prepaid expenses and other current assets 87,474 93,470 (5,996)Long-term deferred cost of revenue 4,630 1,196 3,434Deferred income taxes 21,040 23,222 (2,182)Other assets 78,871 48,499 30,372 Liabilities: Accrued expenses and other current liabilities 208,481 248,120 (39,639)Contract liabilities 377,376 226,423 150,953Long-term contract liabilities 30,094 29,160 934Deferred income taxes 43,171 42,241 930 Stockholders' Equity: Total stockholders' equity 1,260,804 1,171,204 89,600While the table below indicates that calculated revenue for the year ended January 31, 2019 without the adoption of ASU No. 2014-09 would have beenlower than the revenue we are reporting under the new accounting guidance, this lower calculated revenue results not only from the impact of the newaccounting guidance, but also from changes we made to our business practices in anticipation and as a result of the new accounting guidance. These businesspractice changes adversely impact the calculation of revenue under the prior accounting guidance and include, among other things, the way we manage ourprofessional services projects, offer and deploy our solutions, structure certain customer contracts, and make pricing decisions. While the many variables,required assumptions, and other complexities associated with these business practice changes make it impractical to precisely quantify the impact of thesechanges, we believe that calculated revenue under the prior accounting guidance, but absent these business practice changes, would have been closer to therevenue we are reporting under the new accounting guidance.82Table of Contents Year Ended January 31, 2019(in thousands) As Reported Balances withoutAdoption of ASUNo. 2014-09 Effect of ChangeHigher (Lower)Consolidated Statement of Operations Revenue: Product $454,650 $418,531 $36,119Service and support 775,097 763,444 11,653 Cost of revenue: Product 129,922 124,705 5,217Service and support 293,888 294,580 (692) Expenses and Other: Selling, general and administrative 426,183 440,124 (13,941)Provision for income taxes 7,542 1,842 5,700Net income 70,220 18,732 51,488The adoption of ASU No. 2014-09 had no impact to cash provided by or used in operating, investing, or financing activities on our consolidated statement ofcash flows.3.NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO VERINT SYSTEMS INC. The following table summarizes the calculation of basic and diluted net income (loss) per common share attributable to Verint Systems Inc. for the yearsended January 31, 2019, 2018, and 2017: Year Ended January 31,(in thousands, except per share amounts) 2019 2018 2017Net income (loss) $70,220 $(3,454) $(26,246)Net income attributable to noncontrolling interests 4,229 3,173 3,134Net income (loss) attributable to Verint Systems Inc. $65,991 $(6,627) $(29,380)Weighted-average shares outstanding: Basic 64,913 63,312 62,593Dilutive effect of employee equity award plans 1,332 — —Dilutive effect of 1.50% convertible senior notes — — —Dilutive effect of warrants — — —Diluted 66,245 63,312 62,593Net income (loss) per common share attributable to Verint Systems Inc.: Basic $1.02 $(0.10) $(0.47)Diluted $1.00 $(0.10) $(0.47)We excluded the following weighted-average potential common shares from the calculations of diluted net income (loss) per common share during theapplicable periods because their inclusion would have been anti-dilutive: Year Ended January 31,(in thousands) 2019 2018 2017Stock options and restricted stock-based awards 276 1,187 1,0971.50% convertible senior notes 6,205 6,205 6,205Warrants 6,205 6,205 6,20583Table of ContentsIn 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 areidentical 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, ascalculated in accordance with the terms of the indenture governing the Notes, exceeds the conversion price of $64.46 per share. Likewise, diluted net incomeper share will not include any effect from the Warrants (as defined in Note 7, “Long-Term Debt”) unless the average price of our common stock, as calculatedunder the terms of the Warrants, exceeds the exercise price of $75.00 per share.Our Note Hedges (as defined in Note 7, “Long-Term Debt”) do not impact the calculation of diluted net income (loss) per share under the treasury stockmethod, 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 bedelivered 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, actualconversion of any or all of the Notes would not increase our outstanding common stock. Up to 6,205,000 common shares could, however, be issued uponexercise of the Warrants. Further details regarding the Notes, Note Hedges, and the Warrants appear in Note 7, “Long-Term Debt”.4. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTSThe following tables summarize our cash, cash equivalents, and short-term investments as of January 31, 2019 and 2018: January 31, 2019(in thousands) Cost Basis Gross UnrealizedGains Gross UnrealizedLosses Estimated FairValueCash and cash equivalents: Cash and bank time deposits $359,266 $— $— $359,266Money market funds 10,709 — — 10,709Total cash and cash equivalents $369,975 $— $— $369,975 Short-term investments: Bank time deposits $32,329 $— $— $32,329Total short-term investments $32,329 $— $— $32,329 January 31, 2018(in thousands) Cost Basis Gross UnrealizedGains Gross UnrealizedLosses Estimated FairValueCash and cash equivalents: Cash and bank time deposits $337,756 $— $— $337,756Money market funds 186 — — 186Total cash and cash equivalents $337,942 $— $— $337,942 Short-term investments: Corporate debt securities (available-for-sale) $2,002 $— $— $2,002Bank time deposits 4,564 — — 4,564Total short-term investments $6,566 $— $— $6,566Bank 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, orwithout specified maturity dates which we intend to hold for periods in excess of 90 days. All other bank deposits are included within cash and cashequivalents.As of January 31, 2018, 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, 2019, 2018, and 2017 were not significant.During the years ended January 31, 2019, 2018, and 2017, proceeds from maturities and sales of available-for-sale securities were $33.1 million, $8.7 million,and $52.8 million, respectively.84Table of Contents5.BUSINESS COMBINATIONSYear Ended January 31, 2019ForeSee Results, Inc.On December 19, 2018, we completed the acquisition of all of the outstanding shares of ForeSee Results, Inc. and all of the outstanding membership interestsof RSR Acquisition LLC (together, “ForeSee”), a leading cloud Voice of the Customer (“VOC”) vendor with software solutions designed to measure andbenchmark a 360-degree view of the customer across every touch point. ForeSee is based in Ann Arbor, Michigan.The purchase price of $64.9 million consisted of $58.9 million of cash paid at closing, funded from cash on hand, and a post-closing deferred purchase priceadjustment of $6.0 million of cash to be paid in April 2019 or earlier upon the resolution of a contingency, partially offset by $0.4 million of ForeSee’s cashreceived in the acquisition, resulting in net cash consideration at closing of $58.5 million. The purchase price is subject to customary purchase priceadjustments related to the final determination of ForeSee’s cash, net working capital, transaction expenses, and taxes as of December 19, 2018. The acquiredbusiness is being integrated into our Customer Engagement operating segment.The purchase price for ForeSee was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on theacquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired weredetermined primarily by using the income approach, which discounts the expected future cash flows to present value using estimates and assumptionsdetermined by management.Among the factors contributing to the recognition of goodwill as a component of the ForeSee purchase price allocation were synergies in products andtechnologies, and the addition of a skilled, assembled workforce. The $33.7 million of goodwill has been assigned to our Customer Engagement segment. Forincome tax purposes, $3.3 million of this goodwill is deductible and $30.4 million is not deductible.In connection with the purchase price allocation for ForeSee, the estimated fair value of undelivered performance obligations under customer contractsassumed in the acquisition was determined utilizing a cost build-up approach. The cost build-up approach calculated fair value by estimating the costsrequired to fulfill the obligations plus a reasonable profit margin, which approximates the amount that we believe would be required to pay a third party toassume the performance obligations. The estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similarservices. As a result, in allocating the purchase price, we recorded $10.0 million of current and long-term contract liabilities, representing the estimated fairvalue of undelivered performance obligations for which payment had been received, which will be recognized as revenue as the underlying performanceobligations are delivered. For undelivered performance obligations for which payment had not been received, we recorded a $10.4 million asset as acomponent of the purchase price allocation, representing the estimated fair value of these obligations, $5.6 million of which is included within prepaidexpenses and other current assets, and $4.8 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 ForeSee, consisting primarily of professional fees and integration expenses, were $3.3million for the year ended January 31, 2019, and were expensed as incurred and are included in selling, general and administrative expenses.Revenue attributable to ForeSee included in our consolidated statement of operations for the year ended January 31, 2019 was not material. A loss beforeprovision (benefit) for income taxes of $6.0 million attributable to ForeSee is included in our consolidated statement of operations for the year ended January31, 2019.The following table sets forth the components and the allocation of the purchase price for our acquisition of ForeSee:85Table of Contents(in thousands) AmountComponents of Purchase Price: Cash $58,901Deferred purchase price consideration 6,000Total purchase price $64,901 Allocation of Purchase Price: Net tangible assets (liabilities): Accounts receivable $7,245Other current assets, including cash acquired 8,145Other assets 6,586Current and other liabilities (12,993)Contract liabilities - current and long-term (10,037)Deferred income taxes (11,343)Net tangible liabilities (12,397)Identifiable intangible assets: Customer relationships 19,500Developed technology 20,700Trademarks and trade names 3,400Total identifiable intangible assets 43,600Goodwill 33,698Total purchase price allocation $64,901The acquired customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of seven and nine years,four years, and four years, respectively, the weighted average of which is approximately 6.1 years. The acquired identifiable intangible assets are beingamortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.Other Business CombinationsDuring the year ended January 31, 2019, we completed three other business combinations:•On July 18, 2018, we completed the acquisition of a business that has been integrated into our Customer Engagement operating segment.•On November 8, 2018, we completed the acquisition of a business that has been integrated into our Cyber Intelligence operating segment, in whichwe had a $2.2 million, or approximately 19%, noncontrolling equity investment prior to the acquisition.•On November 9, 2018, we acquired certain technology and other assets for use in our Customer Engagement operating segment in a transaction thatqualified as a business combination.These business combinations were not individually material to our consolidated financial statements.The combined consideration for these business combinations was approximately $51.3 million, including $33.1 million of combined cash paid at theclosings. For two of these business combinations, we also agreed to make potential additional cash payments to the respective former shareholdersaggregating up to approximately $35.5 million, contingent upon the achievement of certain performance targets over periods extending through January2021. The fair value of these contingent consideration obligations was estimated to be $15.9 million at the applicable acquisition dates. The acquisition datefair value of our previously held equity interest was approximately $2.2 million and was included in the measurement of the consideration transferred. Cashpaid for these business combinations was funded by cash on hand.The purchase prices for these business combinations were allocated to the tangible and intangible assets acquired and liabilities assumed based on theirestimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded as goodwill. The fair value assigned to identifiableintangible assets acquired were determined primarily by using the income approach, which discounts expected future cash flows to present value usingestimates and assumptions determined by management.86Table of ContentsIncluded among the factors contributing to the recognition of goodwill in these transactions were synergies in products and technologies, and the addition ofskilled, assembled workforces. Of the $25.1 million of goodwill associated with these business combinations, $14.3 million and $10.8 million was assignedto our Customer Engagement and Cyber Intelligence segments, respectively, and for income tax purposes is not deductible.Revenue and net income (loss) attributable to these acquisitions for the year ended January 31, 2019 were not material.Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these acquisitions, totaled $0.9 millionfor the year ended January 31, 2019. All transaction and related costs were expensed as incurred and are included in selling, general and administrativeexpenses.The purchase price allocations for the business combinations completed during the year ended January 31, 2019 have been prepared on a preliminary basisand changes to those allocations may occur as additional information becomes available during the respective measurement periods (up to one year from therespective acquisition dates). Fair values still under review include values assigned to identifiable intangible assets, contingent consideration, deferredincome taxes, and reserves for uncertain income tax positions.The following table sets forth the components and the allocations of the combined purchase prices for the business combinations, other than ForeSee,completed during the year ended January 31, 2019:(in thousands) AmountComponents of Purchase Prices: Cash $33,138Fair value of contingent consideration 15,875Fair value of previously held equity interest 2,239Total purchase prices $51,252 Allocation of Purchase Prices: Net tangible assets (liabilities): Accounts receivable $1,897Other current assets, including cash acquired 6,901Other assets 9,432Current and other liabilities (2,151)Contract liabilities - current and long-term (771)Deferred income taxes (7,914)Net tangible assets 7,394Identifiable intangible assets: Customer relationships 7,521Developed technology 10,692Trademarks and trade names 500Total identifiable intangible assets 18,713Goodwill 25,145Total purchase price allocations $51,252For these acquisitions, customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of from sevenyears to ten years, three years to five years, and four years, respectively, the weighted average of which is approximately 6.6 years.Year Ended January 31, 2018During the year ended January 31, 2018, we completed seven business combinations:•On February 1, March 20, October 3, November 3, December 19, and December 21, 2017, we completed acquisitions of businesses in our CustomerEngagement operating segment. One of the transactions was an asset acquisition that qualified as a business combination, and another of whichretained a noncontrolling interest.•On July 1, 2017, we completed the acquisition of a business in our Cyber Intelligence operating segment.87Table of ContentsThese business combinations were not individually material to our consolidated financial statements.The combined consideration for these business combinations was approximately $134.8 million, including $106.0 million of combined cash paid at theclosings. For five of these business combinations, we also agreed to make potential additional cash payments to the respective former shareholdersaggregating up to approximately $47.3 million, contingent upon the achievement of certain performance targets over periods extending through January2022. The fair value of these contingent consideration obligations was estimated to be $25.9 million at the applicable acquisition dates. Cash paid for thesebusiness combinations was funded by cash on hand.The purchase prices for these business combinations were allocated to the tangible and intangible assets acquired and liabilities assumed based on theirestimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded as goodwill. The fair value assigned to identifiableintangible assets acquired were determined primarily by using the income approach, which discounts expected future cash flows to present value usingestimates and assumptions determined by management.Included among the factors contributing to the recognition of goodwill in these transactions were synergies in products and technologies, and the addition ofskilled, assembled workforces. Of the $80.2 million of goodwill associated with these business combinations, $76.4 million and $3.8 million was assigned toour Customer Engagement and Cyber Intelligence segments, respectively. For income tax purposes, $14.5 million of this goodwill is deductible and $65.7million is not deductible.Revenue and the impact on net loss attributable to these acquisitions for the year ended January 31, 2018 were not material.Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these acquisitions, totaled $2.5 millionand $4.9 million for the years ended January 31, 2019 and 2018, respectively. All transaction and related costs were expensed as incurred and are included inselling, general and administrative expenses.The purchase price allocations for the business combinations completed during the year ended January 31, 2018 are final.The following table sets forth the components and the allocations of the combined purchase prices for the business combinations completed during the yearended January 31, 2018, including adjustments identified subsequent to the respective valuation dates, none of which were material:88Table of Contents(in thousands) AmountComponents of Purchase Prices: Cash $106,049Fair value of contingent consideration 25,874Other purchase price adjustments 2,897Total purchase prices $134,820 Allocation of Purchase Prices: Net tangible assets (liabilities): Accounts receivable $4,184Other current assets, including cash acquired 15,108Other assets 2,765Current and other liabilities (12,512)Contract liabilities - current and long-term (4,424)Deferred income taxes (7,381)Net tangible liabilities (2,260)Identifiable intangible assets: Customer relationships 24,812Developed technology 29,614Trademarks and trade names 2,456Total identifiable intangible assets 56,882Goodwill 80,198Total purchase price allocations $134,820For these acquisitions, customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of fromthree years to ten years, from three years to eight years, and from one year to seven years, respectively, the weighted average of which is approximately6.8 years.Year Ended January 31, 2017Contact Solutions, LLCOn February 19, 2016, we completed the acquisition of Contact Solutions, LLC (“Contact Solutions”), a provider of real-time, contextual self-servicesolutions, 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 priceadjustment 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.The purchase price for Contact Solutions was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fairvalues on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assetsacquired were determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates andassumptions 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 productsand technologies, and the addition of a skilled, assembled workforce. This goodwill was assigned to our Customer Engagement segment and is deductible forincome tax purposes.In connection with the purchase price allocation for Contact Solutions, the estimated fair value of undelivered performance obligations under customercontracts assumed in the acquisition was determined utilizing a cost build-up approach. The cost build-up approach calculates fair value by estimating thecosts required to fulfill the obligations plus a reasonable profit margin, which approximates the amount that we believe would be required to pay a third partyto assume the performance obligations. The estimated costs to fulfill the performance obligations were based on the historical direct costs for deliveringsimilar services. As a result, in allocating the purchase price, we recorded $0.6 million of current and long-term contract liabilities, representing the estimatedfair value of undelivered performance obligations for which payment had been received, which is being recognized as revenue as the underlying performanceobligations are delivered. For undelivered performance obligations89Table of Contentsfor which payment had not yet been received, we recorded a $2.9 million asset as a component of the purchase price allocation, representing the estimatedfair value of these obligations, $1.2 million of which was included within prepaid expenses and other current assets, and $1.7 million of which was includedin other assets. We are amortizing this asset over the underlying delivery periods, which adjusts the revenue we recognize for providing these services to itsestimated fair value.Transaction and related costs directly related to the acquisition of Contact Solutions, consisting primarily of professional fees and integration expenses, were$0.2 million and $1.4 million for the years ended January 31, 2018 and 2017, respectively, and were expensed as incurred and are included in selling, generaland administrative expenses.Revenue attributable to Contact Solutions included in our consolidated statement of operations for the year ended January 31, 2017 was notmaterial. Contact Solutions reported a loss before provision (benefit) for income taxes of $8.5 million, which is included in our consolidated statement ofoperations 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 ofomnichannel Voice of Customer (“VoC”) feedback solutions which help organizations collect, understand, and leverage customer insights, helping drivesmarter, 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 cashreceived in the acquisition, resulting in net cash consideration at closing of $50.0 million. We also agreed to pay potential additional future cashconsideration 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 was subject to customary purchase price adjustments related tothe final determination of OpinionLab’s cash, net working capital, transaction expenses, and taxes as of November 16, 2016. The acquired business has beenintegrated 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 onthe acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquiredwere determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptionsdetermined by management.Among the factors contributing to the recognition of goodwill as a component of the OpinionLab purchase price allocation were synergies in products andtechnologies, and the addition of a skilled, assembled workforce. This goodwill was assigned to our Customer Engagement segment and is not deductible forincome tax purposes.In connection with the purchase price allocation for OpinionLab, the estimated fair value of undelivered performance obligations under customer contractsassumed in the acquisition was determined utilizing a cost build-up approach. The cost build-up approach calculates fair value by estimating the costsrequired to fulfill the obligations plus a reasonable profit margin, which approximates the amount that we believe would be required to pay a third party toassume the performance obligations. The estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similarservices. As a result, in allocating the purchase price, we recorded $3.1 million of current and long-term contract liabilities, representing the estimated fairvalue of undelivered performance obligations for which payment had been received, which is being recognized as revenue as the underlying performanceobligations are delivered. For undelivered performance obligations for which payment had not yet been received, we recorded a $5.4 million asset as acomponent of the purchase price allocation, representing the estimated fair value of these obligations, $3.4 million of which was included within prepaidexpenses and other current assets, and $2.0 million of which was 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 OpinionLab, consisting primarily of professional fees and integration expenses, were $0.9million and $0.6 million for the years ended January 31, 2018 and 2017, respectively, and were expensed as incurred and are included in selling, general andadministrative expenses.Revenue and (loss) income before provision (benefit) for income taxes attributable to OpinionLab included in our consolidated statement of operations forthe 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.90Table of Contents(in thousands) ContactSolutions OpinionLabComponents of Purchase Price: Cash paid at closing $66,915 $56,355Fair value of contingent consideration — 15,000Other purchase price adjustments 2,518 —Total purchase price $69,433 $71,355 Allocation of Purchase Price: Net tangible assets (liabilities): Accounts receivable $8,102 $748Other current assets, including cash acquired 2,392 10,625Property and equipment, net 7,007 298Other assets 1,904 2,036Current and other liabilities (4,943) (1,600)Contract liabilities - current and long-term (642) (3,082)Deferred income taxes — (9,877)Net tangible assets (liabilities) 13,820 (852)Identifiable intangible assets: Customer relationships 18,000 19,100Developed technology 13,100 10,400Trademarks and trade names 2,400 1,800Total identifiable intangible assets 33,500 31,300Goodwill 22,113 40,907Total purchase price allocation $69,433 $71,355For the acquisition of Contact Solutions, the acquired customer relationships, developed technology, and trademarks and trade names were assignedestimated useful lives of ten years, four years, and five years, respectively, the weighted average of which was approximately 7.3 years.For the acquisition of OpinionLab, the acquired customer relationships, developed technology, and trademarks and trade names were assigned estimateduseful lives of ten years, six years, and four years, respectively, the weighted average of which was approximately 8.3 years.The weighted-average estimated useful life of all finite-lived identifiable intangible assets acquired during the year ended January 31, 2017 was 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 areutilized, over their estimated useful lives.The purchase price allocations for business combinations completed during the year ended January 31, 2017 are final.Other Business CombinationsDuring 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.Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these acquisitions, totaled $0.7 million,and $0.6 million for the years ended January 31, 2018, and 2017 respectively. All transaction and related costs were expensed as incurred and are included inselling, general and administrative expenses.Other Business Combination InformationThe pro forma impact of all business combinations completed during the three years ended January 31, 2019 was not material to our historical consolidatedoperating results and is therefore not presented.91Table of ContentsThe acquisition date fair values of contingent consideration obligations associated with business combinations are estimated based on probability adjustedpresent values of the consideration expected to be transferred using significant inputs that are not observable in the market. Key assumptions used in theseestimates include probability assessments with respect to the likelihood of achieving the performance targets and discount rates consistent with the level ofrisk of achievement. At each reporting date, we revalue the contingent consideration obligations to their fair values and record increases and decreases in fairvalue within selling, general and administrative expenses in our consolidated statements of operations. Changes in the fair value of the contingentconsideration obligations result from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood ofachieving the performance targets.For the years ended January 31, 2019, 2018, and 2017, we recorded a benefit of $3.6 million, a benefit of $8.3 million, and a charge of $7.3 million,respectively, within selling, general and administrative expenses for changes in the fair values of contingent consideration obligations associated withbusiness combinations. The aggregate fair value of the remaining contingent consideration obligations associated with business combinations was $61.3million at January 31, 2019, of which $28.4 million was recorded within accrued expenses and other current liabilities, and $32.9 million was recordedwithin other liabilities.Payments of contingent consideration earned under these agreements were $13.6 million, $9.4 million, and $3.3 million for the years ended January 31,2019, 2018, and 2017, respectively.6.INTANGIBLE ASSETS AND GOODWILL Acquisition-related intangible assets consisted of the following as of January 31, 2019 and 2018: January 31, 2019(in thousands) Cost AccumulatedAmortization NetIntangible assets with finite lives: Customer relationships $452,918 $(299,549) $153,369Acquired technology 285,230 (221,145) 64,085Trade names 12,859 (5,130) 7,729Distribution network 4,440 (4,440) —Total intangible assets $755,447 $(530,264) $225,183 January 31, 2018(in thousands) Cost AccumulatedAmortization NetIntangible assets, all with finite lives: Customer relationships $438,664 $(281,592) $157,072Acquired technology 273,156 (212,571) 60,585Trade names 26,820 (18,570) 8,250Non-competition agreements 3,047 (2,861) 186Distribution network 4,440 (4,440) —Total intangible assets $746,127 $(520,034) $226,093In the year ended January 31, 2019, the gross carrying amount of acquired intangibles was reduced by certain intangible assets previously acquired that werefully amortized and were removed from our consolidated balance sheet.The following table presents net acquisition-related intangible assets by reportable segment as of January 31, 2019 and 2018: 92Table of Contents January 31,(in thousands)20192018Customer Engagement$218,738$213,963Cyber Intelligence6,44512,130Total$225,183$226,093 Total amortization expense recorded for acquisition-related intangible assets was $56.4 million, $72.4 million, and $81.5 million for the years endedJanuary 31, 2019, 2018, and 2017, respectively. The reported amount of net acquisition-related intangible assets can fluctuate from the impact of changes inforeign 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,Amount2020$53,883202145,664202241,924202333,461202423,340Thereafter26,911Total$225,183 During the year ended January 31, 2018, we recorded $3.3 million of impairments for certain acquired customer-related intangible assets, which is includedwithin selling, general and administrative expenses. No impairments of acquired intangible assets were recorded during the years ended January 31, 2019 and2017.Goodwill activity for the years ended January 31, 2019, and 2018, in total and by reportable segment, was as follows: Reportable Segment(in thousands) Total CustomerEngagement CyberIntelligenceYear Ended January 31, 2018: Goodwill, gross, at January 31, 2017 $1,331,683 $1,188,022 $143,661Accumulated impairment losses through January 31, 2017 (66,865) (56,043) (10,822)Goodwill, net, at January 31, 2017 1,264,818 1,131,979 132,839Business combinations, including adjustments to prior period acquisitions 81,180 77,345 3,835Foreign currency translation and other 42,301 41,769 532Goodwill, net, at January 31, 2018 $1,388,299 $1,251,093 $137,206 Year Ended January 31, 2019: Goodwill, gross, at January 31, 2018 $1,455,164 $1,307,136 $148,028Accumulated impairment losses through January 31, 2018 (66,865) (56,043) (10,822)Goodwill, net, at January 31, 2018 1,388,299 1,251,093 137,206Business combinations, including adjustments to prior period acquisitions 59,035 48,225 10,810Foreign currency translation and other (29,853) (28,991) (862)Goodwill, net, at January 31, 2019 $1,417,481 $1,270,327 $147,154 Balance at January 31, 2019: Goodwill, gross, at January 31, 2019 $1,484,346 $1,326,370 $157,976Accumulated impairment losses through January 31, 2019 (66,865) (56,043) (10,822)Goodwill, net, at January 31, 2019 $1,417,481 $1,270,327 $147,154 For purposes of reviewing for potential goodwill impairment, we have three reporting units, consisting of Customer Engagement, Cyber Intelligence(excluding situational intelligence solutions), and Situational Intelligence, which is a component of our Cyber Intelligence operating segment. Based on ourNovember 1, 2018 goodwill impairment qualitative93Table of Contentsreview of each reporting unit, we determined that it is more likely than not that the fair value of each of our reporting units substantially exceeds therespective carrying amounts. Accordingly, there was no indication of impairment and a quantitative goodwill impairment test was not performed. Based onour November 1, 2017 quantitative goodwill impairment reviews, we concluded that the estimated fair values of all of our reporting units significantlyexceeded 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 endedJanuary 31, 2019 and 2018.No goodwill impairment was identified for the years ended January 31, 2019, 2018, and 2017.7.LONG-TERM DEBTThe following table summarizes our long-term debt at January 31, 2019 and 