UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended January 31, 20212022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                               to                                     .

Commission File No. 001-34807
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Verint Systems IncInc.
(Exact Name of Registrant as Specified in its Charter) 
Delaware 11-3200514
(State or Other Jurisdiction of Incorporation or
Organization)
 (I.R.S. Employer Identification No.)
175 Broadhollow Road 
Melville,NY11747
(Address of Principal Executive Offices) (Zip Code)

(631)962-9600
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Common Stock, $.001 par value per shareVRNT(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 o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If 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 or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
    
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☑                        

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ 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 the NASDAQ Global Select Market on the last business day of the registrant’s most recently completed second fiscal quarter (July 31, 2020)2021) was approximately $2,908,529,000.$2,712,248,000.

There were 65,786,50964,710,802 shares of the registrant’s common stock outstanding on March 15, 2021.2022.

DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Stockholders to be held in 2021,2022, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.



Table of Contents

Verint Systems Inc. and Subsidiaries
Index to Form 10-K
As of and For the Year Ended January 31, 20212022
Page
  
 
 
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Cautionary Note on Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, 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 often identified by future or conditional words such as “will”, “plans”, “expects”, “intends”, “believes”, “seeks”, “estimates”, or “anticipates”, or by variations of such words or by similar expressions.

There can be no assurance that forward-looking statements will be achieved. By their very nature, forward-looking statements involve known and unknown risks, uncertainties, assumptions, and other important factors that could cause our actual results or conditions to differ materially from those expressed or implied by such forward-looking statements. Important risks, uncertainties, assumptions, and other factors that could cause our actual results or conditions to differ materially from our forward-looking statements include, but are not limited to, those described below under “Risk Factor Summary” as well as other risks, uncertainties, assumptions, and factors described in this Annual Report on Form 10-K, including underin Part I, Item 1A “Risk Factors”, underin Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and described from time to time in our filings with the Securities and Exchange Commission (the “SEC”). All of our forward-looking statements are qualified in their entirety by these factors.

There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such statements other than as required by law. If we were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that we would make additional updates or corrections thereafter except as otherwise required under the federal securities laws. Forward-looking statements speak only as of the date of this report or as of the dates indicated in the statements.


Risk Factor Summary

Our business is subject to a number of risks and uncertainties that may affect our business, results of operations, and financial condition, or the trading price of our common stock or other securities. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new riskrisks and uncertainties emerge from time to time. Management cannot predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may impact our business. These risks are more fully described in Part I, Item 1A. “Risk Factors”. These risks include, among others, the following:

uncertainties regarding the impact of changes in macroeconomic and/or global conditions, including as a result of slowdowns, recessions, inflation, economic instability, political unrest, armed conflicts (such as the March 2022 Russian invasion of Ukraine), natural disasters, climate change or other environmental issues, or outbreaks of disease, such as the COVID-19 pandemic, as well as the resulting impact on information technology spending by enterprises or government customers, on our business;
risks that our customers delay, cancel, or refrain from placing orders, refrain from renewing subscriptions or service contracts, or are unable to honor contractual commitments or payment obligations due to liquidity issues or other challenges in their budgets and business, due to the COVID-19 pandemic or otherwise;business;
risks that restrictions resulting from the COVID-19 pandemic or actions taken in response to the pandemic adversely impact our operations or our ability to fulfill orders, complete implementations, or recognize revenue;
risks associated with our ability to keep pace with technological advances and challenges and evolving industry standards; to adapt to changing market potential from area to area within our markets; and to successfully develop, launch, and drive demand for new, innovative, high-quality products that meet or exceed customer challenges and 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 revenue, margins, and sufficient levels of investment in our business and operations, and competitors with greater resources than we have;
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risks due to aggressive competition in all of our markets and our ability to keep pace with competitors, some of whom have greater resources than us, including in areas such as sales and marketing, branding, technological innovation and development, recruiting and retention, and growth;
risks associated with our ability to properly execute on our cloud transition, including increased importance of subscription renewal rates, and risk of increased variability in our period-to-period results based on the mix, terms, and timing of our transactions;
risks relating to our ability to properly execute on growth or strategic initiatives, manage investments in our business and operations, execute on grown or strategic initiatives, and enhance our existing operations and infrastructure, including the proper prioritization and allocation of limited financial and other resources;
risks associated with our ability or costs to identify suitable targetsretain, recruit, and train qualified personnel in regions in which we operate either physically or remotely, including in new markets and growth areas we may enter, due to competition for acquisitiontalent, increasing labor costs, applicable regulatory requirements such as vaccination mandates, or investment or successfully compete for, consummate, and implement mergers and acquisitions, including risks associated with valuations, reputational considerations, capital constraints, costs and expenses, maintaining profitability levels, expansion into new areas, management distraction, post-acquisition integration activities, and potential asset impairments;
challenges associated with selling sophisticated solutions, including with respect to longer sales cycles, more complex sales processes, and assisting customers in understanding and realizing the benefits of our solutions, as well as with developing, offering, implementing, and maintaining a broad solution portfolio;
challenges associated with our cloud transition, including increased importance of subscription renewal rates, and risk of increased variability in our period to period results based on the mix, terms, and timing of our transactions;otherwise;
risks that we may be unable to maintain, expand, and enable our relationships with partners as part of our growth strategy;
risks associated with our reliance on cloud hosting providers and other third-party suppliers, partners, or original equipment manufacturers (“OEMs”) for certain components,services, products, or services,components, including companies that may compete with us or work with our competitors, as well as cloud hosting providers;
risks associated with our ability to retain, recruit, and train qualified personnel in regions in which we operate, including in new markets and growth areas we may enter;competitors;
risks associated with our significant international operations, exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, and challenges associated with a significant portion of our cash being held overseas;
risks associated with a significant part of our business coming from government contracts and associated procurement processes;
risks associated with our ability to identify suitable targets for acquisition or investment or successfully compete for, consummate, and implement mergers and acquisitions, including risks associated with valuations, legacy liabilities, reputational considerations, capital constraints, costs and expenses, maintaining profitability levels, expansion into new areas, management distractions, post-acquisition integration activities, and potential asset impairments;
risks associated with complex and changing domestic and foreign regulatory environments, including, among others, with respect to data privacy and protection, government contracts, anti-corruption, trade compliance, environmental, social and governance matters, tax, and labor matters, relating to our own operations, the products and services we offer, and/or the use of our solutions by our customers;
risks associated with the mishandling or perceived mishandling of sensitive or confidential information and data, including personally identifiable information or other information that may belong to our customers or other third parties, including in connection with our SaaS or other hosted or managed services offerings or when we are asked to perform service or support;
risks that our solutions 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;
risk of security vulnerabilities or lapses, including cyber-attacks, information technology system breaches, failures, or disruptions;
risks that our intellectual property rights may not be adequate to protect our business or assets or that others may make claims on our intellectual property, claim infringement on their intellectual property rights, or claim a violation of their license rights, including relative to free or open source components we may use;
risks associated with significant leverage resulting from our current debt position or our ability to incur additional debt, including with respect to liquidity considerations, covenant limitations and compliance, fluctuations in interest rates, dilution considerations (with respect to our convertible notes), and our ability to maintain our credit ratings;
risks that we may experience liquidity or working capital issues and related risks that financing sources may be unavailable to us on reasonable terms or at all;
risks arising as a result of contingent or other obligations or liabilities assumed in our acquisition of our former parent company, Comverse Technology, Inc. (“CTI”), or associated with formerly being consolidated with, and part of a
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consolidated tax group with, CTI, or as a result of the successor to CTI’s business operations, Mavenir Inc. (“Mavenir”), being unwilling or unable to provide us with certain indemnities to which we are entitled;
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risks associated with changing accounting principles or standards, tax laws and regulations, tax rates, and the continuing availability of expected tax benefits;
risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, internal controls, and personnel, and our ability to successfully implement and maintain enhancements to the foregoing, for our current and future operations and reporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays;
risks associated with market volatility in the prices of our common stock and convertible notes based on our performance, third-party publications or speculation, or other factors and risks associated with actions of activist stockholders;
risks associated with the issuance of preferred stock to an affiliate of Apax Partners, including with respect to completion of the second tranche of the investment and Apax’sPartners’ significant ownership position and potential that its interests will not be aligned with those of our common stockholders; and
risks associated with the recently completed2021 spin-off of our Cyber Intelligence Solutions business, including the possibility that the spin-off transaction does not achieve the benefits anticipated, does not qualify as a tax-free transaction, or exposes us to unexpected claims or liabilities.
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PART I

Item 1. Business

Our Company

Verint® Systems Inc. (together with its consolidated subsidiaries, “Verint”, the “Company”, “we”, “us”, and “our”, unless the context indicates otherwise) helps brands provide Boundless Customer Engagement™. For more than two decades, the world’s most iconic brands – including more than 85 of the Fortune 100 companies – have trusted Verint to provide the technology and domain expertise they require to effectively build enduring customer relationships.

Verint is uniquely positioned to help organizations close the Engagement Capacity Gap™ with our differentiated Verint Customer Engagement Cloud Platform. Brands today are challenged by new workforce dynamics, ever-expanding customer engagement channels and exponentially more consumer interactions – all withoften while facing limited budgets and resources. As a result, brands are finding it more challenging to deliver the desired customer experience. This creates an Engagement Capacity Gap™,a capacity gap, which is widening as the digital transformation continues. Organizations are increasingly seeking technology to close this gap with solutions that are based on artificial intelligence (AI) and analytics toare developed specifically for customer engagement. These solutions automate workflows across enterprise silos to optimize the workforce expense and at the same time to drive an elevated consumer experience.

Verint is uniquely positioned to help organizations close the capacity gap with our differentiated Verint Cloud Platform.

Verint is headquartered in Melville, New York, and has more than 4030 offices worldwide. We have approximately 4,3004,400 passionate professionals around the globe exclusively focused on helping brands provide Boundless Customer Engagement™.

Background

We were incorporated in Delaware in February 1994 and completed our initial public offering in May 2002.

On February 1, 2021, we completed the spin-off (the “Spin-Off”) of Cognyte Software Ltd. (“Cognyte”), whose business and operations consisted of our former Cyber Intelligence Solutions business (the “Cognyte Business”), into an independent public company. For additional information regardingThe Spin-Off of Cognyte was completed by way of a pro rata distribution in which holders of Verint’s common stock, par value $0.001 per share, received one ordinary share of Cognyte, no par value, for every share of common stock of Verint held of record as of the close of business on January 25, 2021. After the distribution, we do not beneficially own any ordinary shares of Cognyte and theno longer consolidate Cognyte Business, into our financial results for periods ending after January 31, 2021. The Spin-Off was intended to be generally tax-free to our stockholders for U.S. federal income tax purposes. The historical results of operations and financial positions of Cognyte are reported as discontinued operations in our consolidated financial statements. For further information on discontinued operations, see “The Cognyte Spin-Off” below.Note 2, “Discontinued Operations” in Part II, Item 8 of this report.

Through our website at www.verint.com, we make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as amendments to those reports, filed or furnished by us pursuant to Section 13(a) or Section 15(d) of the Exchange Act, free of charge, as soon as reasonably practicable after we file such materials with, or furnish such materials to, the Securities and Exchange Commission (“SEC”).SEC. Our website address set forth above is not intended to be an active link, and information on our website is not incorporated in, and should not be construed to be a part of, this report.

Market Opportunity

The customer engagement market is increasingly embracing digital transformation across the enterprise while also transitioning to the cloud. With the shift to digital, brands are experiencing an increasing number of customer interactions as well as elevated customer expectations for faster and more consistent and contextual responses across any engagement channel. With the constraints of limited budget and resources, brands realize that hiring more workers and increasing workforce expense is not a sustainable solution. This creates an Engagement Capacity Gap™, and as consumer adoption of digital accelerates, the gap is widening. Many brands are already experiencing the consequences of the widening gap and face the risk of declining brand reputation and customer attrition. The market is seeking new customer engagement technology and the opportunity is to use innovative AI, specifically designed for customer engagement automation, that can help brands close this gap.

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The Opportunity: Close the Engagement Capacity Gap™

Market Trends

We believe there are three main market trends that are benefiting Verint today: the acceleration of digital transformation, acrosschanges in the enterprise,workforce shaping the wideningfuture of the Engagement Capacity Gap as brands need to elevatework, and elevated customer experiences with fixed resources and budgets, and the ongoing adoption of cloud and AI in our industry.expectations.

Acceleration of Digital TransformationTransformation: Digital transformation is Accelerating.accelerating, and it is driving significant change in customer engagement for the contact center and across the enterprise. Long gone are the days when customer journeys were limited to phone calls into a contact center. Today, customer journeys take place across many touchpoints in the enterprise and across many communication and collaboration platforms, with digital leading the way. Customer touchpoints take place in contact centers, in back-office and branch operations, in ecommerce, in digital marketing, in self-service, and in customer experience departments. TheWe believe that the breadth of customer touchpoints across the enterprise and the rapid growth in digital interactions and the emergence of the new workforce – with humans and bots working together – are creatingbenefit Verint as these trends create demand for new solutions.solutions that increase automation and connect organizational silos to increase efficiency and elevate the customer experience.

The Engagement Capacity Gap is Widening.A Changing Workforce Shapes the Future of Work: Brands are seekingfacing unprecedented challenges when it comes to differentiate themselves by providing consumershow they manage their changing workforce. Increasingly, brands are managing employees that may work from anywhere. Providing flexibility for where their employees work creates challenges in managing and coaching their teams. And because of the limited resources that are available, brands must find ways to use technology like AI-powered bots to augment their workforce. “The Great Resignation” has put a spotlight on the importance of employee experience and brands must quickly evolve how they recruit, onboard, and retain employees. We believe that these trends benefit Verint as they create demand for new solutions that can shape the future of work, with a strongworkforce of people and bots working together, increased automation, greater employee flexibility, and a greater focus on the voice of the employees.

Elevated Customer Expectations: Customer expectations for faster, more consistent, and contextual responses continue to rise, and meeting those expectations is becoming more difficult with legacy technology. The increase in the number of channels and customer desire to seamlessly shift between channels creates a more complex customer journey for brands to support and manage. Customers also expect that each brand experience. But they cannot afford to do so by hiring more people. Withwill have a deep understanding of the exponential growthcustomer’s relationship with the brand - one that is unified across the enterprise regardless of whether the customer touchpoint is in digitalthe contact center, on a website, through a mobile app, or in the back office or branch. We believe that this trend benefits Verint as it creates demand for new solutions that help brands support complex customer journeys and more demanding consumer expectations, organizations require more resources, but hiring more knowledge workers and further increasing workforce expensesincrease automation to meet elevated customer expectations.

Our Strategy

Our strategy is often not a sustainable solution. This creates an Engagement Capacity Gap, and as the digital transformation accelerates, the gap is widening. Brands are looking for new technology and solutions to help brands close the Engagement Capacity Gap.Gap with our innovative, AI-powered, cloud platform. Our platform helps brands create significant business value throughout the organization by introducing automation and workflows to reduce operating costs while at the same time increasing customer satisfaction and revenue opportunities.
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We designed the Verint Customer Engagement Cloud Platform based on an open multi-cloud architecture and with an open strategy. This open approach enables Verint to innovate at an accelerated pace, and helps brands to seamlessly integrate the platform into their specific ecosystem as well as to quickly consume new applications on the platform to address pressing business needs. This approach also empowers our broad set of partners to easily integrate with our platform and provide their customers with value-added services. Our strategy is to continue expanding our partner network to address both the small to medium sized business (SMB) and enterprise segments of the markets across many vertical industries.

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Below are the key elements of our platform, including how we have architected our platform to support multiple cloud environments to accelerate innovation, our open approach to the ecosystem which has made us easy to work with, our market leading Verint Da Vinci™ AI and Analytics™ and our robust Engagement Data Hub:

Open Multi-Cloud Architecture: The shift to cloud, the explosion in AI, and the growth of the application programming interface (API) economy have dramatically changed customer and partner expectations regarding what they need from their core technology vendors. The days of the closed ecosystem are long gone. With an open cloud architecture, the Verint Cloud Platform was designed for multi-cloud support, capable of running in the leading cloud infrastructure environments. The open cloud architecture accelerates innovation by standardizing our approach to microservice container architectures and fully automated development operations to speed development while improving reliability and security.

Open Approach to the Ecosystem: Because it is designed to be open, the Verint Cloud Platform can seamlessly fit into a brand’s enterprise ecosystem. The open and extensible architecture enables the platform to easily integrate and augment the brand’s existing systems of record such as customer relationship management (CRM). The platform is designed to manage a large volume of engagement data and seamlessly integrate with the brand’s enterprise data strategy. The platform is agnostic to communication infrastructure choices and seamlessly integrates with a brand’s existing CCaaS (contact center as-a-service), UCaaS (unified communications as-a-service), and CPaaS (communications platform as-a-service) solutions. Verint’s open cloud platform is more than the technology alone – it provides an opportunity for our customers and partners to build a community through our Verint Connect web portal. Verint Connect can be accessed directly from our cloud platform and provides the tools and resources to foster a rich partner and customer ecosystem around our applications. These tools include a marketplace where Verint and partner components are made available to accelerate time to value with downloadable extensions, and a developer portal where customers can engage directly with the Verint technical community. Our APIs are available to test, with code samples, developer sandboxes, downloadable test clients, education, and discussion forums. Verint Connect also provides access to educational courses, our support teams, a knowledgebase and a community for customers and partners to interact with each other.

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The Market is Shifting Rapidly to Cloud-Based, AI-Driven Solutions. To effectively address the Engagement Capacity Gap, brands are seeking open, cloud-based solutions to break down silos and facilitate the sharing of data across enterprise functions. Brands also are seeking to leverageVerint Da Vinci™ AI and other advanced data analytic tools to reduce manual work, increase workforce efficiency,Analytics: We believe Verint is leading the market with AI solutions specifically designed for customer engagement. Verint’s AI capabilities, named Verint Da Vinci™ AI and manageAnalytics are embedded natively in the new workforce of humans and bots.

We estimated our total addressable market (“TAM”) to be approximately $65 billion and growing at approximately 10% per year. Approximately $30 billion of this TAM is derived from customer engagement software for contact center use cases, and the other $35 billion is derived from other use cases across other partscore of the enterprise outsideVerint Cloud Platform. Verint Da Vinci is used by the business applications running in the platform to infuse AI across the platform. Verint Da Vinci capabilities are the result of the contact center with customer touch points. We estimated our TAM using data from the U.S. Bureau of Labor Statistics, McGee Smith Analytics, Pelorus Associates, Gartner, and Company estimates for the number of customer engagement employees and the amount of software investment that is spent on average per employee per year.

Our Strategy

We offer our customers and partners an open and modular cloud platform, strong AI and analytics capabilities, and significant customer engagement domain expertise developed over two decades of working closely with thousands of customers across many industries and global operations. Our strategy is to capitalize on the trends described above by:

Helping Brands with Their Digital Transformation. Brands are investing in digital transformation across many areas, including customer engagement. Our strategy is to help them successfully adopt digital technology to evolve and enhance theirresearch into optimizing customer engagement activities and achieve strategic objectives.

Connecting Work, Data, and Experiences to Close the Engagement Capacity Gap. Our open cloud platform enables organizations to connect work, data, and experiences across the enterprise to close the Engagement Capacity Gap. It enables organizations to connect work performed by humans and bots across enterprise functions. It enables organizations to leverage interaction data across silos regardless of channel type or modality. And it enables organizations to capture experiences and derive insights that can improve operational efficiency and elevate customer experience.

Delivering an Open, Modular Cloud Platform and Innovative AI and Analytical Applications. Our cloud platform is highly open and modular allowing customers to turn on applications based on their specific strategic priorities. Embedded in the platform is our Verint Da Vinci AI and Analytics™ -use state-of-the-art machine learning, natural language processing, and deep learning algorithms. Our strategyHoned on our unique data set, Verint Da Vinci is supported by Verint Labs, which features a large and growing team of data and AI scientists, working on pure and applied research to increase the use of artificial intelligenceadvance Verint Da Vinci and analytics technologies across our portfolio to further help organizations close the Engagement Capacity Gap.solve global customer engagement challenges.

Expanding our Partner Network by Being Partner Friendly.Engagement Data Hub: WeThe Verint Cloud Platform includes an Engagement Data Hub. Interaction data captured from multiple voice, video, digital, and social communication systems, experience data captured from multiple survey systems, and enrichment data from systems of record, are expanding our relationshipsunified and managed in a single data hub at the core of the platform. Engagement data in the hub is made available for Verint Da Vinci algorithms, for any Verint application which requires access to it, as well as for the brand’s data lake strategy, to its business intelligence tools, and to its partners who need data to develop their own applications. Verint applications use the engagement data in the hub to address multiple use cases for brands, including contact center analytics, enterprise analytics, customer journey analytics, workforce compliance with existing partnerspolicies and adding new partners. As part of our partner friendly strategy, we provide our partners with tools, enablementregulations, and support to make them successful. We believe we are increasingly becoming the partner of choice, and our partner strategy is a growth driver for Verint.fraud mitigation.

Our Customer Engagement Solutions

The Verint Cloud Platform offers a broad set of solutions, to help brands close the Engagement Capacity Gap. The platform is open and modular to offer maximum flexibility. Brands can choose to deploy solutions by starting anywhere based on their business priorities and then expand with other solutions over time to maximize their return on investment.

In addition to the platform’s core components described above, brands can deploy a variety of business applications that fall intoacross three solution areas: Future of Work,Digital-First Engagement, Workforce Engagement, and Experience Management, and Engagement Data Management.

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Digital-First Engagement

Our FutureDigital-First Engagement applications help brands accelerate their digital strategy, including through:

Engagement Channels: Brands can digitally transform the customer experience across a wide number of Workchannels, including messaging, social, chat, email, interactive voice response (IVR), and community.

Conversational AI: With our intelligent virtual assistant (IVA), enable human-like conversations across every channel delivering effortless and personal experiences.

Engagement Orchestration: Brands can improve employee efficiency, time to resolution, compliance, and customer satisfaction with workflows and automation that support simple customer channel interactions or complex orchestration of customer engagements across all channels, devices, and touchpoints.

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Knowledge Management:Enable humans and bots to deliver stellar service with tools for accessing content across the organization, delivering consistent and compliant answers, and achieving compliance with regulations and processes.

Workforce Engagement

Our Workforce Engagement applications help brands manage their customer engagement work and their modern workforce across the enterprise – empoweringenterprise. From the contact center to the back office and branch, these applications enable brands to empower a workforce of humans and bots, enablingenable connected work across all silos, and drivingdrive real-time work actions. Within this solution area, weWe offer applications for the following purposes:following:

Forecasting & Scheduling: Understand the work needed to meet and exceed customer expectations, determine the optimal resourcing strategy to address itcustomer expectations with employeesa combination of employee input and automation, and provide staff across all customer touchpoints and across the enterprise with flexible scheduling options for balancing work and personal needs.

Quality & Compliance: Use automation and analyticsworkflows to make customer interactions across both attended and self-service voice and digital channels more pleasant, productive, and secure, while empowering employees with the skills they need to deliver outstanding service.performance.
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Interaction Insights: Extract insights from structured and unstructured customer interactions and activities across the enterprise to drive strategy, productivity, customer loyalty, and revenue.