2018: January 31,(in thousands) 2019 2018 1.50% Convertible Senior Notes $400,000 $400,000June 2017 Term Loan 418,625 422,875Other debt 92 250Less: Unamortized debt discounts and issuance costs (36,589) (50,141)Total debt 782,128 772,984Less: current maturities 4,343 4,500Long-term debt $777,785 $768,4841.50% Convertible Senior NotesOn June 18, 2014, we issued $400.0 million in aggregate principal amount of 1.50% convertible senior notes due June 1, 2021 (“Notes”), unless earlierconverted by the holders pursuant to their terms. Net proceeds from the Notes after underwriting discounts were $391.9 million. The Notes pay interest incash 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 wereused to partially repay certain indebtedness under our Prior Credit Agreement, as defined and 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 inright of payment to our indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to theextent 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 andduring 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 ofapproximately $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. Theconversion rate has not changed since issuance of the Notes, although throughout the term of the Notes, the conversion rate may be adjusted upon theoccurrence 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 commonstock, 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 theimmediately preceding calendar quarter, is more than 130% of the conversion price of the Notes in effect on each applicable trading day;94Table of Contents•during the ten consecutive trading-day period following any 5 consecutive trading-day period in which the trading price for the Notes for each suchtrading 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 bindingshare 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 surrendertheir Notes for conversion regardless of whether any of the foregoing conditions have been satisfied. Holders of the Notes may require us to purchase for cashall 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 beingpurchased, plus accrued and unpaid interest.As of January 31, 2019, 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 ofthe 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 asan increase to additional paid-in capital. The excess of the principal amount of the debt component over its carrying amount (the “debt discount”) is beingamortized as interest expense over the term of the Notes using the effective interest method. The equity component is not remeasured as long as it continuesto 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 equitycomponents, respectively. Issuance costs attributable to the debt component of the Notes are presented as a reduction of long-term debt and are beingamortized as interest expense over the term of the Notes, and issuance costs attributable to the equity component were netted with the equity component inadditional paid-in capital. The carrying amount of the equity component, net of issuance costs, was $78.2 million at January 31, 2019.As of January 31, 2019, the carrying value of the debt component was $367.0 million, which is net of unamortized debt discount and issuance costs of $30.2million and $2.8 million, respectively. Including the impact of the debt discount and related deferred debt issuance costs, the effective interest rate on theNotes was approximately 5.29% for each of the years ended January 31, 2019, 2018, and 2017.Based on the closing market price of our common stock on January 31, 2019, the if-converted value of the Notes was less than the aggregate principalamount of the Notes.Note Hedges and WarrantsConcurrently with the issuance of the Notes, we entered into convertible note hedge transactions (the “Note Hedges”) and sold warrants (the “Warrants”). Thecombination 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 Hedgesand Warrants are each separate instruments from the Notes.Note HedgesPursuant to the Note Hedges, we purchased call options on our common stock, under which we have the right to acquire from the counterparties up toapproximately 6,205,000 shares of our common stock, subject to customary anti-dilution adjustments, at a price of $64.46, which equals the initialconversion price of the Notes. Our exercise rights under the Note Hedges generally trigger upon conversion of the Notes and the Note Hedges terminate uponmaturity 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 acombination 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 theNote Hedges, which was recorded as a reduction to additional paid-in capital. As of January 31, 2019, we had not purchased any shares of our common stockunder the Note Hedges.WarrantsWe sold the Warrants to several counterparties. The Warrants provide the counterparties rights to acquire from us up to approximately 6,205,000 shares of ourcommon stock at a price of $75.00 per share. The Warrants expire incrementally on a95Table of Contentsseries 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 pershare 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 $45.2million and were recorded as additional paid-in capital. As of January 31, 2019, 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 remeasuredand adjusted as long as these instruments continue to qualify for stockholders’ equity classification.Credit AgreementsPrior Credit AgreementIn April 2011, we entered into a credit agreement with certain lenders, which was amended and restated in March 2013, and further amended in February,March, and June 2014 (as amended, the “Prior Credit Agreement”). The Prior Credit Agreement provided for senior secured credit facilities, comprised of$943.5 million of term loans, of which $300.0 million was borrowed in February 2014 and $643.5 million was borrowed in March 2014 (together, the “2014Term Loans”), the outstanding portion of which was scheduled to mature in September 2019, and a $300.0 million revolving credit facility (the “PriorRevolving Credit Facility”), scheduled to mature in September 2018, subject to increase and reduction from time to time, in accordance with the terms of thePrior 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 ofcommon stock to retire $530.0 million of the 2014 Term Loans, and all $106.0 million of then-outstanding borrowings under the Prior Revolving CreditFacility.The 2014 Term Loans incurred interest at our option at either a base rate plus a margin of 1.75% or an Adjusted LIBOR Rate, as defined in the Prior CreditAgreement, plus a margin of 2.75%.2017 Credit AgreementOn June 29, 2017, we entered into a new credit agreement (the “2017 Credit Agreement”) with certain lenders and terminated the Prior Credit Agreement.The 2017 Credit Agreement provides for $725.0 million of senior secured credit facilities, comprised of a $425.0 million term loan maturing on June 29,2024 (the “2017 Term Loan”) and a $300.0 million revolving credit facility maturing on June 29, 2022 (the “2017 Revolving Credit Facility”), subject toincrease and reduction from time to time according to the terms of the 2017 Credit Agreement. The maturity dates of the 2017 Term Loan and 2017Revolving Credit Facility will be accelerated to March 1, 2021 if on such date any Notes remain outstanding.The majority of the proceeds from the 2017 Term Loan were used to repay all $406.9 million that remained outstanding under the 2014 Term Loans at June29, 2017 upon termination of the Prior Credit Agreement. There were no borrowings under the Prior Revolving Credit Facility at June 29, 2017.The 2017 Term Loan was subject to an original issuance discount of approximately $0.5 million. This discount is being amortized as interest expense overthe term of the 2017 Term Loan using the effective interest method.Interest rates on loans under the 2017 Credit Agreement are periodically reset, at our option, at either a Eurodollar Rate or an ABR rate (each as defined in the2017 Credit Agreement), plus in each case a margin.On January 31, 2018, we entered into an amendment to the 2017 Credit Agreement (the “2018 Amendment”) providing for, among other things, a reductionof the interest rate margins on the 2017 Term Loan from 2.25% to 2.00% for Eurodollar loans, and from 1.25% to 1.00% for ABR loans. The vast majority ofthe impact of the 2018 Amendment was accounted for as a debt modification. For the portion of the 2017 Term Loan which was considered extinguished andreplaced by new loans, we wrote off $0.2 million of unamortized deferred debt issuance costs as a loss on early retirement of debt during the three monthsended January 31, 2018. The remaining unamortized deferred debt issuance costs and discount is being amortized over the remaining term of the 2017 TermLoan.For loans under the 2017 Revolving Credit Facility, the margin is determined by reference to our Consolidated Total Debt to Consolidated EBITDA (each asdefined in the 2017 Credit Agreement) leverage ratio (the “Leverage Ratio”).96Table of ContentsAs of January 31, 2019, the interest rate on the 2017 Term Loan was 4.52%. Taking into account the impact of the original issuance discount and relateddeferred debt issuance costs, the effective interest rate on the 2017 Term Loan was approximately 4.70% at January 31, 2019. As of January 31, 2018, theinterest rate on the 2017 Term Loan was 3.58%.We are required to pay a commitment fee with respect to unused availability under the 2017 Revolving Credit Facility at a rate per annum determined byreference to our Leverage Ratio.The 2017 Term Loan requires quarterly principal payments of approximately $1.1 million, which commenced on August 1, 2017, with the remaining balancedue on June 29, 2024. Optional prepayments of loans under the 2017 Credit Agreement are generally permitted without premium or penalty.Our obligations under the 2017 Credit Agreement are guaranteed by each of our direct and indirect existing and future material domestic wholly ownedrestricted subsidiaries, and are secured by a security interest in substantially all of our assets and the assets of the guarantor subsidiaries, subject to certainexceptions.The 2017 Credit Agreement contains certain customary affirmative and negative covenants for credit facilities of this type. The 2017 Credit Agreement alsocontains a financial covenant that, solely with respect to the 2017 Revolving Credit Facility, requires us to maintain a Leverage Ratio of no greater than 4.50to 1. The limitations imposed by the covenants are subject to certain exceptions as detailed in the 2017 Credit Agreement.The 2017 Credit Agreement provides for events of default with corresponding grace periods that we believe are customary for credit facilities of this type.Upon an event of default, all of our obligations owed under the 2017 Credit Agreement may be declared immediately due and payable, and the lenders’commitments to make loans under the 2017 Credit Agreement may be terminated.Loss on Early Retirement of 2014 Term LoansAt the June 29, 2017 closing date of the 2017 Credit Agreement, there were $3.2 million of unamortized deferred debt issuance costs and a $0.1 millionunamortized term loan discount associated with the 2014 Term Loans and the Prior Revolving Credit Facility. Of the $3.2 million of unamortized deferreddebt issuance costs, $1.4 million was associated with commitments under the Prior Revolving Credit Facility provided by lenders that are continuing toprovide commitments under the 2017 Revolving Credit Facility and therefore continued to be deferred, and are being amortized on a straight-line basis overthe term of the 2017 Revolving Credit Facility. The remaining $1.8 million of unamortized deferred debt issuance costs and the $0.1 million unamortizeddiscount, all of which related to the 2014 Term Loans, were written off as a $1.9 million loss on early retirement of debt during the three months ended July31, 2017.2017 Credit Agreement Issuance CostsWe incurred debt issuance costs of approximately $6.8 million in connection with the 2017 Credit Agreement, of which $4.1 million were associated with the2017 Term Loan and $2.7 million were associated with the 2017 Revolving Credit Facility, which were deferred and are being amortized as interest expenseover the terms of the facilities under the 2017 Credit Agreement. As noted previously, during the three months ended January 31, 2018, we wrote off $0.2million of deferred debt issuance costs associated with the 2017 Term Loan as a result of the 2018 Amendment. Deferred debt issuance costs associated withthe 2017 Term Loan are being amortized using the effective interest rate method, and deferred debt issuance costs associated with the 2017 Revolving CreditFacility are being amortized on a straight-line basis.Future Principal Payments on Term LoansAs of January 31, 2019, future scheduled principal payments on the 2017 Term Loan were as follows:97Table of Contents(in thousands) Years Ending January 31, Amount2020 $4,2502021 4,2502022 4,2502023 4,2502024 4,2502025 and thereafter 397,375Total $418,625Interest ExpenseThe following table presents the components of interest expense incurred on the Notes and on borrowings under our credit agreements for the years endedJanuary 31, 2019, 2018, and 2017: Year Ended January 31,(in thousands) 2019 2018 20171.50% Convertible Senior Notes: Interest expense at 1.50% coupon rate $6,000 $6,000 $6,000Amortization of debt discount 11,850 11,244 10,669Amortization of deferred debt issuance costs 1,118 1,060 1,007Total Interest Expense - 1.50% Convertible Senior Notes $18,968 $18,304 $17,676 Borrowings under Credit Agreements: Interest expense at contractual rates $17,741 $15,412 $14,682Impact of interest rate swap agreement — 254 259Amortization of debt discounts 67 65 58Amortization of deferred debt issuance costs 1,554 1,839 2,211Total Interest Expense - Borrowings under Credit Agreements $19,362 $17,570 $17,2108.SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION Consolidated Balance Sheets Inventories consisted of the following as of January 31, 2019 and 2018: January 31,(in thousands) 2019 2018Raw materials $10,875 $9,870Work-in-process 5,567 6,269Finished goods 8,510 3,732Total inventories $24,952 $19,871 Property and equipment, net consisted of the following as of January 31, 2019 and 2018: January 31,(in thousands) 2019 2018Land and buildings $10,632 $10,276Leasehold improvements 31,694 29,793Software 51,950 54,032Equipment, furniture, and other 164,351 135,548Total cost 258,627 229,649Less: accumulated depreciation and amortization (158,493) (140,560)Total property and equipment, net $100,134 $89,08998Table of ContentsDepreciation expense on property and equipment was $25.5 million, $26.0 million, and $25.2 million in the years ended January 31, 2019, 2018, and 2017,respectively.Other assets consisted of the following as of January 31, 2019 and 2018: January 31,(in thousands) 2019 2018Long-term restricted cash and time deposits $23,193 $28,402Deferred commissions 29,815 —Deferred debt issuance costs, net 2,836 3,668Long-term security deposits 3,760 4,139Other 19,267 15,828Total other assets $78,871 $52,037Accrued expenses and other current liabilities consisted of the following as of January 31, 2019 and 2018: January 31,(in thousands) 2019 2018Compensation and benefits $96,703 $83,216Billings in excess of costs and estimated earnings on uncompleted contracts — 46,062Income taxes 7,497 14,464Contingent consideration - current portion 28,415 13,187Distributor and agent commissions 11,446 12,255Taxes other than income taxes 20,428 11,424Professional and consulting fees 3,929 8,752Other 40,063 30,905Total accrued expenses and other current liabilities $208,481 $220,265Other liabilities consisted of the following as of January 31, 2019 and 2018: January 31,(in thousands) 2019 2018Unrecognized tax benefits, including interest and penalties $33,063 $41,014Contingent consideration - long-term portion 32,925 49,149Deferred rent expense 12,254 12,168Obligations for severance compensation 2,601 3,028Capital lease obligations - long-term portion 3,067 3,315Other 9,442 5,791Total other liabilities $93,352 $114,465Consolidated Statements of Operations Other (expense) income, net consisted of the following for the years ended January 31, 2019, 2018, and 2017: Year Ended January 31,(in thousands) 2019 2018 2017Foreign currency (losses) gains, net $(5,519) $6,760 $(2,743)Gains (losses) on derivative financial instruments, net 2,511 (17) (322)Other, net (898) (841) (3,861)Total other (expense) income, net $(3,906) $5,902 $(6,926)Consolidated Statements of Cash Flows The following table provides supplemental information regarding our consolidated cash flows for the years ended January 31, 2019, 2018, and 2017:99Table of Contents Year Ended January 31,(in thousands) 2019 2018 2017Cash paid for interest $22,258 $24,402 $21,892Cash payments of income taxes, net $26,887 $23,450 $29,582Non-cash investing and financing transactions: Liabilities for contingent consideration in business combinations $15,944 $27,605 $26,400Capital leases of property and equipment $1,137 $4,350 $151Accrued but unpaid purchases of property and equipment $3,376 $2,367 $2,868Inventory transfers to property and equipment $1,699 $437 $552Leasehold improvements funded by lease incentives $1,397 $— $829.STOCKHOLDERS’ EQUITYCommon Stock DividendsWe did not declare or pay any dividends on our common stock during the years ended January 31, 2019, 2018, and 2017. Under the terms of our 2017 CreditAgreement, we are subject to certain restrictions on declaring and paying dividends on our common stock.Share Repurchase ProgramOn March 29, 2016, we announced that our board of directors had authorized a common stock repurchase program of up to $150 million over two years. Thisprogram expired on March 29, 2018.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, 2019, we held approximately1,665,000 shares of treasury stock with a cost of $57.6 million. At January 31, 2018, we held approximately 1,661,000 and shares of treasury stock with a costof $57.4 million.During the year ended January 31, 2019 we acquired approximately 4,000 shares of treasury stock for a cost of $0.2 million. During the year endedJanuary 31, 2018 we received approximately 7,000 shares of treasury stock in a nonmonetary transaction valued at $0.3 million. During the year endedJanuary 31, 2017 we acquired approximately 1,306,000 shares of treasury stock with a cost of $46.9 million under the aforementioned share repurchaseprogram.From time to time, our board of directors has approved limited programs to repurchase shares of our common stock from directors or officers in connectionwith the vesting of restricted stock or restricted stock units to facilitate required income tax withholding by us or the payment of required income taxes bysuch 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 avesting-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 containssimilar terms. Any such repurchases of common stock occur at prevailing market prices and are recorded as treasury stock. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) includes items such as foreign currency translation adjustments and unrealized gains and losses onderivative financial instruments designated as hedges. Accumulated other comprehensive income (loss) is presented as a separate line item in thestockholders’ equity section of our consolidated balance sheets. Accumulated other comprehensive income (loss) items have no impact on our net income(loss) as presented in our consolidated statements of operations.The following table summarizes changes in the components of our accumulated other comprehensive income (loss) for the years ended January 31, 2019 and2018:100Table of Contents(in thousands) Unrealized Gains(Losses) onDerivativeFinancialInstrumentsDesignated asHedges Unrealized Gainon Interest RateSwap Designatedas Hedge Unrealized Gains(Losses) onAvailable-for-SaleInvestments ForeignCurrencyTranslationAdjustments TotalAccumulated other comprehensive income (loss) atJanuary 31, 2017 $575 $632 $— $(156,063) $(154,856)Other comprehensive income (loss) before reclassifications 8,867 (341) — 49,291 57,817Amounts reclassified out of accumulated othercomprehensive income 6,130 291 — — 6,421Net other comprehensive income (loss) 2,737 (632) — 49,291 51,396Accumulated other comprehensive income (loss) atJanuary 31, 2018 3,312 — — (106,772) (103,460)Other comprehensive loss before reclassifications (8,083) (3,043) — (34,429) (45,555)Amounts reclassified out of accumulated othercomprehensive income (loss) (3,790) — — — (3,790)Net other comprehensive loss (4,293) (3,043) — (34,429) (41,765)Accumulated other comprehensive loss at January 31,2019 $(981) $(3,043) $— $(141,201) $(145,225)All amounts presented in the table above are net of income taxes, if applicable. The accumulated net losses in foreign currency translation adjustmentsprimarily reflect the strengthening of the U.S. dollar against the British pound sterling, which has resulted in lower U.S. dollar-translated balances of Britishpound 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, forthe years ended January 31, 2019, 2018, and 2017 were as follows: Year Ended January 31, Financial Statement Location(in thousands) 2019 2018 2017 Unrealized gains (losses) on derivative financialinstruments: Foreign currency forward contracts $(350) $621 $108 Cost of product revenue (388) 599 115 Cost of service and support revenue (2,138) 3,577 651 Research and development, net (1,343) 2,016 383 Selling, general and administrative (4,219) 6,813 1,257 Total, before income taxes 429 (683) (118) Benefit (provision) for income taxes $(3,790) $6,130 $1,139 Total, net of income taxes Interest rate swap agreement $— $(254) $— Interest expense — 934 — Other income (expense), net — 680 — Total, before income taxes — (389) — Provision for income taxes $— $291 $— Total, net of income taxes10. RESEARCH AND DEVELOPMENT, NETOur gross research and development expenses for the years ended January 31, 2019, 2018, and 2017, were $211.0 million, $192.6 million, and $174.6million, respectively. Reimbursements from the IIA and other government grant programs amounted to $1.9 million, $2.0 million, and $3.5 million for theyears ended January 31, 2019, 2018, and 2017, respectively, which were recorded as reductions of gross research and development expenses.101We capitalize certain costs incurred to develop our commercial software products, and we then recognize those costs within cost of product revenue as theproducts are sold. Activity for our capitalized software development costs for the years ended January 31, 2019, 2018, and 2017 was as follows: Year Ended January 31,(in thousands) 2019 2018 2017Capitalized software development costs, net, beginning of year $9,228 $9,509 $11,992Software development costs capitalized during the year 7,320 3,126 2,338Amortization of capitalized software development costs (3,101) (3,338) (3,341)Impairments, foreign currency translation, and other (105) (69) (1,480)Capitalized software development costs, net, end of year $13,342 $9,228 $9,509During the year ended January 31, 2017, we recorded impairment of capitalized software development costs of $1.3 million reflecting strategy changes incertain product development initiatives, due in part to acquisition of technology associated with business combinations. There were no material impairmentsof such costs during the years ended January 31, 2019 and 2018.11.INCOME TAXES On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States. The 2017 Tax Act significantly revised the Internal Revenue Code of1986, as amended, and it includes fundamental changes to taxation of U.S. multinational corporations. Ongoing compliance with the 2017 Tax Act willrequire significant complex computations not previously required by U.S. tax law.The key provisions of the 2017 Tax Act, which may significantly impact our current and future effective tax rates, include new limitations on the taxdeductions for interest expense and executive compensation, elimination of the alternative minimum tax (“AMT”) and the ability to refund unused AMTcredits over a four-year period, and new rules related to uses and limitations of net operating loss carryforwards. New international provisions add a newcategory of deemed income from our foreign operations (global intangible low-taxed income, GILTI), eliminates U.S. tax on foreign dividends (subject tocertain restrictions), and adds a minimum tax on certain payments made to foreign related parties. We have adopted an accounting policy to account forGILTI as a period cost when incurred, rather than recognizing deferred taxes.In accordance with the provisions of SAB No. 118, as of January 31, 2018 we considered amounts related to the 2017 Tax Act to be reasonably estimated.During the year ended January 31, 2019, we refined and completed the accounting for the 2017 Tax Act as we obtained, prepared, and analyzed additionalinformation and as additional legislative, regulatory, and accounting guidance and interpretations became available, resulting in no adjustment under SABNo. 118.The components of income (loss) before provision for income taxes for the years ended January 31, 2019, 2018, and 2017 were as follows: Year Ended January 31,(in thousands) 2019 2018 2017Domestic $(12,927) $(44,502) $(60,722)Foreign 90,689 63,402 37,248Total income (loss) before provision for income taxes $77,762 $18,900 $(23,474)The provision for income taxes for the years ended January 31, 2019, 2018, and 2017 consisted of the following:102Table of Contents Year Ended January 31,(in thousands) 2019 2018 2017Current provision (benefit) for income taxes: Federal $(1,582) $4,364 $604State 2,299 1,215 989Foreign 9,842 24,308 18,120Total current provision for income taxes 10,559 29,887 19,713Deferred provision (benefit) for income taxes: Federal (4,099) 4,734 (8,179)State (2,687) (58) (842)Foreign 3,769 (12,209) (7,920) Total deferred benefit for income taxes (3,017) (7,533) (16,941)Total provision for income taxes $7,542 $22,354 $2,772The reconciliation of the U.S. federal statutory rate to our effective tax rate on income (loss) before provision for income taxes for the years ended January 31,2019, 2018, and 2017 was as follows: Year Ended January 31,(in thousands) 2019 2018 2017U.S. federal statutory income tax rate 21.0% 33.8% 35.0 % Income tax provision (benefit) at the U.S. federal statutory rate $16,330 $6,394 $(8,215)State income tax provision (benefit) 3,968 1,792 (312)Foreign tax rate differential 9,516 (9,434) (5,794)Tax incentives (7,377) (3,891) (3,507)Valuation allowances (24,099) 14,539 (3,640)Stock-based and other compensation 678 (8,656) 2,522Non-deductible expenses (412) (2,091) 5,315Tax contingencies (3,035) 5,017 5,566Tax effects of reorganizations and liquidations — — 975U.S. tax effects of foreign operations 11,559 8,591 9,542Impact of the 2017 Tax Act — 9,641 —Other, net 414 452 320Total provision for income taxes $7,542 $22,354 $2,772Effective income tax rate 9.7% 118.3% (11.8)%The table above reflects a January 31, 2019 U.S. federal statutory income tax rate of 21.0% and January 31, 2018 U.S. federal statutory income tax rate of33.8% due to the 2017 Tax Act. The 2017 Tax Act includes a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%. Section15 of the Internal Revenue Code stipulates that our fiscal year ending January 31, 2018 had a blended corporate tax rate of 33.8% which is based on theapplicable tax rates before and after the 2017 Tax Act and the number of days in the year.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, incomeattributable 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 fiveto eight years (generally 10% - 23%, depending on the percentage of foreign investment in the company). In addition, certain operations in Cyprus qualifyfor favorable tax treatment under the Cypriot Intellectual Property Regime (“IP Regime”). This legislation exempts 80% of income and gains derived frompatents, copyrights, and trademarks from taxation. These tax incentives decreased our effective tax rate by 9.0%, 17.8%, and 12.4% for the years endedJanuary 31, 2019, 2018, and 2017, respectively.Deferred tax assets and liabilities consisted of the following at January 31, 2019 and 2018:103Table of Contents January 31,(in thousands) 2019 2018Deferred tax assets: Accrued expenses $9,510 $7,637Contract liabilities — 2,421Loss carryforwards 25,451 47,009Tax credits 9,239 11,935Stock-based and other compensation 14,646 17,568Capitalized research and development expenses 8,178 10,316Other, net — 3,749Total deferred tax assets 67,024 100,635Deferred tax liabilities: Deferred cost of revenue (8,173) —Goodwill and other intangible assets (41,781) (36,977)Unremitted earnings of foreign subsidiaries (12,257) (12,257)Other, net (2,418) (712)Total deferred tax liabilities (64,629) (49,946)Valuation allowance (24,526) (55,116)Net deferred tax liabilities $(22,131) $(4,427) Recorded as: Deferred tax assets $21,040 $30,878Deferred tax liabilities (43,171) (35,305)Net deferred tax liabilities $(22,131) $(4,427)At January 31, 2019, we had U.S. federal NOL carryforwards of approximately $337.5 million. These loss carryforwards expire in various years ending fromJanuary 31, 2020 to January 31, 2037. We had state NOL carryforwards of approximately $189.4 million, expiring in years ending from January 31, 2020 toJanuary 31, 2036. We had foreign NOL carryforwards of approximately $76.9 million. At January 31, 2019, all but $9.2 million of these foreign losscarryforwards had indefinite carryforward periods. Certain of these federal, state, and foreign loss carryforwards and credits are subject to Internal RevenueCode Section 382 or similar provisions, which impose limitations on their utilization following certain changes in ownership of the entity generating the losscarryforward. We had U.S. federal, state, and foreign tax credit carryforwards of approximately $14.0 million at January 31, 2019, the utilization of which issubject to limitation. At January 31, 2019, approximately $6.1 million of these tax credit carryforwards may be carried forward indefinitely. The balance of$7.9 million expires in various years ending from January 31, 2019 to January 31, 2034.As of January 31, 2019 we continue to record U.S. federal alternative minimum tax credit carryforwards as deferred tax assets.We currently intend to continue to indefinitely reinvest a portion of the earnings of our foreign subsidiaries to finance foreign activities. Except to the extentof the U.S. tax provided on earnings of our foreign subsidiaries as of January 31, 2019 and withholding taxes of $15.0 million accrued as of January 31, 2019with respect to certain identified cash that may be repatriated to the U.S., we have not provided tax on the outside basis difference of foreign subsidiaries norhave we provided for any additional withholding or other tax that may be applicable should a future distribution be made from any unremitted earnings offoreign subsidiaries. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable toestimate the total amount of income and withholding 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 eachreporting date. Accounting for income taxes guidance requires that a valuation allowance be established when it is more likely than not that all or a portionof the deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not morelikely than not realizable, we establish a valuation allowance. We have recorded valuation allowances in the amounts of $24.5 million and $55.1 million atJanuary 31, 2019 and 2018, respectively.Activity in the recorded valuation allowance consisted of the following for the years ended January 31, 2019 and 2018:104Table of Contents Year Ended January 31,(in thousands) 2019 2018Valuation allowance, beginning of year $(55,116) $(108,609)Income tax benefit 24,099 2,868Adoption of ASU No. 2014-09 5,763 —Adoption of ASU No. 2016-09 — (17,407)Impact of 2017 Tax Act — 70,832Business combinations 124 (2,061)Currency translation adjustment 604 (739)Valuation allowance, end of year $(24,526) $(55,116)In accordance with the authoritative guidance on accounting for uncertainty in income taxes, differences between the amount of tax benefits taken orexpected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements, determined by applying the prescribedmethodologies of accounting for uncertainty in income taxes, represent our unrecognized income tax benefits, which we either record as a liability or as areduction of deferred tax assets.For the years ended January 31, 2019, 2018, and 2017, the aggregate changes in the balance of gross unrecognized tax benefits were as follows: Year Ended January 31,(in thousands) 2019 2018 2017Gross unrecognized tax benefits, beginning of year $115,709 $148,639 $142,271Increases related to tax positions taken during the current year 8,843 12,260 11,034Increases as a result of business combinations 1,032 43 —Increases related to tax positions taken during prior years 10,305 9,226 585(Decreases) increases related to foreign currency exchange rates (2,253) 2,449 648Reductions for tax positions of prior years (23,415) (8,266) (5,094)Reductions for settlements with tax authorities (1,054) (140) (145)Reduction for rate change due to the 2017 Tax Act — (48,004) —Lapses of statutes of limitations (101) (498) (660)Gross unrecognized tax benefits, end of year $109,066 $115,709 $148,639As of January 31, 2019, we had $109.1 million of unrecognized tax benefits, of which $100.9 million represents the amount that, if recognized, would impactthe effective income tax rate in future periods. We recorded $0.7 million, $1.5 million, and $0.5 million of tax expense for the years ended January 31, 2019,2018, and 2017, respectively. Accrued liabilities for interest and penalties were $4.6 million and $5.6 million at January 31, 2019 and 2018, respectively.Interest and penalties (expense and/or benefit) are recorded as a component of the provision (benefit) for income taxes in the consolidated financialstatements.