Real-Time Work: Support in-the-moment workforce activities with workflows, guidance, assistance, and automation to enhance customer experiences, workforce engagement, and compliance, while reducing operating costs.

Self-Service: Connect customers and employees with the information, resources, and support they need, when they need it, across voice and digital channels for improved experiences, business-changing insights, and rapid return on investment.

Case Management: Improve employee efficiency, time to resolution, compliance, and customer satisfaction with workflows and automation that simplify and expedite case handling. Provide seamless customer experiences across email, messaging, chat, and secure messaging.

Knowledge Management: Help agents deliver stellar service with tools for accessing content across the organization, delivering consistent, compliant answers, and achieving compliance with regulations and processes.

Experience Management

TheOur Experience Management applications help brands collect and analyze customer experience data across all customer journeys - including direct, indirect, and inferred experiences - across digital, contact center, and location touchpoints. With a complete and unified view of the customer experience, brands are empowered with insights and actions to improve engagement from every level of the organization. Within this solution area, we offer applications for the following purposes:following:

DigitalEmployee Experience: Monitor customer-initiated feedback via webHelp brands understand how employees are developing and mobile channels throughout the digital customer journey in real time.where they may need coaching to improve.

Enterprise ExperienceCustomer Experience:: Capture Understand the experience brands are delivering to their customers across channels, including voice and digital, and use that data across all channels and unify feedback throughout the organization while eliminating “feedback fatigue” and improving response rates.to create a holistic, cross-channel view of customer experience at scale.

InteractionOur Experience: Use dynamic, voice surveys following a Management applications can be combined to provide solutions that solve experience management challenges throughout the enterprise, in the contact center, interaction to understandfor digital teams, retail locations, marketing organizations and improve the effectiveness of people, products, and processes.

Predictive Experience: Listen and act on customer and employee experiences with models and scientific rigor to predict future behavior and prioritize the best, most effective ways to improve engagements.

Engagement Data Management

The Engagement Data Management applications help brands unify and normalize their data across any customer touchpoint into a single view at scale and provide customers with open access to their data. Within this solution area, we offer applications for the following purposes:

Data Management: To simplify interaction data management, configurable workflows are available to help organizations manage and audit retention and access. Open APIs and adapters allow organizations to freely export data to feed a data lake, or other applications.

Enrichment: Use analytics tools to enrich the data and make it easier to unlock the value in the data.

Compliance: Interaction data storage, access, retention, and compliance in one place to make it easier to enforce the requirements of PCI, HIPAA, GDPR, CCPA, and other regulations.

Verint Cloud Platform

The Verint Cloud Platform is designed with native cloud architecture that is open and is powered by Verint Da Vinci AI and Analytics™.

Native Cloud Architecture: With a native cloud architecture, the Verint Cloud Platform was designed for multicloud support, capable of running in leading cloud infrastructure environments. The native cloud architecture accelerates
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innovation by standardizing our approach to microservice container architectures and fully automated development operations to speed development while improving reliability and security.

Open Imperative: The shift to cloud, the explosion in AI, and the growth of the API economy have dramatically changed customer and partner expectations regarding what they need from their core technology vendors. The days of the single vendor with a closed ecosystem are long gone. Verint’s open platform is more than the technology alone – it includes the tools needed to foster a rich partner and customer ecosystem around our applications. These tools include: (1) a marketplace where Verint and partner components are made available to accelerate time to value with downloadable extensions and (2) a developer portal where customers can engage directly with the Verint technical community. Our APIs are available to test, with code samples, developer sandboxes, downloadable test clients, education, and discussion forums.

Verint Da Vinci AI and Analytics™: Verint has been well known for its leading AI and analytics capabilities for many years. We have now packaged these capabilities into what we call Verint Da Vinci AI and Analytics and have embedded it natively in the Verint Cloud Platform. Verint’s Da Vinci services are delivered through the Verint Cloud Platform and used by our applications to infuse AI across the Verint portfolio. These services use state of the art machine learning, natural language processing, and deep learning algorithms honed on our unique data set. Verint Da Vinci represents over two decades of research into optimizing customer engagement.human resources departments.

In addition to the Verint Cloud Platform, Verint continues to develop and enhance its Workforce Engagement (WFE) PremisesOn-Premises Platform. Customers running the PremisesOn-Premises Platform may also choose to keep their applications on premises,on-premises, while adding applications from the Verint Cloud Platform. They can also choose to convert to the Verint Cloud Platform when they are ready to move their applications to the cloud. Verint isWe are committed to providing our customers with choice and flexibility when it comes to deploying solutions on premiseson-premises or in the cloud. We can help our customers evolve customer engagement at their own pace, while protecting their existing investments with minimal disruption to their operations.

Our Customers

Our customer engagement solutions are used by approximately 10,000 organizations in over 175 countries across a diverse set of verticals, including financial services, healthcare, utilities, technology, and government. Our customers include large enterprises with thousands of employees, as well as small to medium sized business (SMB)SMB organizations. Excluding the Cognyte Business, inIn the year ended January 31, 2021,2022, we derived approximately 69%, 21%20%, and 10%11% of our revenue from sales to customers in the Americas, in Europe, the Middle East and Africa (“EMEA”), and in the Asia-Pacific (“APAC”) regions, respectively, with no single customer accounting for or exceedingrespectively. No end-customer represented more than 10% of our revenue.total revenue during the years ended January 31, 2022, 2021, or 2020. In the year ended January 31, 2021, we had an authorized
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global reseller of our solutions that represented approximately 10% of our total revenue, but did not represent 10% or greater of our total revenue for the years ended January 31, 2022 or 2020.

Seasonality and Cyclicality

As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most years, our revenue and operating income are typically highest in the fourth quarter and lowest in the first quarter (prior to the impact of unusual or nonrecurring items). Moreover, revenue and operating income in the first quarter of a new year may be lower than in the fourth quarter of the preceding year, in some years, potentially by a significant margin. In addition, we generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that month. We believe that these seasonal and cyclical factors primarily reflect customer spending patterns and budget cycles, as well as the impact of compensation incentive plans for our sales personnel. While seasonal and cyclical factors such as these are common in the software and technology industry, this pattern should not be considered a reliable indicator of our future revenue or financial performance. Many other factors, including general economic conditions, also have an impact on our business and financial results. See “Risk Factors” underin Item 1A of this report for a more detailed discussion of factors which may affect our business and financial results.

Direct and Indirect Sales

We sell our solutions through our direct sales teams and indirect channels. Our direct sales teams are focused on large and mid-sized customers and, in many cases, co-sell with our indirect channels. Our indirect channels also address large and midsize customers, but also sell toas well as smaller customers. Our direct sales teams and indirect channels are supported by business consultants, solutions specialists, and presales engineers who, during the sales process, help determine customer requirements and develop technical responses to those requirements.

Customer Success

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We help our customers achieve success and maximize their return on investment in our solutions through a range of services.

Cloud Operations. We deploy our cloud applications in multiple cloud environments, including the leading cloud infrastructure environments. We provide our customers with service-level commitments with respect to uptime and support.

Managed Services. We offer a range of managed services that are recurring in nature and can be delivered in conjunction with Verint’s technology or on a standalone basis, andwhich help build strong relationships with our customers.

Implementation. Configurations, commissioning, integrations, and other implementation work can be performed by us, our authorized partners, or by end customers themselves.

Training. Training programs are designed for customers and to certify our partners. Customer and partner training is provided at the customer site, at our training centers around the world, and/or remotely online.

Consulting. We and our partners offer customers help to maximizein maximizing the value of our solutions, including consulting on business strategy, process excellence, performance management, and project and program management.

Support. We offer a range of support plans to our customers and partners, designed to help ensure long-term successful use of our solutions.

Research and Development

We continue to enhance the features and performance of our existing solutions and to introduce new solutions through extensive R&Dresearch and development (R&D) activities. Our research and developmentR&D team, which is comprised of engineers, data scientists, PhDs and other technical experts, have deep software expertise, particularly related toin the areas of artificial intelligence, data aggregation and curation, predictive analytics,machine learning, specialized language and vocabulary processing, and several other key areas that support our strategic initiatives. In addition to the development of new solutions and the addition of capabilities to existing solutions, our R&D activities include cloud platform and shared service investment, quality assurance, and advanced technical support for our customer services organization. R&D is performed primarily in the United States, Israel, the United Kingdom, Ireland, the Netherlands, Hungary, and Indonesia.

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To support our research and development efforts, we make significant investments in R&D every year. We have a well-defined roadmap to introduce new features and functionality that we believe will further enhance the value of our solutions to our customers. We allocate our R&D resources in response to market research and customer demand for additional features and solutions. Our development strategy involves rolling out initial releases of our products and cloud services and adding features over time. We incorporate productconsider feedback received from our customers intoas part of our product development process. While the majority of our products are developed internally, in some cases, we also acquire or license technologies, products, and applications from third parties based on timing and cost considerations. See “Risk FactorsRisks Related to Our BusinessMarkets, Competition, and OperationsFor certain services, products, or components, including our cloud hosting operations, we rely on third-party providers, which may create significant exposure for us” underin Item 1A of this report.

Third-Party Suppliers

For certain services, products, or components, including our cloud hosting operations, we rely on third-party providers, which may create significant exposure for us. See “Risk Factors—Risks Related to Our Business—Markets, Competition, and Operations—For certain services, products, or components, including our cloud hosting operations, we rely on third-party providers, which may create significant exposure for us” underin Item 1A of this report for a discussion of risks associated with our suppliers.

Human Capital

At Verint, we are committed to conducting our business in an ethical manner and to creating value for all of our stakeholders: customers and partners, employees and shareholders, the communities in which we work, and the global community at large.

As of January 31, 2021, excluding the Cognyte Business,2022, we employed approximately 4,3004,400 professionals, including certain contractors, with approximately 47%45%, 32%34%, and 21% of our employees and contractors located in the Americas, EMEA (including Israel), and APAC, respectively. We consider our relationship with our employees to be good and a critical factor in our success. The market for talent in our industry is highly competitive. See Item 1A of this report for a more detailed discussion of the human capital risks we face.

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Our employees in the United States are not covered by any collective bargaining agreements. In some cases, our employees outside the United States are automatically subject to certain protections negotiated by organized labor in those countries directly with the government or trade unions, or are automatically entitled to severance or other benefits mandated under local laws.

Culture and Values

Verint is built on five core values that shape the way we do business with our customers, our partners, and each other. They express the company we want Verint to be — from the people we hire to the way we design our productssolutions — and they guide us in the decisions we make every day. Our five core values are:

The integrity to do what’s right
The innovation to create leading solutions for real-world challenges
The transparency that fuels mutual trust and productive, collaborative working relationships
The humility to view our successes as milestones in our journey, and our mistakes as opportunities for improvement
A passion for making our customers and partners successful

These values embody the spirit of Verint and form the foundation for our objectives of superior solutions, unparalleled service, and an unwavering commitment to customer success.

Diversity, Equity, and Inclusion

We embrace differences and work to cultivate an inclusive organization. We believe in providing a supportive environment and opportunities for all of our employees to develop and advance. We support diverse groups in the workplace, with equal terms of employment, professional opportunities, and benefits. We are an Equal Opportunity Employer - we have affirmative action plans in place to help ensure that qualified applicants and employees are receiving an equal opportunity for recruitment, selection, and advancement. We offer our employees competitive compensation and benefits packages, with many company-paid offerings, including paid time off, tuition reimbursement, paid training and wellness programs, to support our recruiting and retention goals. We recognize differences in family composition and our U.S. benefit plans provide options for employees in diverse family circumstances including domestic partner benefits, adoption assistance, and fertility assistance.
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We track and periodically report on our global diversity results to our board of directors. For the year ended January 31, 2021,2022, our female gender composition increased slightly, as didon a global basis and our minority versus non-minority employee composition forincreased across the combined company, and after giving effect to the Spin-Off, weU.S. We also increased the number of women within our businesssenior leadership team by 5% to 18%(vice president and above) over the last fiscalprior year. We intend to continue to focus on genderexpanding diversity and inclusion as an intrinsic part of our business objectives, including through recruitment and promotional opportunities, in the current year ending January 31, 2022 and beyond.opportunities.