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 taxexamination for years prior to January 31, 2014. In the United Kingdom, with the exception of years which are currently under examination, we are no longersubject to income tax examination for years prior to January 31, 2016. In the U.S., our federal returns are no longer subject to income tax examination foryears prior to January 31, 2015. However, to the extent we generated NOLs or tax credits in closed tax years, future use of the NOL or tax credit carry forwardbalance would be subject to examination within the relevant statute of limitations for the year in which utilized.As of January 31, 2019, income tax returns are under examination in the following significant tax jurisdictions:Jurisdiction Tax YearsUnited Kingdom December 31, 2006, January 31, 2008India March 31, 2007, March 31, 2008, March 31, 2010 - March 31, 2013, March 31, 2017Israel January 31, 2015, January 31, 2016, January 31, 2017We regularly assess the adequacy of our provisions for income tax contingencies. As a result, we may adjust the reserves for unrecognized tax benefits for theimpact of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxingauthorities, and lapses of statutes of expiration. We believe that it is reasonably possible that the total amount of unrecognized tax benefits at January 31,2019 could decrease by approximately105Table of Contents$5.8 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 thepayment of additional taxes, the adjustment of certain deferred taxes including the need for additional valuation allowances and the recognition of taxbenefits.12.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, 2019 and 2018: January 31, 2019 Fair Value Hierarchy Category(in thousands) Level 1 Level 2 Level 3Assets: Money market funds $10,709 $— $—Foreign currency forward contracts — 1,401 —Interest rate swap agreements — 2,072 —Total assets $10,709 $3,473 $—Liabilities: Foreign currency forward contracts — $2,086 $—Interest rate swap agreements — 4,028 —Contingent consideration - business combinations — — 61,340Option to acquire noncontrolling interests of consolidated subsidiaries — — 3,000Total liabilities $— $6,114 $64,340 January 31, 2018 Fair Value Hierarchy Category(in thousands) Level 1 Level 2 Level 3Assets: Money market funds $186 $— $—Short-term investments, classified as available-for-sale — 2,002 —Foreign currency forward contracts — 3,682 —Interest rate swap agreement — 2,580 —Total assets $186 $8,264 $—Liabilities: Foreign currency forward contracts $— $1,308 $—Contingent consideration - business combinations — — 62,829Option to acquire noncontrolling interests of consolidated subsidiaries — — 2,950Total liabilities $— $1,308 $65,779The following table presents the changes in the estimated fair values of our liabilities for contingent consideration measured using significant unobservableinputs (Level 3) for the years ended January 31, 2019 and 2018: Year Ended January 31,(in thousands) 2019 2018Fair value measurement, beginning of year $62,829 $52,733Contingent consideration liabilities recorded for business combinations 15,944 27,604Changes in fair values, recorded in operating expenses (3,561) (8,324)Payments of contingent consideration (13,600) (9,412)Foreign currency translation and other (272) 228Fair value measurement, end of year $61,340 $62,829 106Table of ContentsOur estimated liability for contingent consideration represents potential payments of additional consideration for business combinations, payable if certaindefined performance goals are achieved. Changes in fair value of contingent consideration are recorded in the consolidated statements of operations withinselling, 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 optionwithin other liabilities and do not recognize noncontrolling interests in these subsidiaries. The following table presents the change in the estimated fair valueof this liability, which is measured using Level 3 inputs, for the years ended January 31, 2019 and 2018: Year Ended January 31,(in thousands) 2019 2018Fair value measurement, beginning of year $2,950 $3,550Change in fair value, recorded in operating expenses 50 (600)Fair value measurement, end of year $3,000 $2,950There were no transfers between levels of the fair value measurement hierarchy during the years ended January 31, 2019 and 2018. 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 andcommercial paper classified as cash equivalents, are estimated using observable market prices for identical securities that are traded in less-active markets, ifavailable. When observable market prices for identical securities are not available, we value these short-term investments using non-binding market pricequotes from brokers which we review for reasonableness using observable market data; quoted market prices for similar instruments; or pricing models, suchas 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 counterpartiesthereto. These quotes are reviewed for reasonableness by discounting the future estimated cash flows under the contracts, considering the terms and maturitiesof the contracts and market foreign currency exchange rates using readily observable market prices for similar contracts.Interest Rate Swap Agreements - The fair values of our interest rate swap agreements are based in part on data received from the counterparty, and representsthe estimated amount we would receive or pay to settle the agreements, taking into consideration current and projected future interest rates as well as thecreditworthiness 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 aprobability-adjusted discounted cash flow model. These fair value measurements are based on significant inputs not observable in the market. The keyinternally developed assumptions used in these models are discount rates and the probabilities assigned to the milestones to be achieved. We remeasure thefair value of the contingent consideration at each reporting period, and any changes in fair value resulting from either the passage of time or events occurringafter 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 inverse impacts on the related fair value measurements, while favorable orunfavorable changes in expectations of achieving performance targets would result in corresponding increases or decreases in the related fair valuemeasurements. We utilized discount rates ranging from 3.8% to 5.8% in our calculations of the estimated fair values of our contingent considerationliabilities as of January 31, 2019. We utilized discount rates ranging from 3.0% to 5.0% in our calculations of the estimated fair values of our contingentconsideration liabilities as of January 31, 2018.Option to Acquire Noncontrolling Interests of Consolidated Subsidiaries - The fair value of the option is determined primarily by using the incomeapproach, which discounts expected future cash flows to present value using estimates and assumptions determined by management. This fair valuemeasurement is based upon significant inputs not observable in the market. We remeasure the fair value of the option at each reporting period, and anychanges in fair value are recorded within selling,107Table of Contentsgeneral, and administrative expenses. We utilized discount rates of 12.5% and 13.5% in our calculation of the estimated fair value of the option asof January 31, 2019 and 2018, respectively.Other Financial Instruments The carrying amounts of accounts receivable, accounts payable, and accrued liabilities and other current liabilities approximate fair value due to their shortmaturities. The estimated fair values of our term loan borrowings were $412 million and $425 million at January 31, 2019 and 2018, respectively. The estimated fairvalues 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. Weconsider these inputs to be within Level 3 of the fair value hierarchy because we cannot reasonably observe activity in the limited market in whichparticipations in our term loans are traded. The indicative prices provided to us as at each of January 31, 2019 and 2018 did not significantly differ from parvalue. 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 norevolving credit borrowings at January 31, 2019 and 2018.The estimated fair values of our Notes were approximately $400 million and $389 million at January 31, 2019 and 2018, respectively. The estimated fairvalue 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 bewithin 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 anonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property, plant and equipment, are measured at fair value when there isan indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows. These assets are recorded at fair value only whenan impairment charge is recognized. Further details regarding our regular impairment reviews appear in Note 1, “Summary of Significant AccountingPolicies”.13. DERIVATIVE FINANCIAL INSTRUMENTS Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemedappropriate. We enter into these contracts in the normal course of business to mitigate risks and not for speculative purposes. Foreign Currency Forward ContractsUnder our risk management strategy, we periodically use foreign currency forward contracts to manage our short-term exposures to fluctuations in operationalcash 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 alsoperiodically utilize foreign currency forward contracts to manage exposures resulting from forecasted customer collections to be remitted in currencies otherthan the applicable functional currency, and exposures from cash, cash equivalents and short-term investments denominated in currencies other than theapplicable functional currency. These foreign currency forward contracts generally have maturities of no longer than twelve months, although occasionallywe will execute a contract that extends beyond twelve months, depending upon the nature of the underlying risk.We held outstanding foreign currency forward contracts with notional amounts of $123.0 million and $153.5 million as of January 31, 2019 and 2018,respectively.Interest Rate Swap AgreementsTo partially mitigate risks associated with the variable interest rates on the term loan borrowings under the Prior Credit Agreement, in February 2016, weexecuted a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution under which we pay interest at a fixed rateof 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 $200.0million (the “2016 Swap”). Although the Prior Credit Agreement was terminated on June 29, 2017, the 2016 Swap agreement remains in effect, and serves asan economic hedge to partially mitigate the risk of higher borrowing costs under our 2017 Credit Agreement result108Table of Contentsing from increases in market interest rates. Settlements with the counterparty under the 2016 Swap occur quarterly and the 2016 Swap will terminateon September 6, 2019.Prior to June 29, 2017, the 2016 Swap was designated as a cash flow hedge for accounting purposes and as such, changes in its fair value were recognized inaccumulated other comprehensive income (loss) in the consolidated balance sheet and were reclassified into the statement of operations within interestexpense in the period in which the hedged transaction affected earnings. Hedge ineffectiveness, if any, was recognized currently in the consolidatedstatement of operations.On June 29, 2017, concurrent with the execution of the 2017 Credit Agreement and termination of the Prior Credit Agreement, the 2016 Swap was no longerdesignated as a cash flow hedge for accounting purposes and because occurrence of the specific forecasted variable cash flows which had been hedged by the2016 Swap was no longer probable, the $0.9 million fair value of the 2016 Swap at that date was reclassified from accumulated other comprehensive income(loss) into the consolidated statement of operations as income within other income (expense), net. Ongoing changes in the fair value of the 2016 Swap arenow recognized within other income (expense), net in the consolidated statement of operations.In April 2018, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risksassociated with the variable interest rate on our 2017 Term Loan for periods following the termination of the 2016 Swap in September 2019, under which wewill pay interest at a fixed rate of 2.949% and receive variable interest of three-month LIBOR (subject to a minimum of 0.00%), on a notional amountof $200.0 million (the “2018 Swap”). The effective date of the 2018 Swap is September 6, 2019, and settlements with the counterparty will occur on aquarterly basis, beginning on November 1, 2019. The 2018 Swap will terminate on June 29, 2024.During the operating term of the 2018 Swap, if we elect three-month LIBOR at the periodic interest rate reset dates for at least $200.0 million of our 2017Term Loan, the annual interest rate on that amount of the 2017 Term Loan will be fixed at 4.949% (including the impact of our current 2.00% interest ratemargin on Eurodollar loans) for the applicable interest rate period.The 2018 Swap is designated as a cash flow hedge and as such, changes in its fair value are recognized in accumulated other comprehensive income (loss) inthe consolidated balance sheet and are reclassified into the statement of operations within interest expense in the periods in which the hedged transactionsaffect earnings.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, 2019 and 2018 were asfollows: January 31,(in thousands) Balance Sheet Classification 2019 2018Derivative assets: Foreign currency forward contracts: Designated as cash flow hedges Prepaid expenses and other current assets $738 $3,682Not designated as hedging instruments Prepaid expenses and other current assets 663 —Interest rate swap agreements: Not designated as a hedging instrument Prepaid expenses and other current assets 2,072 1,330 Other assets — 1,250Total derivative assets $3,473 $6,262 Derivative liabilities: Foreign currency forward contracts: Designated as cash flow hedges Accrued expenses and other current liabilities $1,830 $—Not designated as hedging instruments Accrued expenses and other current liabilities 256 1,061 Other liabilities — 247Interest rate swap agreements: Designated as a cash flow hedge Accrued expenses and other current liabilities 122 —Designated as a cash flow hedge Other liabilities 3,906 $—Total derivative liabilities $6,114 $1,308109Table of ContentsDerivative 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 consolidatedstatement of operations for the years ended January 31, 2019, 2018, and 2017 were as follows: Year Ended January 31,(in thousands) 2019 2018 2017Net (losses) gains recognized in AOCL: Foreign currency forward contracts $(981) $3,312 $575Interest rate swap agreement (3,043) (341) 632 $(4,024) $2,971 $1,207Net (losses) gains reclassified from AOCL to the consolidated statements of operations: Foreign currency forward contracts $(4,219) $6,813 $1,257Interest rate swap agreement — (254) — $(4,219) $6,559 $1,257For information regarding the line item locations of the net (losses) gains on derivative financial instruments reclassified out of AOCL into the consolidatedstatements of operations, see Note 9, “Stockholders’ Equity”.There were no gains or losses from ineffectiveness of these cash flow hedges recorded for the years ended January 31, 2018, and 2017. Effective with ourFebruary 1, 2018 adoption of ASU No. 2017-12, ineffectiveness of cash flow hedges is no longer recognized. All of the foreign currency forward contractsunderlying the $1.0 million of net unrealized losses recorded in our accumulated other comprehensive loss at January 31, 2019 mature within twelve months,and therefore we expect all such losses to be reclassified into earnings within the next twelve months.Derivative Financial Instruments Not Designated as Hedging Instruments Gains (losses) recognized on derivative financial instruments not designated as hedging instruments in our consolidated statements of operations for theyears ended January 31, 2019, 2018, and 2017 were as follows: Classification in ConsolidatedStatements of Operations Year Ended January 31,(in thousands) 2019 2018 2017Foreign currency forward contracts Other income (expense), net $1,891 $(2,546) $(323)Interest rate swap agreements Other income (expense), net 620 2,529 — $2,511 $(17) $(323)14.STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS Stock-Based Compensation PlansPlan SummariesWe issue stock-based incentive awards to eligible employees, directors and consultants, including restricted stock units (“RSUs”), performance stock units(“PSUs”), stock options (both incentive and non-qualified), and other awards, under the terms of our outstanding stock benefit plans (the “Plans” or “StockPlans”) 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 serviceperiods 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.Amended and Restated Stock-Based Compensation Plan110On June 22, 2017, our stockholders approved the Verint Systems Inc. Amended and Restated 2015 Long-Term Stock Incentive Plan (the “2017 AmendedPlan”), which amended and restated the Verint Systems Inc. 2015 Long-Term Stock Incentive Plan (the “2015 Plan”). As with the 2015 Plan, the 