In 2020, weWe have established a Diversity & Inclusion Council. The Council’s mandate is to help us foster an environment that attracts and retains the best talent, values diversity of life experiences and perspectives, educates our personnel, and encourages innovation. The Diversity & Inclusion Council currently has several initiatives underway, including partnering with non-profit organizations for on-going support,talent acquisition and community outreach, and an educational series for Verint employees. The Diversity & Inclusion Council has also implemented a direct deposit program for employees to recognize meaningful holidays throughoutparticipate in charitable giving to two organizations: Black Girls Code, an organization that encourages and supports the year.aspirations of young women of color to code, engineer, and achieve careers in computer science and other STEM fields, and the Gay, Lesbian, Straight Education Network (GLSEN), an organization that tries to ensure every member of every school community is valued and respected regardless of sexual orientation, gender identity or gender expression. The Diversity & Inclusion Council increases cultural and diversity awareness within our organization and encourages employees to continue to drive outreach opportunities through employee and recruiting events.

We also encourage socially responsible procurement practices by actively pursuing business relationships with suppliers owned by minorities or by women.

Community Outreach

At Verint, we are committed to giving back to the communities in which we live and work. In 2005, we launched the Verint Next-Generation Program, which engages Verint employees around the globe in projects that benefit children in need. The program puts our core values to work in our local communities, with the goal of affording the next generation greater opportunities and the tools for making the most of them. As part of the program, Verint employees engage in various community activities, from supplying food pantries, to participating in blood drives, to collecting clothing and school supplies, to building playgrounds, to cleaning parks and planting gardens. Verint is also proud to support our employees’ community service activities with programs for donating employee time to qualified children’s organizations and matching grants. In 2020,2021, Verint employees in the United States donated over $300,000 of paid time off$525,000 to children’s charities through the program. Globally, over 5001,600 Verint employees donated their time by participating insupported more than 50 events to help raise money, clothing, and food for those that are underprivileged.125 local non-profit organizations in local Verint communities. In 2020,2021, we also focused on supporting events to help families struggling due to the COVID-19 pandemic by providing food and clothing to those in need.

Employee Development

At Verint, we are dedicated to providing a productive, ethical, and safe working environment in which innovation and market leadership can flourish. We recognize that our employees are the driving force behind Verint’s success. Our fast-paced, challenging, and collaborative work environment nurtures professional growth and offers a wide array of career advancement
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opportunities, and our workforce planning tools provide managers with a framework for thinking strategically about the talent our company requires to achieve our business goals.

Continuous learning and the professional development of our employees are key factors in our success. Verint’s approach is based on the learning philosophy of "70:“70:20:10"10”. We believe that seventy percent of skill development occurs through on-the-job experiences, twenty percent through colleague and leadership interactions, and ten percent through formal professional and academic learning opportunities. All our employees are afforded the opportunity to take part in our training programs, with the ability to focus their learning on the skills and knowledge that are most relevant for their professional development. We offer thousands of training courses in our online Learning Center in addition to classroom trainings.training. Throughout the pandemic, we have encouraged our employees to continue their professional development and acquisition of knowledge and skills, through existing and newly developed online learning.

Employees mayare also invited to establish an Individual Development Plan in collaboration with their managers to establish and facilitate the employee’s short- and long-term development goals. These plans are tailored to the employee’s own individual competencies and aspirations in the context of our business goals and available opportunities.

Please see the Sustainability ReportDiversity and Inclusion section of our website and our Environmental, Social, and Governance (ESG) report in the Corporate Responsibility section of our website for further information on our Environmental, Social, and Governance (ESG)ESG initiatives, including with respect to
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human capital. These resources and the information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the SEC.

Competition

We face strong competition from many vendors, some of whom focus on customer engagement and some of whom offer customer engagement-related capabilities. Key competitors include Aspect Software,Alvaria, Inc., Calabrio, Inc., Genesys Telecommunications, Medallia Inc., NICE Systems Ltd., Nuance Communications, Inc., Pegasystems Inc., divisions of larger companies, including Microsoft Corporation, Oracle Corporation, SAP, and Salesforce.com, Inc., as well as many smaller companies, which vary from region to region globally.

We believe that we compete principally on the basis of:

Product performance and functionality;
Product quality and reliability;
Breadth of product portfolio and pre-defined integrations;
Global presence, 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 will increase as other established and emerging companies enter our markets or we enter theirs, and as new products, services, technologies, and delivery methods are introduced. 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 FactorsRisks Related to Our BusinessMarkets, Competition, and OperationsIntense competition in our markets and competitors with greater resources or the ability to move faster than us may limit our market share, profitability, and growth” underin Item 1A of this report for a more detailed discussion of the competitive risks we face.

Intellectual Property Rights

General

Our success depends to a significant degree on the legal protection of our software and other proprietary technology. We rely on a combination of patent, trade secret, copyright, and trademark laws, and confidentiality and non-disclosure agreements with employees and third parties to establish and protect our proprietary rights.

Patents

As of January 31, 2021, after giving effect to the Cognyte Spin-Off,2022, we had more than 600650 patents and patent applications worldwide across areas including data capture, artificial intelligence, machine learning, unstructured data analytics, predictive analytics, and automation. We regularly review new areas of technology related to our businesses to determine whether they can and should be patented.
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Licenses

Our customer and partner license agreements prohibit the unauthorized use, copying, and disclosure of our software technology and contain customer restrictions and confidentiality terms. These agreements generally warrant that the software and proprietary hardware will materially comply with written documentation and assert that we own or have sufficient rights in the software we distribute and have not violated the intellectual property rights of others. We generally make our solutions available through our cloud platform or license our productsthem in a format that does not permit users to change the software code.

While we employ many of our innovations exclusively in our own products and services, we also engage in outbound and inbound licensing of specific patented technologies. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe, based on industry practice, such licenses generally can be obtained on commercially reasonable terms. See “Risk FactorsRisks Related to Our BusinessMarkets, Competition, and OperationsFor certain services, products, or components, including our cloud hosting operations, we rely on third-party providers, manufacturers, and partners, which may create significant exposure for us” underin Item 1A of this report.

Trademarks and Service Marks

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We use various trademarks and service marks to protect the marks used in our business. We also claim common law protections for other marks we use in our business.

See “Risk FactorsRisks Related to Our BusinessInformation/Product Security and Intellectual PropertyOur intellectual property may not be adequately protected” and “Risk FactorsFactors—Risks Related to Our BusinessBusiness—Information/Product Security and Intellectual PropertyProperty—Our products or other IP may infringe or may be alleged to infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions for us and may require us to indemnify our customers and resellers for any damages they suffer” underin Item 1A of this report for a more detailed discussion regarding the risks associated with the protection of our intellectual property.

The Cognyte Spin-OffRegulatory Matters

On February 1, 2021,Our business and operations are subject to a variety of regulatory requirements in the countries in which we completed the Spin-Offoperate or in which we offer our solutions, including, among other things, with respect to data privacy and protection, government contracts, anti-corruption, trade compliance, tax, and labor matters. See “Risk Factors—Risks Related to Our Business—Regulatory Matters, Data Privacy, Information Security, and Product Functionality—We are subject to complex, evolving regulatory requirements that may be difficult and expensive to comply with and that could negatively impact us or our business, and —Increasing regulatory focus on data privacy issues and expanding laws in these areas may result in increased compliance costs, impact our business models, and expose us to increased liability” in Item 1A of Cognyte into an independent public company. Cognyte is a global leader in security analytics software that empowers governments and enterprises with Actionable Intelligence®this report for a safer world. Cognyte’s open software fuses, analyzes and visualizes disparate data sets at scale to help security organizations findmore detailed discussion of the needles in the haystacks. Over 1,000 government and enterprise customers in more than 100 countries rely on Cognyte’s solutions to accelerate security investigations and connect the dots to successfully identify, neutralize, and prevent national security, personal safety, business continuity and cyber threats. Cognyte’s government customers consist of governments around the world, including national, regional, and local government agencies. Cognyte’s enterprise customers consist of commercial customers and physical security customers.

Cognyte’s solutions span across three categories.

Investigative Analytics. The Cognyte investigative analytics solutions are designed to empower investigative teams with Actionable Intelligence by providing:

the ability to effectively fuse massive amounts of data from many different sources;

tools to analyze data through predictive and behavioral analytics and rapidly transform data into critical insights; and

workflows to uncover vital leads and drive collaboration across investigative teams to accelerate investigations and reach faster conclusions and resolutions.

Operational Intelligence Analytics. The Cognyte operational intelligence analytics solutions are designed to empower field security teams with Actionable Intelligence by providing:

real-time or near real-time insights delivered to users through mobile devices;

visualization tools that bring intuitive insights to the field teams; and

regulatory risks we face.
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the ability to adjust analytics parameters based on changing circumstances to support events on the ground.

Threat Intelligence Analytics. The Cognyte threat intelligence analytics solutions are designed to empower security operation center (SOC) teams with Actionable Intelligence by providing:

the ability to fuse data from a variety of data sources systems and devices and provide real time situational intelligence;

tools to analyze events, recognize anomalies, visualize insights, and drive a real time response; and

visualization and workflows that can drive action and support collaboration across security teams responding to cyber incidents.

Cognyte’s corporate headquarters is located in Israel, with other significant facilities located in Brazil, Bulgaria, Cyprus, Romania, and the United States.

As of January 31, 2021, the Cognyte Business employed approximately 2,000 professionals, including certain contractors, with approximately, 63%, 22%, 10% and 5% of its employees and contractors located in Israel, EMEA, Americas, and APAC, respectively.


Item 1A.          Risk Factors
 
Many of the factors that affect our business and operations involve risks and uncertainties. The factors described below are risks that could materially harm our business, financial condition, and results of operations. These are not all the risks we face, and other factors currently considered immaterial or unknown to us may have a material adverse impact on our future operations.

Risks Related to Our Business
 
Markets, Competition, and Operations
 
Our business is impacted by changes in macroeconomic and/or global conditions as well as the resulting impact on information technology spending and government budgets.
 
Our business is subject to risks arising from adverse changes in domestic and global macroeconomic and other conditions. Slowdowns, recessions, inflation, economic instability, political unrest, armed conflicts (such as the March 2022 Russian invasion of Ukraine), natural disasters, climate change or other environmental issues, or outbreaks of disease, such as the COVID-19 pandemic, around the world may cause companies and governments to delay, reduce, or even cancel planned spending, and may increase costs, or may otherwise disrupt or negatively impact our business andor operations. Other macroeconomic changes, such as rising interest rates, tightening credit markets, inflation, actual or threatened trade wars, or the United Kingdom’s exit from the European Union (referred to as “Brexit”) may also impact demand for our solutions or otherwise disrupt or negatively impact our business or operations. Declines in information technology spending by enterprise or government customers have affected the markets for our solutions in the past and may affect them again based on current and future macroeconomic and/or global conditions. 

During the fourth quarter ended January 31, 2020, concerns related to the spread of COVID-19 began to create global business disruptions as well as disruptions in our operations and to create potential negative impacts on our revenues and other financial results. COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. The full extent to which COVID-19 will impact our financial condition or results of operations is currently uncertain and depends on various factors, including the duration and severity of the pandemic and its impact on our customers, partners, and vendors and on the operation of the global markets in general. Because an increasing portion of our business is based on a subscription model, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.

For the year ended January 31, 2021, exclusive of Cognyte, approximately ten percent of our business was generated from contracts with various governments around the world, including national, regional, and local government agencies. We expect that government contracts will continue to be a significant source of our revenue for the foreseeable future. Macroeconomic changes, such as the COVID-19 pandemic, rising interest rates, tightening credit markets, or actual or threatened trade wars, or the United Kingdom’s exit from the European Union (referred to as “Brexit”) may also impact demand for our solutions.

Customers or partners who are facing business challenges, reduced budgets, liquidity issues, or other impacts from such macroeconomic or other global changes are also more likely to defer purchase decisions or projects or cancel or reduce orders, as well as to delay or default on payments. If customers or partners significantly reduce their spending with us, significantly
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delay projects, or significantly delay or fail to make payments to us, our business, results of operations, and financial condition would be materially adversely affected.

The full extent to which the COVID-19 pandemic will adversely affect our business and results of operations cannot be predicted at this time.

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreakpandemic has reached all of the regions in which we do business,caused significant economic disruption and uncertainty and governmental authorities around the world have implemented numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, shutdowns, limitations or closures of non-essential businesses, and social distancing requirements. Companies around the world, including us, ourOur customers, partners, and vendors have also implemented actions in response to the pandemic, including among others, office closings, site restrictions, and employee travel restrictions. Notwithstanding the loosening ofIn response to these restrictions in certain countries in certain periods since the onset of the pandemic, the global spread of COVID-19challenges, we established remote working arrangements for our employees, limited non-essential business travel, and actions taken in response have negatively affected us,cancelled or shifted our customers, partners,customer, employee, and vendors and caused significant economic and business disruption the extent and duration of which is not currently known. We continueindustry events to monitor and assess the impact of the COVID-19 pandemic, including recommendations and orders issued by government and public health authorities in countries where we operate.

We saw an improvement in the business environment during the second half of 2020 after an initial downturn early in the year; however, during the year ended January 31, 2021, our revenue was negatively impacted by delays and reduced spending attributed to the impact of the COVID-19 pandemic on our customers’ operational priorities and as a result of cost containment measures they have implemented. Due to the pandemic, we saw a reduction or delay in certain large customer contracts, particularly on-premises arrangements, and we have generally been unable to conduct face-to-face meetings with existing or prospective customers and partners, present in-person demonstrations of our solutions, or host or attend in-person trade shows and conferences. Limitations on access to the facilities of our customers have also impacted our ability to deliver some of our products, complete certain implementations, and provide in-person consulting and training services, negatively impacting our ability to recognize revenue. Our ability to predict how the pandemic will impact our results in future periods is limited, including the extent to which customers may delay or miss payments, customers may defer, reduce, or refrain from placing orders or renewing subscriptions or support arrangements, or to which travel restrictions and site access restrictions may remain necessary, particularly if the pandemic fails to abate for an extended period of time or worsens.

In light of the adverse impact of COVID-19 on global economic conditions and our revenue, along with the uncertainty associated with the extent and timing of a potential recovery, duringvirtual-only format. During the first half of the year ended January 31, 2021,2020, we also implemented certain cost-reduction actions of varying durations. Such actions included, but were not limited to, reducing our discretionary spending, decreasing capital expenditures, reconsidering the optimal uses of our cash and other capital resources, including with respect to our stock repurchases, and reducing workforce-related costs. During the first half of 2020, our revenue was adversely impacted by delays and reduced spending attributed to the impact of the pandemic on our customers’ operational priorities and as a result of cost containment measures they had implemented. We saw a reduction in or delay in certain large customer contracts, particularly on-premises arrangements, and limitations on access to the facilities of our customers also impacted our ability to deliver some of our products and complete certain implementations, negatively impacting our ability to recognize revenue.

We saw an improvement in the business environment during the second half of 2020 which continued through 2021 (the year ended January 31, 2022) as our customers accelerated the digitization of their customer interactions and internal operations due to the pandemic. Based on the improved business environment and our financial performance, during the second half of the year, we have in many cases resumed investments and other spending; however, these actions may need to be reassessed depending on how the facts and circumstances surrounding the pandemic evolve and we continue to evaluate and may decide to implement further cost control strategies to help us mitigate the impact of the pandemic, if required.evolve. Any such actionsrenewed cost controls may have an adverse impact on us, particularly if they remain in place for an extended period. As the pandemic has evolved, we have also adapted our pandemic response on a localized basis based on the prevailing conditions in the locations in which we and our customers, partners, or vendors operate. We expect to incur additional costs to the extent we further resume business-related travel and our employees return to our office locations, the timing and extent of which remains undetermined at this time. We anticipate that the ability to
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open offices will vary significantly from region to region based on a number of factors, including the availability of vaccines and the spread of new variants of the virus. We also continue to evaluate our real estate needs and have begun making adjustments in light of the remote work environment.

The ultimate impactNotwithstanding the recovery in the business environment since the early part of the COVID-19 pandemic, andgiven the effects ofuncertainty associated with the operational alterations we have made in response onpandemic, our ability to predict how it will impact our business, financial condition, liquidity, and financial results cannotin future periods is limited, particularly if the pandemic fails to abate for an extended period of time or worsens.

On September 9, 2021, the U.S. federal government issued the mandatory vaccination and workplace safety protocols of Executive Order 14042 (the “EO”) and subsequent guidance issued thereunder by the Safer Federal Workforce Task Force. This mandate applies broadly to require covered federal contractor employees on covered contracts, those who perform duties in connection with a covered contract, and those working at the same workplace as covered employees, to be predicted at this time.fully vaccinated for COVID-19, except for those that are legally entitled to an accommodation under applicable law. The enforceability of the EO has been subject to numerous lawsuits and is currently subject to a number of injunctions. As a result, the EO is not being enforced by the federal government. We are party to or perform duties under such contracts. We may similarly be required to flow-down our obligations to certain of our subcontractors and suppliers. The guidance remains subject to the interpretation of various government agencies and other entities, and questions remain regarding the specific application of the EO and related guidance. As a result, if our understanding of its application to our workforce differs from our federal customers’ interpretation, or if our covered employees are unwilling to comply with the mandate, we may experience increased costs, business disruptions and attrition as a result of the mandate. Additionally, we may be subject to potential breach of contract claims, loss of business and assessment of fines if we or our affected subcontractors and suppliers are not able to fully comply in the time frame provided or if such subcontractors and suppliers choose to terminate their contracts rather than comply.

The industry in which we operate is characterized by rapid technological changes, evolving industry standards and challenges, and changing market potential from area to area, and if we cannot anticipate and react to such changes our results may suffer.

The markets for our products are characterized by rapidly changing technology and evolving industry standards and challenges. The introduction of products embodying new technology, new delivery platforms, the commoditization of older technologies, and the emergence of new industry standards and technological hurdles can exert pricing pressure on existing products and services and/or render them unmarketable or obsolete. For example, 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 not uniform and are evolving. It is critical to our success that we are able to anticipate and respond to changes in technology and industry standards and new customer challenges by consistently developing new, innovative, high-quality products and services that meet or exceed the changing challenges and needs of our customers. Any failure to develop high-quality solutions and to provide high-quality services and support could adversely affect our reputation, our ability to sell our services offerings to existing and prospective customers, and our operating results. We must also successfully identify, enter, and appropriately prioritize areas of growing market potential, including by launching, successfully executing, and driving demand for new and enhanced solutions and services, while simultaneously preserving our legacy businesses and migrating away from
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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 we are unable to execute on these strategic priorities, we may lose market share or experience slower growth, and our profitability and other results of operations may be materially adversely affected.

Intense competition in our markets and competitors with greater resources or the ability to move faster 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 be able to more quickly develop or adapt to new or emerging technologies, better respond to changes in customer needs or preferences, better identify and enter into new areas of growth, or devote greater resources to the development, promotion, and sale of their products. Some of our competitors have, in relation to us, superior brand recognition with customers, partners, employees, or investors, higher growth rates, superior margins, longer operating histories, larger customer bases, longer standing relationships with customers, superior brand recognition, superior margins, and significantly greater financial or other resources, especially in new markets we may enter. Consolidation among our competitors may also improve their competitive position. To the extent that we cannot compete effectively, 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 of our products and services, and/or reduce our cost structure, including reducing headcount or
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investment in R&D, in order to remain competitive. If we are forced to take these kinds of actions to remain competitive in the short-term, such actions may adversely impact our ability to execute and compete in the long-term.

Our future success and financial results depend on our ability to properly execute on our cloud transition and manage our sales mix.

Our revenue and profitability objectives are highly dependent on our ability to continue to expand our cloud business and cloud operations, including keeping pace with the market transition to cloud-based software, making new cloud sales, enhancing our cloud sales processes and execution, and managing the conversion of our customer support base. The expansion of our cloud business and operations increases our reliance on our cloud-hosting partners and increases the amount of customer data for which we are responsible.

Our cloud transition and the mix, terms, and timing of transactions in a given period can have a significant impact on our financial results in that period. Our financial results and ability to forecast our revenues (and attendant budgeting and guidance decisions) are impacted by the fact that pricing, margins, and other deal terms, including license model (e.g., perpetual license versus subscription), may vary substantially from transaction to transaction. We recognize cloud revenue over the term of the subscription, so as our cloud revenue continues to grow, we expect a greater amount of our revenue to be recognized over longer periods, in some cases several years, as compared to the way revenue is recognized for perpetual licenses. This change in the pattern of recognition also means that increases or decreases in cloud subscription activity impact the amount of revenue recognized in both current and future periods. Because transaction-specific factors are difficult to predict in advance, this also complicates the forecasting of revenue and creates challenges in managing our cloud transition and revenue mix. As our cloud transition continues and accelerates, our subscription renewal rates have become more important to our financial results, generally, and if customers choose not to renew, or to reduce, their subscriptions, our business and financial results will suffer.

The deferral or loss of one or more significant orders or a delay in a large implementation can also materially adversely affect our operating results, especially in a given quarter. As with other software-focused companies, a large amount of our quarterly business tends to come in the last few weeks, or even the last few days, of each quarter. This trend has also complicated the process of accurately predicting revenue and other operating results, particularly on a quarterly basis. Finally, our business is subject to seasonal factors that may also cause our results to fluctuate from quarter to quarter.

If we are unable to properly manage our cloud transition, or if it does not progress as expected, our financial results and our stock price may suffer.

Our future success depends on our ability to execute on growth or strategic initiatives, properly manage investments in our business and operations, execute on growth or strategic initiatives, and enhance our existing operations and infrastructure.

Our success also depends on our ability to execute on other growth or strategic initiatives we are pursuing. A key element of our long-term strategy is to continue to invest in and grow our business and operations, both organically and through acquisitions. 

Investments in, among other things, new markets, new products, solutions, and technologies, R&D, infrastructure and systems, geographic expansion, and headcount are critical components for achieving this strategy. In particular, we believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. Our investments in research and development may result in products or services that generate less revenue than we anticipate or may not result in marketable products and services for several years or at all.

However, such investments and efforts present challenges and risks and may not be successful (financially or otherwise), especially in new areas or new markets in which we have little or no experience, and even if successful, may negatively impact our profitability in the short-term. To be successful in such efforts, we must be able to properly allocate limited investment funds and other resources, prioritize among opportunities, balance the extent and timing of investments with the associated impact on profitability, balance our focus between new areas or new markets and the operation and servicing of our legacy businesses and customers, capture efficiencies and economies of scale, and compete in the new areas or new markets, or with the new solutions, in which we have invested.

Our success also depends on our ability to execute on other growth or strategic initiatives we are pursuing. For example, in addition to the other factors described in this section, our revenue and profitability objectives are highly dependent on our ability to continue to expand our cloud business and cloud operations, including keeping pace with the market transition to cloud-based software, making new cloud sales, enhancing our cloud sales processes and execution, and managing the conversion of our customer support base.