2017Amended Plan authorizes our board of directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restrictedstock, restricted stock units, performance awards, other stock-based awards, and performance compensation awards.The 2017 Amended Plan amended and restated the 2015 Plan to, among other things, increase the number of shares available for issuance thereunder. Subjectto adjustment as provided in the 2017 Amended Plan, up to an aggregate of (i) 7,975,000 shares of our common stock (on an option-equivalent basis), plus(ii) the number of shares of our common stock available for issuance under the 2015 Plan as of June 22, 2017, plus (iii) the number of shares of our commonstock that become available for issuance as a result of awards made under the 2015 Plan or the 2017 Amended Plan that are forfeited, cancelled, exchanged,withheld or surrendered or terminate or expire, may be issued or transferred in connection with awards under the 2017 Amended Plan. Each stock option orstock-settled stock appreciation right granted under the 2017 Amended Plan will reduce the available plan capacity by one share and each other award willreduce the available plan capacity by 2.47 shares.The 2017 Amended Plan expires on June 22, 2027.Stock-Based Compensation ExpenseWe recognized stock-based compensation expense in the following line items on the consolidated statements of operations for the years ended January 31,2019, 2018, and 2017: Year Ended January 31,(in thousands) 2019 2018 2017Component of income (loss) before (benefit) provision for income taxes: Cost of revenue - product $1,309 $1,561 $1,290Cost of revenue - service and support 4,426 6,904 7,297Research and development, net 9,870 13,144 11,637Selling, general and administrative 51,052 47,757 45,384Total stock-based compensation expense 66,657 69,366 65,608Income tax benefits related to stock-based compensation (before consideration of valuationallowances) 10,377 16,504 15,752Total stock-based compensation, net of taxes $56,280 $52,862 $49,856The following table summarizes stock-based compensation expense by type of award for the years ended January 31, 2019, 2018, and 2017: Year Ended January 31,(in thousands) 2019 2018 2017Restricted stock units and restricted stock awards $57,639 $57,188 $55,123Stock bonus program and bonus share program 8,943 12,108 10,298Total equity-settled awards 66,582 69,296 65,421Phantom stock units (cash-settled awards) 75 70 187Total stock-based compensation expense $66,657 $69,366 $65,608 Awards under our stock bonus and bonus share programs are accounted for as liability-classified awards, because the obligations are based predominantly onfixed monetary amounts that are generally known at inception of the obligation, to be settled with a variable number of shares of our common stock. Effective with our adoption of ASU No. 2016-09 on February 1, 2017, we recorded a $0.2 million net excess tax benefit and a $0.5 million net excess taxdeficiency resulting from our Stock Plans as a component of income tax expense for the years ended January 31, 2019 and 2018, respectively. A net excesstax deficiency of $0.7 million resulting from our Stock Plans was recorded as a decrease to additional paid-in capital for the year ended January 31, 2017.Restricted Stock Units and Performance Stock Units 111We periodically award RSUs to our directors, officers, and other employees. The fair value of these awards is equivalent to the market value of our commonstock on the grant date. 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. RSUs are subject to certain restrictions and forfeitureprovisions prior to vesting.We periodically award PSUs to executive officers and certain employees that vest upon the achievement of specified performance goals or market conditions.We separately recognize compensation expense for each tranche of a PSU award as if it were a separate award with its own vesting date. For certain PSUs, anaccounting grant date may be established prior to the requisite service period.Once a performance vesting condition has been defined and communicated, and the requisite service period has begun, our estimate of the fair value of PSUsrequires an assessment of the probability that the specified performance criteria will be achieved, which we update at each reporting date and adjust ourestimate of the fair value of the PSUs, if necessary. All compensation expense for PSUs with market conditions is recognized if the requisite service period isfulfilled, even if the market condition is not satisfied.RSUs and PSUs that are expected to settle with cash payments upon vesting, if any, are reflected as liabilities on our consolidated balance sheets. Such RSUsand PSUs were insignificant at January 31, 2019 and 2018.The following table (“Award Activity Table”) summarizes activity for RSUs, PSUs, and other stock awards that reduce available Plan capacity under the Plansfor the years ended January 31, 2019, 2018, and 2017: Year Ended January 31, 2019 2018 2017(in thousands, except grant datefair values) Shares or Units Weighted-Average Grant-Date Fair Value Shares or Units Weighted-Average Grant-Date Fair Value Shares or Units Weighted-Average Grant-Date Fair ValueBeginning balance 2,808 $41.18 2,742 $45.20 2,649 $54.57Granted 1,708 $43.03 1,804 $40.19 1,870 $35.33Released (1,481) $43.67 (1,403) $45.96 (1,433) $47.98Forfeited (258) $41.07 (335) $48.92 (344) $52.20Ending balance 2,777 $41.05 2,808 $41.18 2,742 $45.20With respect to our stock bonus program, activity presented in the table above only includes shares earned and released in consideration of the discountprovided under that program. Consistent with the provisions of the Plans under which such shares are issued, other shares issued under the stock bonusprogram 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 granteeat fair value in lieu of receiving an earned cash bonus). Activity presented in the table above includes all shares awarded and released under the bonus shareprogram. Further details appear below under “Stock Bonus Program” and “Bonus Share Program”.Our RSU awards may include a provision which allows the awards to be settled with cash payments upon vesting, rather than with delivery of common stock,at the discretion of our board of directors. As of January 31, 2019, for such awards that are outstanding, settlement with cash payments was not consideredprobable, and therefore these awards have been accounted for as equity-classified awards and are included in the table above.The following table summarizes PSU activity in isolation under the Plans for the years ended January 31, 2019, 2018, and 2017 (these amounts are alreadyincluded in the Award Activity Table above): Year Ended January 31,(in thousands) 2019 2018 2017Beginning balance 506 438 332Granted 228 204 312Released (139) (50) (159)Forfeited (83) (86) (47)Ending balance 512 506 438112Excluding PSUs, we granted 1,480,000 RSUs during the year ended January 31, 2019.As of January 31, 2019, there was approximately $65.8 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvestedrestricted stock units, which is expected to be recognized over a weighted average period of 1.6 years.Stock OptionsWe did not grant stock options during the years ended January 31, 2019, 2018, and 2017, and activity from stock options awarded in prior periods was notmaterial during these years.Phantom Stock UnitsWe 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, 2019, 2018, and 2017 was not significant.Stock Bonus ProgramOur stock bonus program permits eligible employees to receive a portion of their earned bonuses, otherwise payable in cash, in the form of discounted sharesof our common stock. Executive officers are eligible to participate in this program to the extent that shares remain available for awards following theenrollment of all other participants. Shares awarded to executive officers with respect to the discount feature of the program are subject to a one-year vestingperiod. 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 tothese 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 commonstock when the awards are calculated, reduced by a discount determined by the board of directors each year (the “discount”). To the extent that this programis 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 applicableportion of the employee bonuses will generally revert to being paid in cash. Obligations under this program are accounted for as liabilities, because theobligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, to be settled with a variable numberof shares of common stock determined using a discounted average price of our common stock. The following table summarizes activity under the stock bonus program during the years ended January 31, 2019, 2018, and 2017 in isolation. As notedabove, shares issued in respect of the discount feature under the program reduce available plan capacity and are included in the Award Activity Table above.Other shares issued under the program do not reduce available plan capacity and are therefore excluded from the Award Activity Table above. Year Ended January 31,(in thousands) 2019 2018 2017Shares in lieu of cash bonus - granted and released (not included in the Award Activity Tableabove) 19 21 25Shares in respect of discount (included in the Award Activity Table above): Granted — — — Released — — —Awards under the stock bonus program for the performance period ended January 31, 2019 are expected to be issued during the first half of the year endingJanuary 31, 2020.In March 2019, our board of directors increased the maximum number of shares of common stock authorized for issuances under the stock bonus program forthe year ended January 31, 2019 from 125,000 to 150,000.Also in March 2019, our board of directors approved up to 150,000 shares of common stock, and a discount of 15%, for awards under our stock bonusprogram for the year ending January 31, 2020. Executive officers will be permitted to participate in this program for the year ending January 31, 2020, butonly to the extent that shares remain available for awards following the113enrollment 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 ProgramUnder our bonus share program, we may provide discretionary bonuses to employees or pay earned bonuses that are outside the stock bonus program in theform of shares of common stock. Unlike the stock bonus program, there is no enrollment for this program and no discount feature. Similar to the accountingfor the stock bonus program, obligations for these bonuses are accounted for as liabilities, because the obligations are based predominantly on fixedmonetary amounts that are generally known, to be settled with a variable number of shares of common stock. As noted above, shares issued under thisprogram are included in the Award Activity Table above.During the year ended January 31, 2018, approximately 293,000 shares of common stock were awarded and released under the bonus share program inrespect of the performance period ended January 31, 2017. These shares are included in the Award Activity Table above.During the year ended January 31, 2019, approximately 197,000 shares of common stock were awarded and released under the bonus share program inrespect of the performance period ended January 31, 2018. These shares are included in the Award Activity Table above.For bonuses in respect of the year ended January 31, 2019, the board of directors has approved the use of up to 300,000 shares of common stock under thisprogram, reduced by any shares used under the stock bonus program in respect of the performance period ended January 31, 2019. Awards under the bonusshare program for the performance period ended January 31, 2019 are expected to be issued during the first half of the year ending January 31, 2020.For bonuses in respect of the year ending January 31, 2020, our board of directors has approved the use of up to 300,000 shares of common stock under thisprogram, reduced by any shares used under the stock bonus program in respect of the performance period ending January 31, 2020.The combined accrued liabilities for the stock bonus program and the bonus share program were $9.3 million and $9.2 million at January 31, 2019 and 2018,respectively.Other Benefit Plans401(k) Plan and Other Retirement PlansWe 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 thefirst 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. Wematch 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 theemployee remains employed with us on that day.Our matching contribution expenses for our 401(k) Plan were $2.7 million, $2.5 million, and $2.6 million for the years ended January 31, 2019, 2018, and2017, 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 functionsimilar to 401(k) plans. Funding requirements for programs required by local laws are determined on an individual country and plan basis and are subject tolocal country practices and market circumstances.Severance PayWe are obligated to make severance payments for the benefit of certain employees of our foreign subsidiaries. Severance payments made to Israeli employeesare considered significant compared to all other subsidiaries with severance payment arrangements. Under Israeli law, we are obligated to make severancepayments to employees of our Israeli subsidiaries, subject to certain conditions. In most cases, our liability for these severance payments is fully provided forby regular deposits to funds administered by insurance providers and by an accrual for the amount of our liability which has not yet been deposited.114Severance expenses for the years ended January 31, 2019, 2018, and 2017 were $13.3 million, $7.1 million, and $6.4 million, respectively.15. COMMITMENTS AND CONTINGENCIESOperating and Capital LeasesWe lease office, manufacturing, and warehouse space, as well as certain equipment, under non-cancelable operating lease agreements. We have alsoperiodically 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 $22.6 million, $26.1 million, and $25.6 million for the years ended January 31, 2019, 2018, and 2017,respectively.As of January 31, 2019, our minimum future rent obligations under non-cancelable operating and capital leases with initial or remaining terms in excess ofone year were as follows:(in thousands) Operating CapitalYears Ending January 31, Leases Leases2020 $22,769 $1,3432021 21,942 1,2522022 19,157 1,1302023 16,882 7652024 15,152 107Thereafter 33,477 —Total $129,379 4,597Less: amount representing interest and other charges (315)Present value of minimum lease payments $4,282We sublease certain space in our facilities to third parties. As of January 31, 2019, total expected future sublease income was $4.5 million and will range from$0.6 million to $0.9 million on an annual basis through February 2025.Unconditional Purchase ObligationsIn the ordinary course of business, we enter into certain unconditional purchase obligations, which are agreements to purchase goods or services that areenforceable, legally binding, and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable priceprovisions; and the approximate timing of the transaction. Our purchase orders are based on current needs and are typically fulfilled by our vendors within arelatively short time horizon.As of January 31, 2019, our unconditional purchase obligations totaled approximately $158.7 million, the majority of which were scheduled to occur withinthe subsequent twelve months. Due to the relatively short life of the obligations, the carrying value approximates the fair value of these obligations atJanuary 31, 2019.Licenses and RoyaltiesWe license certain technology and pay royalties under such licenses and other agreements entered into in connection with research and developmentactivities.As discussed in Note 1, “Summary of Significant Accounting Policies”, we receive non-refundable grants from the IIA that fund a portion of our research anddevelopment expenditures. The Israeli law under which the IIA grants are made limits our ability to manufacture products, or transfer technologies, developedusing these grants outside of Israel. If we were to seek approval to manufacture products, or transfer technologies, developed using these grants outside ofIsrael, we could be subject to additional royalty requirements or be required to pay certain redemption fees. If we were to violate these restrictions, we couldbe required to refund any grants previously received, together with interest and penalties, and may be subject to criminal penalties.Off-Balance Sheet Risk115Table of ContentsIn the normal course of business, we provide certain customers with financial performance guarantees, which are generally backed by standby letters of creditor surety bonds. In general, we would only be liable for the amounts of these guarantees in the event that our nonperformance permits termination of therelated contract by our customer, which we believe is remote. At January 31, 2019, we had approximately $97.4 million of outstanding letters of credit andsurety bonds relating primarily to these performance guarantees. As of January 31, 