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, and expensive and we cannot assure you that we will not experience problems during or following such implementations, including among others, potential disruptions in our operations or financial reporting.
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If we are unable to properly manage our investments, execute on growth initiatives, manage our investments, and enhance our existing operations and infrastructure, our results of operations and market share may be materially adversely affected.

If we cannot retain and recruit qualified personnel, or if labor costs continue to rise, our ability to operate and grow our business may be impaired and our financial results may suffer.
We depend on the continued services of our management and employees to run and grow our business. To remain successful and to grow, we need to retain existing employees and attract new qualified employees, including in new markets and growth areas we may enter. Retention is an industry issue given the competitive technology labor market, especially with the remote work options brought on by the COVID-19 pandemic, and as the millennial workforce continues to value multiple company experience over long tenure. As we grow, we must also enhance and expand our management team to execute on new and larger agendas and challenges. The market for qualified personnel is competitive in the geographies in which we operate as well as for qualified remote workers and may be limited especially in areas of emerging technology. We may be at a disadvantage to larger companies with greater brand recognition or financial resources or to start-ups or other emerging companies in trending market sectors. Work visa restrictions, especially in the United States, have also become significantly tighter in recent years, making it difficult or impossible to source qualified personnel from other countries or even to hire those already in the United States on current visas. Regulatory requirements such as vaccine mandates may also create risks in our ability to recruit and retain employees. 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. Remote employment arrangements also come with challenges, including with respect to collaboration, training, and corporate culture, especially at a significant scale. If we are unable to attract and retain qualified personnel when and where they are needed or to develop our remote workforce, 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.

While the market for talent in our industry has been competitive for many years, in recent quarters, the labor market has become even tighter, increasing the difficulty and lead time in filling open positions with qualified candidates. As a result, labor costs have increased more significantly than in prior periods. Labor shortages or increased labor costs could negatively affect our financial condition, results of operations, or cash flows, especially if rising costs outpace our revenue growth.

The broad and sophisticated solution portfolio that we offer requires strong execution in our sales processes and other areas.
We offer our customers a broad solution portfolio with the flexibility to purchase a single point solution, which can be expanded over time, or a larger more comprehensive system. Regardless of the size of a customer’s purchase, many of our solutions are sophisticated and may represent a significant investment for our customers.

Our sales cycles can range in duration from as little as a few weeks to more than a year. Our larger sales typically require a minimum of a few months to consummate. As the length or complexity of a sales process increases, so does the risk of successfully closing the sale. There is greater risk of customers deferring, scaling back, or canceling sales as a result of, among other things, their receipt of a competitive proposal, changes in budgets and purchasing priorities, extensive internal approval processes, or the introduction or anticipated introduction of new or enhanced products by us or our competitors during the process. Larger sales are often made by competitive bid, which also increases the time and uncertainty associated with such opportunities. Customers may also require education on the value and functionality of our solutions as part of the sales process, further extending the time frame and uncertainty of the process.
Larger solution sales also require greater expertise in sales execution and transaction implementation than more basic product sales, including establishing and maintaining appropriate contacts and relationships within customer and partner organizations, and with respect to integration, services, and support. Our ability to develop, sell, implement, and support larger solutions and a broad solution portfolio is a competitive differentiator for us, which provides for solution diversification and more opportunities for growth, but also requires greater investment for us and demands stronger execution in many areas, including among others, sales, product development, and cloud operations.

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 their benefits, or in implementation generally. If we are unable to assist our customers and partners in realizing the benefits they expect from our solutions and products, demand for our solutions and products may decline and our operating results may suffer.
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If we are unable to maintain, expand, and enable our relationships with partners, our business and ability to grow could be materially adversely affected.
During the fiscal year ended January 31, 2022, approximately 45% of our sales were made through partners, resellers, and systems integrators. To remain successful, we must maintain our existing relationships as well as identify and establish new relationships with such parties. Our growth strategy depends in part on expanding our sales through partners. We must often compete with other suppliers for these relationships and our competitors often seek to establish exclusive or preferred relationships with these sales channels. Our ability to establish and maintain these relationships is based on, among other things, factors that are similar to those on which we compete for end customers, including features, functionality, ease of use, ease of implementation / installation, support, and price. Even if we are able to secure such relationships on terms we find acceptable, there is no assurance that we will be able to realize the benefits we anticipate. Some of our partners may also compete with us or have affiliates that compete with us, or may also partner with our competitors or offer our products and those of our competitors as alternatives when presenting proposals to end customers. Our ability to achieve our revenue goals and growth depends to a significant extent on maintaining, expanding, and enabling these sales channels, and if we are unable to do so, our business and ability to grow could be materially adversely affected.
For certain services, products, or components, including our cloud hosting operations, we rely on third-party providers, which may create significant exposure for us.
We rely on third parties to provide certain services to us or to our customers, including cloud hosting partners and providers of other cloud-based services. We make contractual commitments to customers on the basis of these relationships and, in some cases, also entrust these providers with both our own sensitive data as well as the sensitive data of our customers (which may include sensitive end user data). If these third-party providers do not perform as expected or encounter service disruptions, cyber-attacks, data breaches, or other difficulties, we or our customers may be materially and adversely affected, including, among other things, by facing increased costs, potential liability to customers, end users, or other third parties, regulatory issues, and reputational harm. If it is necessary to migrate these services to other providers as a result of poor performance, security issues or considerations, or other financial or operational factors, it could result in service disruptions to our customers and significant time, expense, or exposure to us, any of which could materially adversely affect our business.

We also purchase technology, outsource aspects of our operations, license intellectual property rights, and oversee third-party manufacturing of certain products or components, in some cases, by or from companies that may compete with us or work with our competitors. While we endeavor to use larger, more established providers 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, or in an effort to benefit our margins. 

If any of these providers experience financial, operational, manufacturing, or quality assurance difficulties, cease production or sale, or there is any other disruption in our supply, including as a result of the acquisition of a supplier or partner by a competitor, macroeconomic issues like those described above (such as the COVID-19 pandemic or the March 2022 Russian invasion of Ukraine), or otherwise, we will be required to locate and migrate to alternative sources of supply or alternative providers, to internally develop the applicable technologies, to redesign our products, and/or to remove certain features from our products, any of which would be likely to increase expenses, create delays, and negatively impact our sales. Although we endeavor to establish contractual protections with key providers, such as source code escrows, warranties, and indemnities, we may not be successful in obtaining adequate protections, these agreements may be short-term in duration, and the counterparties may be unwilling or unable to stand behind such protections. Moreover, these types of contractual protections offer limited practical benefits to us in the event our relationship with a key provider is interrupted.

Because we have significant operations and business around the world, we are subject to geopolitical and other risks that could materially adversely affect our results.

We have significant operations and business around the world, including sales, research and development, manufacturing, customer services and support, and administrative services. The countries in which we have our most significant foreign operations include the United Kingdom, India, Israel, Indonesia and Australia. We also generate significant revenue and cash collections from outside the United States, including from countries in emerging markets, and we intend to continue to grow our business internationally.

Our global operations are, and any future foreign growth will be, subject to a variety of risks, many of which are beyond our control, including risks associated with:

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foreign currency fluctuations;

political, security, and economic instability or corruption;

geopolitical risks from war, natural disasters, pandemics or other events;

changes in and compliance with both international and local laws and regulations, including those related to data privacy and protection, trade compliance, anti-corruption, tax, labor, currency restrictions, and other requirements;

differences in tax regimes and potentially adverse tax consequences of operating in foreign countries or costs of repatriating cash, if needed;

product localization issues;

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. For example, we are closely monitoring the evolving situation in Russia and Ukraine relative to, among other things, the health and safety of our employees and contractors in the region and the impact of the Russian invasion and resulting regulatory restrictions on our internal and external operations, including sales, research and development, customer service, payment processing, cyber security, and the ability of our employees and contractors to work.
Conditions in and our relationship to Israel may materially adversely affect our operations and personnel and may limit our ability to produce and sell our products or engage in certain transactions.
We have significant operations in Israel, including R&D, and support. Conflicts and political, economic, and/or military conditions in Israel and the Middle East region have affected and may in the future affect our operations in Israel. Violence within Israel or the outbreak of violent conflicts between Israel and its neighbors, including the Palestinians or Iran, may impede our ability to support our products or engage in R&D, or otherwise adversely affect our business, operations, or personnel. 
Restrictive laws, policies, or practices in certain countries directed toward Israel, Israeli goods, or companies having operations in Israel may also limit our ability to sell some of our products in certain countries.
We have in the past received grants from the Israeli Innovation Authority (the “IIA”) for the financing of a portion of our research and development expenditures in Israel. The Israeli law under which these IIA grants are made limits our ability to manufacture products, or transfer technologies, developed using these grants outside of Israel. This may limit our ability to engage in certain outsourcing or business combination transactions involving these products or require us to pay significant royalties or fees to the IIA in order 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, to restructure our Israeli business, or to access funds in Israel.

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. For the year ended January 31, 2022, approximately 10% of our business was generated from contracts with various governments around the world. We expect that government contracts will continue to be a significant source of our revenue for the foreseeable future.

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Risks associated with licensing and selling products and services to government entities include more extended sales and collection cycles, varying governmental budgeting processes, adherence to complex procurement regulations, and other government-specific contractual requirements, including possible renegotiation or termination at the election of the government customer, including due to geo-political events and macro-economic conditions that are beyond our control. We may also be subject to audits, investigations, or other proceedings relating to our government contracts, including under statutes such as the False Claims Act, and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government business, as well as harm to our reputation and financial results.

Our revenue from governmental entities are directly affected by their budgetary constraints and the priority given in their budgets to the procurement of our solutions. This risk is heightened during periods of global economic slowdown. Accordingly, governmental purchases of our solutions, products, and services may decline in the future if governmental purchasing agencies terminate, reduce, or modify contracts.

We may not be able to identify suitable targets for acquisition or investment, or complete acquisitions or investments on terms acceptable to us, which could negatively impact our ability to implement our growth strategy.

As part of our long-term growth strategy, we have made a number of acquisitions and investments and expect to continue to make acquisitions and investments in the future. In many areas, we have seen the market for acquisitions become more competitive and valuations increase. Our competitors also continue to make acquisitions in or adjacent to our markets and may have greater resources than we do, enabling them to pay higher prices. As a result, it may be more difficult for us to identify suitable acquisition or investment targets or to consummate acquisitions or investments once identified on acceptable terms or at all. If we are not able to execute on our acquisition strategy, we may not be able to achieve our long-term growth strategy, may lose market share, or may lose our leadership position in one or more of our markets.
Our acquisition and investment activity presents certain risks to our business, operations, and financial position.

Acquisitions and investments are an important part of our 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 company or 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 existing business, 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 the anticipated 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 other systems 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
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potential impact on our systems, processes, and internal controls over financial reporting.

Acquisitions and/or investments may also result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the expenditure of available cash, goodwill impairments, and amortization expenses or write-downs related to intangible assets, such as goodwill, any of which could have a material adverse effect on our operating results or financial condition. Investments in immature businesses with unproven track records and technologies have an especially high degree of risk, with the possibility that we may lose our entire investment or incur unexpected liabilities. Transactions that are not immediately accretive to earnings may make it more difficult for us to maintain satisfactory profitability levels or compliance with the maximum leverage ratio covenant under the revolving credit facility under our senior credit agreement (the “2017 Credit Agreement”). Large or costly acquisitions or investments may also diminish our capital resources and liquidity or limit our ability to engage in additional transactions for a period of time.

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The foregoing risks may be magnified as the cost, size, or complexity of an acquisition or acquired company increases, where the acquired company’s products, market, or business are materially different from ours, or where more than one transaction or integration is occurring simultaneously or within a concentrated period of time. There can be no assurance that we will be successful in making additional acquisitions in the future or in integrating or executing on our business plan for existing or future acquisitions.

Our financial results depend on our sales execution for our broad and sophisticated solution portfolio and on the management of our cloud transition and sales mix from period to period.
We offer our customers a broad solution portfolio with the flexibility to purchase a single point solution, which can be expanded over time, or a larger more comprehensive system. Regardless of the size of a customer’s purchase, many of our solutions are sophisticated and may represent a significant investment for our 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 minimum of a few months to consummate. As the length or complexity of a sales process increases, so does the risk of successfully closing the sale. There is greater risk of customers deferring, scaling back, or canceling sales as a result of, among other things, their receipt of a competitive proposal, changes in budgets and purchasing priorities, extensive internal approval processes, or the introduction or anticipated introduction of new or enhanced products by us or our competitors during the process. Larger sales are often made by competitive bid, which also increases the time and uncertainty associated with such opportunities. Customers may also require education on the value and functionality of our solutions as part of the sales process, further extending the time frame and uncertainty of the process.
Larger solution sales also require greater expertise in sales execution and transaction implementation than more basic product sales, including establishing and maintaining appropriate contacts and relationships within customer and partner organizations, and with respect to integration, services, and support. Our ability to develop, sell, implement, and support larger solutions and a broad solution portfolio is a competitive differentiator for us, which provides for solution diversification and more opportunities for growth, but also requires greater investment for us and demands stronger execution. 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 their benefits, or in implementation generally. If we are unable to assist our customers and partners in realizing the benefits they expect from our solutions and products, demand for our solutions and products may decline and our operating results may suffer. Any failure to develop high-quality solutions and to provide high-quality services and support could adversely affect our reputation, our ability to sell our service offerings to existing and prospective customers, and our operating results.

Our cloud transition and the mix, terms, and timing of transactions in a given period can have a significant impact on our financial results in that period. Our financial results and ability to forecast our revenues (and attendant budgeting and guidance decisions) are impacted by the fact that pricing, margins, and other deal terms, including license model (e.g., perpetual license versus subscription), may vary substantially from transaction to transaction. We recognize cloud revenue over the term of the subscription, so as our cloud revenue continues to grow, we expect a greater amount of our revenue to be recognized over longer periods, in some cases several years, as compared to the way revenue is recognized for perpetual licenses. This change in the pattern of recognition also means that increases or decreases in cloud subscription activity impact the amount of revenue recognized in both current and future periods. Because transaction-specific factors are difficult to predict in advance, this also complicates the forecasting of revenue and creates challenges in managing our cloud transition and revenue mix. As our cloud transition continues and accelerates, our subscription renewal rates will become more important to our financial results generally, and if customers choose not to renew, or to reduce, their subscriptions, our business and financial results will suffer. If we are unable to properly manage our cloud transition, or if it does not progress as expected, our financial results and our stock price may suffer.

The deferral or loss of one or more significant orders or a delay in a large implementation can also materially adversely affect our operating results, especially in a given quarter. As with other software-focused companies, a large amount of our quarterly business tends to come in the last few weeks, or even the last few days, of each quarter. This trend has also complicated the process of accurately predicting revenue and other operating results, particularly on a quarterly basis. Finally, our business is subject to seasonal factors that may also cause our results to fluctuate from quarter to quarter.

If we are unable to maintain, expand, and enable our relationships with partners, our business and ability to grow could be materially adversely affected.
Today approximately 35% of our sales are made through partners, resellers, and systems integrators. To remain successful, we must maintain our existing relationships as well as identify and establish new relationships with such parties. Our growth strategy depends in part on expanding our sales through partners. We must often compete with other suppliers for these relationships and our competitors often seek to establish exclusive or preferred relationships with these sales channels. Our
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ability to establish and maintain these relationships is based on, among other things, factors that are similar to those on which we compete for end customers, including features, functionality, ease of use, ease of implementation / installation, support, and price. Even if we are able to secure such relationships on terms we find acceptable, there is no assurance that we will be able to realize the benefits we anticipate. Some of our partners may also compete with us or have affiliates that compete with us, or may also partner with our competitors or offer our products and those of our competitors as alternatives when presenting proposals to end customers. Our ability to achieve our revenue goals and growth depends to a significant extent on maintaining, expanding, and enabling these sales channels, and if we are unable to do so, our business and ability to grow could be materially adversely affected.
For certain services, products, or components, including our cloud hosting operations, we rely on third-party providers, which may create significant exposure for us.
We rely on third parties to provide certain services to us or to our customers, including hosting partners and providers of other cloud-based services. We make contractual commitments to customers on the basis of these relationships and, in some cases, also entrust these providers with both our own sensitive data as well as the sensitive data of our customers (which may include sensitive end user data). If these third-party providers do not perform as expected or encounter service disruptions, cyber-attacks, data breaches, or other difficulties, we or our customers may be materially and adversely affected, including, among other things, by facing increased costs, potential liability to customers, end users, or other third parties, regulatory issues, and reputational harm. If it is necessary to migrate these services to other providers as a result of poor performance, security issues or considerations, or other financial or operational factors, it could result in service disruptions to our customers and significant time, expense, or exposure to us, any of which could materially adversely affect our business.

We also purchase technology, license intellectual property rights, and oversee third-party manufacturing of certain products or components, in some cases, by or from companies that may compete with us or work with our competitors. While we endeavor to use larger, more established suppliers, manufacturers, and partners wherever possible, in some cases, these providers may be smaller, less established companies, particularly in the case of 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 or sale, 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 to locate alternative sources of supply or manufacturing, to internally develop the applicable technologies, to redesign our products, and/or to remove certain features from our products, any of which would be likely to increase expenses, create delivery delays, and negatively impact our sales. Although we endeavor to establish contractual protections with key providers, including source code escrows (where needed), warranties, and indemnities, we may not be successful in obtaining adequate protections, these agreements may be short-term in duration, and the counterparties may be unwilling or unable to stand behind such protections. Moreover, these types of contractual protections offer limited practical benefits to us in the event our relationship with a key provider is interrupted.

If we cannot retain and recruit qualified personnel, our ability to operate and grow our business may be impaired.
We depend on the continued services of our management and employees to run and grow our business. To remain successful and to grow, we need to retain existing employees and attract new qualified employees, including in new markets and growth areas we may enter. Retention is an industry issue given the competitive technology labor market and as the millennial workforce continues to value multiple company experience over long tenure. As we grow, we must also enhance and expand our management team to execute on new and larger agendas and challenges. The market for qualified personnel is competitive in the geographies in which we operate and may be limited especially in areas of emerging technology. We may be at a disadvantage to larger companies with greater brand recognition or financial resources or to start-ups or other emerging companies in trending market sectors. Work visa restrictions, especially in the United States, have also become significantly tighter in recent years, making it difficult or impossible to source qualified personnel from other countries or even to hire those already in the United States 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.
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Because we have significant operations and business around the world, we are subject to geopolitical and other risks that could materially adversely affect our results.

We have significant operations and business around the world, including sales, research and development, manufacturing, customer services and support, and administrative services. The countries in which we have our most significant foreign operations include the United Kingdom, India, Israel, Indonesia and Australia. We also generate significant revenue from outside the United States, including revenue from countries in emerging markets, and we intend to continue to grow our business internationally.

Our global operations are, and any future foreign growth will be, subject to a variety of risks, many of which are beyond our control, including risks associated with:

foreign currency fluctuations;

political, security, and economic instability or corruption;

geopolitical risks from war, natural disasters, pandemics or other events;

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 localization issues;

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 sell our products or engage in certain transactions.
We have significant operations in Israel, including R&D, and support. Conflicts and political, economic, and/or military conditions in Israel and the Middle East region have affected and may in the future affect our operations in Israel. Violence within Israel or the outbreak of violent conflicts between Israel and its neighbors, including the Palestinians or Iran, may impede our ability to support our products or engage in R&D, or otherwise adversely affect our business, operations, or personnel. 
Restrictive laws, policies, or practices in certain countries directed toward Israel, Israeli goods, or companies having operations in Israel may also limit our ability to sell some of our products in certain countries.
We receive grants from the Israeli Innovation Authority (the “IIA”) for the financing of a portion of our research and development expenditures in Israel. The Israeli law under which these IIA grants are made limits our ability to manufacture products, or transfer technologies, developed using these grants outside of Israel. This may limit our ability to engage in certain outsourcing or business combination transactions involving these products or require us to pay significant royalties or fees to the IIA in order 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, to restructure our Israeli business, or to access funds in Israel.
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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 with licensing and selling products and services to government entities include more extended sales and collection cycles, varying governmental budgeting processes, adherence to complex procurement regulations, and other government-specific contractual requirements, including possible renegotiation or termination at the election of the government customer, including due to geo-political events and macro-economic conditions that are beyond our control. We may also be subject to audits, investigations, or other proceedings relating to our government contracts, including under statutes such as the False Claims Act, and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government business, as well as harm to our reputation and financial results.

Our revenue from governmental entities are directly affected by their budgetary constraints and the priority given in their budgets to the procurement of our solutions. This risk is heightened during periods of global economic slowdown. Accordingly, governmental purchases of our solutions, products, and services may decline in the future if governmental purchasing agencies terminate, reduce, or modify contracts.

Regulatory Matters, Data Privacy, Information Security, and Product Functionality
 
We are subject to complex, evolving regulatory requirements that may be difficult and expensive to comply with and that could negatively impact us or our business.
 
Our business and operations are subject to a variety of regulatory requirements in the countries in which we operate or in which we offer our solutions, including, among other things, with respect to data privacy and protection, government contracts, anti-corruption, trade compliance, tax, and labor matters.

In addition, as we are increasingly building new and evolving technologies, such as artificial intelligence, machine learning, analytics, and biometrics, into many of our offerings, our business and operations may become subject to additional complex and evolving regulatory requirements pertaining to the sale or use of these technologies. The sale of these technologies, or their use by us or by our customers or partners, may also subject us to additional risks, including reputational harm, competitive harm or legal liabilities, due to their perceived or actual impact on human rights, privacy, or employment, or in other social contexts. Third-parties may criticize us or seek to hold us responsible not only for our own activities in this regard but also for the activities of our customers or partners.

We anticipate that we will become subject to an increasing amount of regulation and disclosure requirements related to environmental, social and governance (“ESG”) matters, including on topics such as diversity and sustainability. We have seen increased scrutiny on these matters from a variety of stakeholders, including investors, proxy advisors, rating agencies, customers, partners, and employees, and we cannot assure you that such stakeholders will be satisfied with our efforts or progress. Stakeholders may pressure us to publicly establish goals or even make commitments on these matters which may be difficult to manage or achieve, or may criticize us if we do not. If we fail to meet any public goals or commitments we make, we may be subject to reputational harm or legal liability.

Compliance with theseapplicable regulatory requirements may be onerous, time-consuming, and expensive, especially where these requirements are inconsistent from jurisdiction to jurisdiction or where the jurisdictional reach of certain requirements is not clearly defined or seeks to reach across national borders. Regulatory requirements in one jurisdiction may make it difficult or impossible to do business in or comply with the rules of another jurisdiction.

While we endeavor to implement policies, procedures, and systems designed to achieve compliance with these regulatory requirements, we cannot assure you that these policies, procedures, or systems will be adequate or that we or our personnel will not violate these policies and procedures or applicable laws and regulations. Violations of these laws or regulations may harm our reputation and deter government agencies and other existing or potential customers or partners from purchasing our solutions. Furthermore, non-compliance with applicable laws or regulations could result in fines, damages, criminal sanctions against us, our officers, or our employees, restrictions on the conduct of our business, and damage to our reputation.
 
Increasing regulatory focus on data privacy issues and expanding laws in these areas may result in increased compliance costs, impact our business models, and expose us to increased liability.