2019, we believe we were in compliance with our performance obligationsunder all contracts for which there is a financial performance guarantee, and the ultimate liability, if any, incurred in connection with these guarantees willnot have a material adverse effect on our consolidated results of operations, financial position, or cash flows. Our historical non-compliance with ourperformance obligations has been insignificant.IndemnificationsIn the normal course of business, we provide indemnifications of varying scopes to customers against claims of intellectual property infringement made bythird parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unableto 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 maybecome subject to by virtue of serving in such capacities for us. We also have contractual indemnification agreements with our directors, officers, and certainsenior executives. The maximum amount of future payments we could be required to make under these indemnification arrangements and agreements ispotentially unlimited; however, we have insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We arenot able to estimate the fair value of these indemnification arrangements and agreements in excess of applicable insurance coverage, if any.Legal ProceedingsIn March 2009, one of our former employees, Ms. Orit Deutsch, commenced legal actions in Israel against our primary Israeli subsidiary, Verint SystemsLimited (“VSL”), (Case Number 4186/09) and against our affiliate CTI (Case Number 1335/09). Also in March 2009, a former employee of Comverse Limited(CTI’s primary Israeli subsidiary at the time), Ms. Roni Katriel, commenced similar legal actions in Israel against Comverse Limited (Case Number 3444/09),and against CTI (Case Number 1334/09). In these actions, the plaintiffs generally sought to certify class action suits against the defendants on behalf ofcurrent and former employees of VSL and Comverse Limited who had been granted stock options in Verint and/or CTI and who were allegedly damaged as aresult of a suspension on option exercises during an extended filing delay period that is discussed in our and CTI’s historical public filings. On June 7, 2012,the Tel Aviv District Court, where the cases had been filed or transferred, allowed the plaintiffs to consolidate and amend their complaints against the threedefendants: VSL, CTI, and Comverse Limited.On October 31, 2012, CTI completed the Comverse Share Distribution, in which it distributed all of the outstanding shares of common stock of Comverse,Inc., its principal operating subsidiary and parent company of Comverse Limited, to CTI’s shareholders. In the period leading up to the Comverse ShareDistribution, CTI either sold or transferred substantially all of its business operations and assets (other than its equity ownership interests in Verint and in itsthen-subsidiary, Comverse, Inc.) to Comverse, Inc. or to unaffiliated third parties. As a result of these transactions, Comverse Inc. became an independentcompany and ceased to be affiliated with CTI, and CTI ceased to have any material assets other than its equity interests in Verint. Prior to the completion ofthe Comverse Share Distribution, the plaintiffs sought to compel CTI to set aside up to $150.0 million in assets to secure any future judgment, but the DistrictCourt did not rule on this motion. In February 2017, Mavenir Inc. became successor-in-interest to Comverse, Inc.On February 4, 2013, Verint acquired the remaining CTI shell company in a merger transaction (the “CTI Merger”). As a result of the CTI Merger, Verintassumed certain rights and liabilities of CTI, including any liability of CTI arising out of the foregoing legal actions. However, under the terms of aDistribution Agreement entered into in connection with the Comverse Share Distribution, we, as successor to CTI, are entitled to indemnification fromComverse, Inc. (now Mavenir) for any losses we may suffer in our capacity as successor to CTI related to the foregoing legal actions.Following an unsuccessful mediation process, on August 28, 2016, the District Court (i) denied the plaintiffs’ motion to certify the suit as a class action withrespect 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 ofcurrent or former employees of Comverse Limited (now part of Mavenir) or of VSL who held unexercised CTI stock options at the time CTI suspended optionexercises. The court also ruled that the merits of the case would be evaluated under New York law. As a result of this ruling (which excluded claims related to116Table of ContentsVerint stock options from the case), one of the original plaintiffs in the case, Ms. Deutsch, was replaced by a new representative plaintiff, Mr. David Vaaknin.CTI appealed portions of the District Court’s ruling to the Israeli Supreme Court. On August 8, 2017, the Israeli Supreme Court partially allowed CTI’s appealand ordered the case to be returned to the District Court to determine whether a cause of action exists under New York law based on the parties’ expertopinions.Following a second unsuccessful round of mediation in mid to late 2018, the proceedings resumed. The plaintiffs have filed a motion to amend the classcertification motion and CTI has filed a corresponding motion to dismiss and a response. The next court hearing is scheduled for April 2019.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 theoutcome 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 ourconsolidated financial position, results of operations, or cash flows.16. SEGMENT, GEOGRAPHIC, AND SIGNIFICANT CUSTOMER INFORMATION Segment InformationOperating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by theenterprise’s CODM, or decision making group, in deciding how to allocate resources and in assessing performance. Our Chief Executive Officer is ourCODM.In August 2016, we reorganized into two businesses and began reporting our results in two operating segments, Customer Engagement and CyberIntelligence.We measure the performance of our operating segments based upon segment revenue and segment contribution.Segment revenue includes adjustments associated with revenue of acquired companies which are not recognizable within GAAP revenue. These adjustmentsprimarily relate to the acquisition-date excess of the historical carrying value over the fair value of acquired companies’ future maintenance and serviceperformance obligations. As the obligations are satisfied, we report our segment revenue using the historical carrying values of these obligations, which webelieve better reflects our ongoing maintenance and service revenue streams, whereas GAAP revenue is reported using the obligations’ acquisition-date fairvalues. Segment revenue adjustments can also result from aligning an acquired company’s historical revenue recognition policies to our policies.Segment contribution includes segment revenue and expenses incurred directly by the segment, including material costs, service costs, research anddevelopment, selling, marketing, and certain administrative expenses. When determining segment contribution, we do not allocate certain operatingexpenses which are provided by shared resources or are otherwise generally not controlled by segment management. These expenses are reported as “Sharedsupport expenses” in our table of segment operating results, the majority of which are expenses for administrative support functions, such as informationtechnology, human resources, finance, legal, and other general corporate support, and for occupancy expenses. These unallocated expenses also includeprocurement, manufacturing support, and logistics expenses.In addition, segment contribution does not include amortization of acquired intangible assets, stock-based compensation, and other expenses that either canvary significantly in amount and frequency, are based upon subjective assumptions, or in certain cases are unplanned for or difficult to forecast, such asrestructuring expenses and business combination transaction and integration expenses, all of which are not considered when evaluating segmentperformance.Revenue from transactions between our operating segments is not material.Operating results by segment for the years ended January 31, 2019, 2018, and 2017 were as follows:117Table of Contents Year Ended January 31,(in thousands) 2019 2018 2017Revenue: Customer Engagement: Segment revenue $811,346 $755,038 $716,163Revenue adjustments (15,059) (14,971) (10,266) 796,287 740,067 705,897Cyber Intelligence: Segment revenue 433,753 395,420 356,533Revenue adjustments (293) (258) (324) 433,460 395,162 356,209Total revenue $1,229,747 $1,135,229 $1,062,106 Segment contribution: Customer Engagement $316,776 $286,236 $269,017Cyber Intelligence 114,012 94,585 85,777Total segment contribution 430,788 380,821 354,794 Reconciliation of segment contribution to operating income: Revenue adjustments 15,352 15,229 10,590Shared support expenses 163,893 154,673 150,170Amortization of acquired intangible assets 56,413 72,425 81,461Stock-based compensation 66,657 69,366 65,608Acquisition, integration, restructuring, and other unallocated expenses 14,238 20,498 29,599Total reconciling items, net 316,553 332,191 337,428Operating income $114,235 $48,630 $17,366With the exception of goodwill and acquired intangible assets, we do not identify or allocate our assets by operating segment. Consequently, it is notpractical to present assets by operating segment. In connection with our August 2016 change in segmentation, we reallocated goodwill previously assignedto our former Video Intelligence operating segment to the Customer Engagement and Cyber Intelligence operating segments. There were no other materialchanges in the allocations of goodwill and acquired intangible assets by operating segment during the years ended January 31, 2019, 2018, and 2017. Further details regarding the allocations of goodwill and acquired intangible assets by operating segment appear in Note 6, “Intangible Assets andGoodwill”.Geographic InformationRevenue by major geographic region is based upon the geographic location of the customers who purchase our products and services. The geographiclocations of distributors, resellers, and systems integrators who purchase and resell our products may be different from the geographic locations of endcustomers.Revenue in the Americas includes the United States, Canada, Mexico, Brazil, and other countries in the Americas. Revenue in Europe, the Middle East andAfrica (“EMEA”) includes the United Kingdom, Germany, Israel, and other countries in EMEA. Revenue in the Asia-Pacific (“APAC”) region includesAustralia, India, Singapore, and other Asia-Pacific countries.The information below summarizes revenue from unaffiliated customers by geographic area for the years ended January 31, 2019, 2018, and 2017:118Table of Contents Year Ended January 31,(in thousands) 2019 2018 2017Americas: United States $555,365 $445,406 $438,034Other 103,158 150,993 134,111Total Americas 658,523 596,399 572,145EMEA 321,723 354,495 322,130APAC 249,501 184,335 167,831Total revenue $1,229,747 $1,135,229 $1,062,106Our long-lived assets primarily consist of net property and equipment, goodwill and other intangible assets, capitalized software development costs, deferredcost of revenue, and deferred income taxes. We believe that our tangible long-lived assets, which consist of our net property and equipment, are exposed togreater geographic area risks and uncertainties than intangible assets and long-term cost deferrals, because these tangible assets are difficult to move and arerelatively illiquid. Property and equipment, net by geographic area consisted of the following as of January 31, 2019 and 2018: January 31,(in thousands) 2019 2018United States $51,006 $45,942Israel 30,310 27,089Other countries 18,818 16,058Total property and equipment, net $100,134 $89,089Significant Customers No single customer accounted for more than 10% of our revenue during the years ended January 31, 2019, 2018, and 2017.17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)Summarized condensed quarterly financial information for the years ended January 31, 2019 and 2018 appears in the following tables: Three Months Ended April 30, July 31, October 31, January 31,(in thousands, except per share data) 2018 2018 2018 2019Revenue $289,207 $306,327 $303,983 $330,230Gross profit $175,115 $193,020 $192,744 $219,655(Loss) income before provision for income taxes $(951) $19,202 $25,814 $33,697Net (loss) income $(1,225) $22,924 $20,213 $28,308Net (loss) income attributable to Verint Systems Inc. $(2,215) $21,980 $18,920 $27,306 Net (loss) income per common share attributable to Verint Systems Inc. Basic $(0.03) $0.34 $0.29 $0.42 Diluted $(0.03) $0.33 $0.29 $0.41119Table of Contents Three Months Ended April 30, July 31, October 31, January 31,(in thousands, except per share data) 2017 2017 2017 2018Revenue $260,995 $274,777 $280,726 $318,731Gross profit $150,192 $164,103 $169,321 $204,826(Loss) income before (benefit) provision for income taxes $(19,932) $(1,314) $9,010 $31,136Net (loss) income $(19,040) $(5,766) $3,066 $18,286Net (loss) income attributable to Verint Systems Inc. $(19,786) $(6,427) $2,489 $17,097 Net (loss) income per common share attributable to Verint Systems Inc. Basic $(0.32) $(0.10) $0.04 $0.27 Diluted $(0.32) $(0.10) $0.04 $0.26Net (loss) income per common share attributable to Verint Systems Inc. is computed independently for each quarterly period and for the year. Therefore, thesum of quarterly net (loss) income per common share amounts may not equal the amounts reported for the years.The quarterly operating results for the year ended January 31, 2019 did not include any material unusual or infrequently occurring items. During the threemonths ended January 31, 2018, we recognized provisional deferred income tax withholding expense of $15.0 million on foreign earnings that may berepatriated to the U.S., in connection with the 2017 Tax Act, which was enacted into law in December 2017.As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most years, our revenue and operatingincome are typically highest in the fourth quarter and lowest in the first quarter (prior to the impact of unusual or nonrecurring items). Moreover, revenue andoperating 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 significantmargin. 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. Webelieve that these seasonal and cyclical factors primarily reflects customer spending patterns and budget cycles, as well as the impact of compensationincentive plans for our sales personnel. While seasonal and cyclical factors such as these are common in the software and technology industry, this patternshould not be considered a reliable indicator of our future revenue or financial performance. Many other factors, including general economic conditions, alsohave 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 mayaffect our business and financial results.Item 9. Changes In and Disagreements with Accountants on Accounting and Financial DisclosureNone.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 theeffectiveness 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, 2019. Disclosure controls and procedures are those controls and other procedures that are designed to ensure that information required to be disclosed in reportsfiled or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the rules and formspromulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information isaccumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure. As a result of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controlsand procedures were effective as of January 31, 2019. Management’s Report on Internal Control Over Financial Reporting120Table of ContentsOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and ChiefFinancial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31, 2019 based on the 2013framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability offinancial 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, 2019. Wereviewed 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 intheir report included herein.Changes in Internal Control Over Financial ReportingThere 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 occurredduring the three months ended January 31, 2019, that materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.Inherent Limitations on Effectiveness of ControlsOur management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control overfinancial 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 resourceconstraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include thepossibility that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can becircumvented 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 isbased in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving itsstated goals under all possible conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree ofcompliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occurand not be detected.121Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Verint Systems Inc.Melville, New York Opinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of Verint Systems Inc. and subsidiaries (the “Company”) as of January 31, 2019, based oncriteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2019, based oncriteria established in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedfinancial statements as of and for the year ended January 31, 2019, of the Company and our report dated March 27, 2019, expressed an unqualified opinionon those financial statements. Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLPNew York, New YorkMarch 27, 2019122Table of ContentsItem 9B. Other InformationNot applicable.123Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceExcept 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 2019 Annual Meeting ofStockholders to be filed with the SEC within 120 days of the year ended January 31, 2019 (the “2019 Proxy Statement”) and is incorporated herein byreference.Corporate Governance GuidelinesAll of our employees, including our executive officers, are required to comply with our Code of Conduct. Additionally, our Chief Executive Officer, ChiefFinancial Officer, and senior officers must comply with our Code of Business Conduct and Ethics for Senior Officers. The purpose of these corporate policiesis 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 theCode of Business Conduct and Ethics for Senior Officers is available on our website (www.verint.com). We intend to disclose on our website any amendmentto, or waiver from, a provision of our policies as required by law.Item 11. Executive CompensationThe information required by Item 11 will be included under the captions “Executive Compensation” and “Compensation Committee Interlocks and InsiderParticipation” in the 2019 Proxy Statement and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersExcept as set forth below, the information required by Item 12 will be included under the caption “Security Ownership of Certain Beneficial Owners andManagement” in the 2019 Proxy Statement and is incorporated herein by reference.Securities Authorized for Issuance Under Equity Compensation PlansThe following table sets forth certain information regarding our equity compensation plans as of January 31, 2019.Plan Category (a)Number ofSecurities to beIssued uponExercise ofOutstandingOptions, Warrants,and Rights (b)Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights(1) (c)Number of SecuritiesRemaining Availablefor Future Issuanceunder EquityCompensation Plans(Excluding SecuritiesReflected in Column(a)) Equity compensation plans approved by security holders 2,777,795(2)$8.73 5,851,918(3)Equity compensation plans not approved by security holders — — Total 2,777,795 5,851,918 (1) The weighted-average price relates to outstanding stock options only (as of the applicable date). Other outstanding awards carry no exercise price and aretherefore excluded from the weighted-average price.(2) Consists of 1,362 stock options and 2,776,433 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 as amended andrestated on June 22, 2017 (the “2015 Plan”). The 2015 Plan uses a fungible ratio such that each option or stock-settled stock appreciation right granted underthe 2015 Plan will reduce the plan capacity by one share and each124Table of Contentsother award denominated in shares that is granted under the 2015 Plan will reduce the available capacity by 2.47 shares. Prior to the plan amendment, thefungible ratio was 2.29.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 will be included under the captions “Corporate Governance” and “Certain Relationships and Related PersonTransactions” in the 2019 Proxy Statement and is incorporated herein by reference.Item 14. Principal Accounting Fees and ServicesThe information required by Item 14 will be included under the caption “Audit Matters” in the 2019 Proxy Statement and is incorporated herein by reference.125Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this report(1) Financial StatementsThe consolidated financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements in Part II, Item 8 of thisForm 10-K.(2) Financial Statement SchedulesAll financial statement schedules have been omitted here because they are not applicable, not required, or the information is shown in theconsolidated financial statements or notes thereto.(3) ExhibitsSee (b) below.(b) ExhibitsNumber Description Filed Herewith /Incorporated byReference from 2.1 Agreement and Plan of Merger, dated August 12, 2012, by and among ComverseTechnology, Inc., Verint Systems Inc. and Victory Acquisition I LLC* Form 8-K filed on August 13, 20122.2 Agreement and Plan of Merger, dated January 6, 2014, by and among Verint SystemsInc., Kiwi Acquisition Inc., Kay Technology Holdings, Inc. and Accel-KKR CapitalPartners III, LP* Form 8-K filed on January 6, 20142.3 Distribution Agreement, dated as of October 31, 2012, by and between ComverseTechnology, Inc. and Comverse, Inc. Comverse, Inc. Current Report on Form 8-Kfiled with the SEC on November 2, 20122.4 Tax Disaffiliation Agreement, dated as of October 31, 2012, by and between ComverseTechnology, Inc. and Comverse, Inc. Comverse, Inc. Current Report on Form 8-Kfiled with the SEC on November 2, 20123.1Amended and Restated Certificate of Incorporation of Verint Systems Inc.Form S-1 (Commission File No. 333-82300)effective on May 16, 20023.2 Amended and Restated By-laws of Verint Systems Inc. (as amended as of March 19,2015) Form 8-K filed on March 25, 20153.3Amended and Restated Certificate of Designation, Preferences and Rights of the SeriesA Convertible Perpetual Preferred Stock of Verint Systems Inc.Form 10-Q filed on September 6, 20124.1Specimen Common Stock certificateForm S-1 (Commission File No. 333-82300)effective on May 16, 20024.2 Indenture, dated as of June 18, 2014, between Verint Systems Inc. and WilmingtonTrust, National Association, as trustee. Form 8-K filed on June 18, 20144.3 First Supplemental Indenture, dated as of June 18, 2014, between Verint Systems Inc.and Wilmington Trust, National Association, as trustee. Form 8-K filed on June 18, 201410.1Form of Indemnification AgreementForm 10-Q filed on December 6, 201810.2Vovici Corporation Amended and Restated Stock PlanForm 10-K filed on April 2, 201210.3 Verint Systems Inc. 2015 Long-Term Stock Incentive Plan Form 8-K filed on June 26, 201510.4 Verint Systems Inc. Amended and Restated 2015 Long-Term Stock Incentive Plan Form 8-K filed on June 26, 201710.5 Verint Systems Inc. Stock Bonus Program** Form 10-K filed on March 29, 2018126Table of Contents10.6 Form of Time-Based Restricted Stock Unit Award Agreement for Grants Subsequent toMarch 2016** Form 10-K filed on March 30, 201610.7 Form of Time-Based Restricted Stock Unit Award Agreement for Grants Subsequent toMarch 2018** Form 10-K filed on March 29, 201810.8 Form of Performance-Based Restricted Stock Unit Award Agreement for GrantsSubsequent to March 2016** Form 10-K filed on March 30, 201610.9 Form of Performance-Based Restricted Stock Unit Award Agreement for GrantsSubsequent to March 2017** Form 10-K filed on March 28, 201710.10 Form of Performance-Based Restricted Stock Unit Award Agreement for GrantsSubsequent to March 2018** Form 10-K filed on March 29, 201810.11 Credit Agreement, dated June 29, 2017, among Verint Systems Inc., as borrower, thelenders from time to time party thereto, and JPMorgan Chase Bank, N.A., asadministrative agent and collateral agent Form 8-K filed on July 6, 201710.12 Amendment No. 1, dated January 31, 2018, to the Credit Agreement, dated June 29,2017, among Verint Systems Inc., as borrower, the lenders from time to time partythereto, and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent Form 8-K filed on February 1, 201810.13Employment Agreement, dated February 23, 2010, between Verint Systems Inc. andDan Bodner**Form 8-K filed on February 23, 201010.14Amended and Restated Employment Agreement, dated July 13, 2011, between VerintSystems Inc. and Douglas Robinson**Form 8-K filed on July 14, 201110.15Second Amended and Restated Employment Agreement, dated July 13, 2011, betweenVerint Systems Inc. and Elan Moriah**Form 8-K filed on July 14, 201110.16Second Amended and Restated Employment Agreement, dated July 13, 2011, betweenVerint Systems Inc. and Peter Fante**Form 8-K filed on July 14, 201110.17 Summary of the Terms of Verint Systems Inc. Executive Officer Annual Bonus Plan** Form 10-K filed on March 27, 201510.18Summary of the Terms of Verint Systems Inc. Executive Officer Annual Bonus Plan forthe Fiscal Year Ended January 31, 2019 and Subsequent**Form 10-K filed March 29, 201810.19 Federal Income Tax Sharing Agreement, dated as of January 31, 2002, betweenComverse Technologies, Inc. an Verint Systems Inc. Form S-1 (Commission File No. 333-82300)effective on May 16, 200221.1Subsidiaries of Verint Systems Inc.Filed herewith23.1Consent of Deloitte & Touche LLP, Independent Registered Public Accounting FirmFiled herewith31.1Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith31.2Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith32.1Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rule13a-14(b) and 18 U.S.C. Section 1350 (1)Filed herewith32.2Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rule13a-14(b) and 18 U.S.C. Section 1350 (1)Filed herewith101.INSXBRL Instance DocumentFiled herewith101.SCHXBRL Taxonomy Extension Schema DocumentFiled herewith101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentFiled herewith101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith101.LABXBRL Taxonomy Extension Label Linkbase DocumentFiled herewith101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentFiled 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 filingof the company under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.127Table of Contents* Certain exhibits and schedules have been omitted, and the Company agrees to furnish supplementally to the SEC a copy of any omitted exhibits orschedules 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 SchedulesNone128Table of ContentsItem 16. Form 10-K SummaryNot applicable.129Table of ContentsSIGNATURES 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 itsbehalf by the undersigned, thereunto duly authorized. VERINT SYSTEMS INC. March 27, 2019/s/ Dan BodnerDan BodnerChief Executive Officer March 27, 2019/s/ Douglas E. RobinsonDouglas E. RobinsonChief Financial OfficerPursuant 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 inthe capacities and on the dates indicated.Name Title Date /s/ Dan Bodner Chief Executive Officer, and Chairman of the Board March 27, 2019Dan Bodner (Principal Executive Officer) /s/ Douglas E. Robinson Chief Financial Officer March 27, 2019Douglas E. Robinson (Principal Financial Officer and Principal Accounting Officer) /s/ John R. Egan Director March 27, 2019John R. Egan /s/ Stephen J. Gold Director March 27, 2019Stephen J. Gold /s/ Penelope Herscher Director March 27, 2019Penelope Herscher /s/ William H. Kurtz Director March 27, 2019William H. Kurtz /s/ Richard Nottenburg Director March 27, 2019Richard Nottenburg /s/ Howard Safir Director March 27, 2019Howard Safir /s/ Earl Shanks Director March 27, 2019Earl Shanks 130EXHIBIT 21.1Subsidiaries of Verint Systems Inc.(as of March 1, 2019)Name Jurisdiction of Incorporation orOrganizationAndrew Reise Services, LLC (1) DelawareBPA Corporate Facilitation Ltd. (1) United KingdomBPA International, Inc. (1) New YorkCiboodle (Land and Estates) Ltd. United KingdomCIS Comverse Information Systems Ltd. IsraelEG Operations Management Solutions (Pty) Ltd. South AfricaFebrouin Investments Ltd. CyprusFocal Info Israel Ltd. IsraelForeSee Results, Ltd. United KingdomForeSee Session Replay, Inc. DelawareGita Technologies Ltd. IsraelGlobal Management Technologies, LLC DelawareIontas Limited IrelandKiran Analytics, Ltd. United KingdomMultiVision Holdings Limited British Virgin IslandsNowForce Limited IsraelNxtera Limited United KingdomPermadeal Limited CyprusPT Ciboodle Indonesia IndonesiaRontal Engineering Applications (2001) Ltd. IsraelRSR Acquisition, LLC DelawareSuntech S.A. BrazilSyborg GmbH GermanySyborg Grundbesitz GmbH GermanySyborg Informationsysteme b.h. OHG GermanyTriniventures BV NetherlandsUTX Technologies Limited CyprusVerba Technologies Asia Pacific Pte Ltd. SingaporeVerba Technologies Kft HungaryVerint Acquisition LLC DelawareVerint Americas Inc. DelawareVerint CES India Private Limited IndiaVerint CES Ltd. IsraelVerint Cyber Intelligence Solutions India Private Limited IndiaVerint Netherlands BV NetherlandsVerint Security Intelligence Inc. DelawareVerint Systems (Asia Pacific) Limited Hong KongVerint Systems (Australia) PTY Ltd. AustraliaVerint Systems Belgium N.V. BelgiumVerint Systems Bulgaria BulgariaVerint Systems B.V. The NetherlandsVerint Systems Canada Inc. CanadaVerint Systems DOOEL Skopje MacedoniaVerint Systems GmbH GermanyName Jurisdiction of Incorporation orOrganizationVerint Systems (India) Private Ltd. IndiaVerint Systems Japan K.K. JapanVerint Systems Ltd. IsraelVerint Systems New Zealand Limited New ZealandVerint Systems (Philippines) Corporation PhilippinesVerint Systems Poland sp.z.o.o. PolandVerint Systems (PTY) Ltd. South AfricaVerint Systems Romania S.R.L. RomaniaVerint Systems SAS FranceVerint Systems (Shanghai) Company Limited People's Republic of ChinaVerint Systems (Singapore) Pte. Ltd. (2) SingaporeVerint Systems SL SpainVerint Systems (Software and Services) Pte Ltd. SingaporeVerint Systems (Taiwan) Ltd. Taiwan (Republic of China)Verint Systems UK Ltd. United KingdomVerint Systems (Zhuhai) Limited People’s Republic of ChinaVerint Technology Cyprus Ltd. CyprusVerint Technology Inc. DelawareVerint Technology UK Limited United KingdomVerint Witness Systems LLC DelawareVerint Witness Systems S.A. de C.V. MexicoVerint Witness Systems Servicios S.A. de C.V. MexicoVerint Witness Systems Software, Hardware, E Servicos Do Brasil Ltda BrazilVerint WS Holdings Ltd. United KingdomVictory Acquisition I LLC DelawareWitness Systems Software (India) Private Limited IndiaX Subsidiary, Inc. Delaware___________________(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 policiesof this entity.EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of DirectorsVerint Systems Inc.Melville, New YorkWe consent to the incorporation by reference in Registration Statement Nos. 333-205658, and 333-219502 on Form S-8 and Registration Statement No. 333-196612 on Form S-3 of our reports dated March 27, 2019, relating to the consolidated financial statements of Verint Systems Inc., and the effectiveness ofVerint Systems Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Verint Systems Inc. for the year endedJanuary 31, 2019./s/ DELOITTE & TOUCHE LLPNew York, New YorkMarch 27, 2019EXHIBIT 31.1 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002 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 thestatements 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 financialcondition, 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 ExchangeAct 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 registrantand have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 effectivenessof 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 fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant'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 theregistrant'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 reasonablylikely 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 overfinancial reporting. Dated:March 27, 2019By:/s/ Dan Bodner Dan Bodner President and Chief Executive Officer Principal Executive OfficerEXHIBIT 31.2 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002 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 thestatements 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 financialcondition, 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 ExchangeAct 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 registrantand have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 effectivenessof 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 fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant'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 theregistrant'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 reasonablylikely 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 overfinancial reporting. Dated:March 27, 2019By:/s/ Douglas E. Robinson Douglas E. Robinson Chief Financial Officer Principal Financial OfficerEXHIBIT 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, 2019 (the “Report”), I, DanBodner, 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 theSarbanes-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 27, 2019/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 extentrequired 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, 2019 (the “Report”), I, DouglasE. 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 27, 2019/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 extentrequired 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.

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