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As a global company, Verint is subject to global privacy and data security laws, and regulations. These laws and regulations may be inconsistent across jurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. Government regulators, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result in additional compliance obligations, costs, new interpretations of existing laws and regulations, increased regulatory proceedings or litigation, and increased exposure for significant fines, penalties, or commercial liabilities.

Globally, laws such as the General Data Protection Regulation (“GDPR”) in Europe, state laws in the United States on privacy, data and related technologies, such as the California Consumer Privacy Act, the California Privacy Rights Act, the California Invasion of Privacy Act, the Florida Security of Communications Act, and the Illinois Biometrics Information Act, as well as industry self-regulatory codes create new compliance obligations and expand the scope of potential liability, either jointly or severally with our customers and suppliers. While we have invested in readiness to comply with applicable requirements, these new and emerging laws, regulations and codes may affect our ability to reach current and prospective customers, to respond to both enterprise and individual customer requests under the laws (such as individual rights of access, correction, and deletion of their personal information), to share information internally, and to implement our business models effectively. These new laws may also impact our products and services as well as our innovation in new and emerging technologies. These requirements, among others, may impact demand for our offerings and force us to bear the burden of more onerous obligations in our contracts or otherwise increase our exposure to customers, regulators, or other third parties.

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Transferring personal information across international borders is becoming increasingly complex. For example, European data transfers outside the European Economic Area are highly regulated. The mechanisms that we and many other companies rely upon for data transfers, including standard contract clauses, may be contested or invalidated. If the mechanisms for transferring personal information from certain countries or areas, including Europe to the United States, should be found invalid or if other countries implement more restrictive regulations for cross-border data transfers (or not permit data to leave the country of origin), such developments could harm our business, financial condition and results of operations.

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 sensitive or confidential information and data, including personally identifiable information. While our customers’ use of our products does not by itself provide us access to the customer’s sensitive or confidential information or data (or the information or data our customers may collect), we or our partners may receive or come into contact with such information or data, including personally identifiable information, in connection with our SaaS or other hostedcloud or managed services offerings or when we are asked to perform service or support. We expect to receive, come into contact with, or become custodian of an increasing amount of customer data (including end customer data) as our cloud business and cloud operations expand, leading to increased exposure if we or one of our hosting partners experiences an issue relating to the security or the proper handling of that information, which could have a material adverse impact on our financial condition or reputation. The expansion of our cloud business and the related increase in the amount of customer data on our cloud platforms also increases our exposure to end customers or other third parties who may seek to hold us responsible for the use of these platforms by our customers.

We have implemented policies and procedures, and use information technology systems, to help ensure the proper handling of customer and end customer information and data from both a data privacy and an information security perspective. We also evaluate the information security of potential partners and vendors as part of our selection process and attempt to negotiate adequate protections from such third parties in our contracts. Our customer contracts also obligate our customers to configure and operate our solutions, including our cloud platforms, in compliance with applicable law. While these policies, procedures, systems, contractual provisions, and measures are designed to mitigate the risks associated with handling or processing sensitive data, they cannot always safeguard against all risks, nor can we control the actions of third parties, including customers and partners. The improper handling of sensitive data, or even the perception of such mishandling (whether or not valid), or other security lapses or breaches affecting us, our partners, our customers, or our products or services, could reduce demand for our products or services or otherwise expose us to financial or reputational harm or legal liability.
 
Our solutions may contain defects or experience disruptions, 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. New products and new product versions, provision of hosting platforms and managed services, and the incorporation of third-party products or services into our solutions, also give rise to the risk of defects, errors, or vulnerabilities. These defects, errors, or vulnerabilities may relate to the quality, reliability, operation, or security of our products or services, including hosting platforms or third-party components. If we do not discover and remedy such defects, errors, vulnerabilities, or other operational or security problems in advance, our customers and
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partners may experience data losses or unplanned downtimes and we may incur significant costs to correct such problems and/or become liable for substantial damages for product liability claims or other liabilities.

Our solutions, including our cloud offerings, may be vulnerable to cyber-attacks even if they do not contain defects. Customers are increasingly focused on the security of our products and services and we work to address these concerns, including through the use of encryption, access rights, and other customary security features, which vary based on the solution in question and customer requirements. We regularly monitor global and geopolitical events, some of which have in the past and may in the future increase cyber-attacks on us and our offerings, thereby increasing the risk of breaches. If there is a successful cyber-attack on one of our products or services, even absent a defect or error, it may also result in questions regarding the integrity of our products or services generally, which could cause adverse publicity and impair their market acceptance and could have a material adverse effect on our results or financial condition.

We may be subject to information technology system attacks, breaches, failures, or disruptions that could harm our operations, financial condition, or reputation.
 
We rely extensively on information technology systems to operate and manage our business and to process, maintain, and safeguard information, including information related to our customers, partners, and personnel. This information may be processed and maintained on our internal information technology systems or in some cases, on systems hosted by third-party service providers. These systems, whether internal or external, may be subject to breaches, failures, or disruptions as a result of, among other things, cyber-attacks, computer viruses, physical security breaches, natural disasters, accidents, power disruptions, telecommunications failures, new system implementations, or acts of terrorism or war. We regularly monitor global and geopolitical events, some of which have in the past and may in the future increase cyber-attacks on us and our offerings, thereby increasing the risk of breaches. We have experienced cyber-attacks in
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the past and expect to continue to experience them in the future, potentially with greater frequency.

While we are continually working to maintain secure and reliable systems, our security, redundancy, and business continuity efforts may be ineffective or inadequate. We must continuously improve our design and coordination of security controls across our business groups and geographies. Despite our efforts, it is possible that our security systems, controls, and other procedures that we follow or those employed by our third-party service providers, may not prevent breaches, failures, or disruptions. Such breaches, failures, or disruptions have in the past and could in the future subject us to the loss, compromise, destruction, or disclosure of sensitive or confidential information, including personally identifiable information, or intellectual property, either of our own information or IP 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 service providers, financial costs or losses from remedial actions, litigation, regulatory issues, liabilities to customers or other third parties, damage to our reputation, delays in our ability to process orders, delays in our ability to provide products and services to customers, including SaaS or other hostedcloud or managed services offerings, R&D or production downtimes, or delays or errors in financial reporting. Information system breaches or failures at one of our partners, including hosting providers or those who support other cloud-based offerings, may also result in similar adverse consequences. Any of the foregoing could harm our competitive position, result in a loss of customer confidence, and materially and adversely affect our results of operations or financial condition.

Intellectual Property

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 our intellectual property with patents or other registrations. There can be no assurance that patents we have applied for will be issued based on our patent applications or that, if such patents are issued, they will be, or that our existing patents are,patent portfolio is sufficiently broad enough to protect all our technologies, products, or services. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, designed around, or challenged.
 
In order to safeguard our unpatented proprietary know-how, source code, trade secrets, and technology, we rely primarily upon trade secret protection and non-disclosure provisions in agreements with employees and other third parties having access to our confidential information. There can be no assurance that these measures will adequately protect us from improper disclosure or misappropriation of our proprietary information.
 
Preventing unauthorized use or infringement of our intellectual property rights is difficult even in jurisdictions with well-established legal protections for intellectual property such as the United States. It may be even more difficult to protect our intellectual property in other jurisdictions where legal protections for intellectual property rights are less established. If we are unable to adequately protect our intellectual property against unauthorized third-party use or infringement, our competitive position could be adversely affected.
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Our products or other IP may infringe or may be alleged to infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions for us and may require us to indemnify our customers and resellers for any damages they suffer.
 
The technology industry is characterized by frequent allegations of intellectual property infringement. In the past, third parties have asserted that certain of our products or other IP have infringed on their intellectual property rights and similar claims may be made in the future. Any allegation of infringement against us could be time consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause product shipment delays, or force us to enter into royalty or license agreements. If patent holders or other holders of intellectual property initiate legal proceedings against us, either with respect to our own intellectual property or intellectual property we license from third parties, we may be forced into protracted and costly litigation, regardless of the merits of these claims. We may not be successful in defending such litigation, in part due to the complex technical issues and inherent uncertainties in intellectual property litigation and may not be able to procure any required royalty or license agreements on terms acceptable to us, or at all. Competitors and other companies could adopt trademarks that are similar to ours or try to prevent us from using our trademarks, consequently impeding our ability to build brand identity and possibly leading to customer confusion. Third parties may also assert infringement claims against our customers or partners. Subject to certain limitations, we generally indemnify our customers and partners with respect to infringement by our products on the proprietary rights of third parties, which, in some cases, may not be limited to a specified maximum amount and for which we may not have sufficient insurance coverage or adequate indemnification in the case of intellectual property licensed from a third party. If any of these claims succeed, we may be forced to pay damages, be required to obtain licenses for the products our customers or partners use or sell or incur significant expenses in developing non-infringing alternatives. If we cannot obtain necessary licenses on commercially reasonable terms, our customers may be forced to stop using or, in the case of resellers and other partners, stop selling our products.
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Use of free or open source software could expose our products to unintended restrictions and could materially adversely affect our business.
 
Some of our products contain free or open source software (together, “open source software”) and we anticipate making use of open source software in the future. Open source software is generally covered by license agreements that permit the user to use, copy, modify, and distribute the software without cost, provided that the users and modifiers abide by certain licensing requirements. The original developers of the open source software generally provide no support or warranties on such software or indemnification or other contractual protections in the event the open source software infringes a third party’s intellectual property rights. In addition, some open source licenses contain requirements that we make available source code for modifications or derivative works we create based on the type of open source software we use, or grant other licenses to our intellectual property. Moreover, the terms of many open source licenses have not been interpreted by U.S. or foreign courts. As a result, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our products and services. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their solutions. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software.

Although we endeavor to monitor the use of open source software in our product development, we cannot assure you that past, present, or future products, including products inherited in 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 of the 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 our operations.
 
As of March 15, 2021,2022, we had total outstanding indebtedness of approximately $795.9$415.0 million under our 2017 Credit Agreement and our 1.50%0.25% convertible senior notes due 20212026 (the “Notes”“2021 Notes”). In addition, we have the ability to borrow additional amounts under our 2017 Credit Agreement, including the revolving credit facility, for a variety of purposes, including, among others, acquisitions and stock repurchases. On February 26, 2021, we cash collateralized the full amount (of approximately $390.0 million) of principal and the final interest payment due at maturity under the Notes. Our leverage position may, among other things:

limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions, or other general corporate purposes;

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require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability of our cash flow for other purposes;

require us to repatriate cash for debt service from our foreign subsidiaries resulting in dividend tax costs or require us to adopt other disadvantageous tax structures to accommodate debt service payments; or

increase our vulnerability to economic downturns, limit our ability to capitalize on significant business opportunities, and restrict our flexibility to react to changes in market or industry conditions.

In addition, because our indebtedness under our 2017 Credit Agreement, which is comprised of a term loan maturing on June 29, 2024 and a revolving credit facility maturing on April 9, 2026, bears interest at a variable rate, we are exposed to risk from fluctuations in interest rates. Interest rates on loans under the 2017 Credit Agreementterm loan are periodically reset, at our option, at either a Eurodollar Rate or an ABR rate (each as defined in the 2017 Credit Agreement), plus in each case a margin. TheBorrowings under our revolving credit facility also bear interest at either a Eurodollar Rate or an ABR rate, plus in each case a margin. In July 2017, the Financial Conduct Authority ofin the United Kingdom plans toannounced that it would phase out LIBOR as a benchmark by the end of 2021. On March 5, 2021, though the ICE Benchmark Administration, the administrator of LIBOR,Financial Conduct Authority announced that it would consider ceasingall LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the publicationcase of the one weekone-week and two-month U.S. dollar LIBOR settings atsettings; and (b) immediately after June 30, 2023, in the endcase of 2021 and phase out the remaining U.S. dollar LIBOR settings by June 30, 2023.settings. Our 2017 Credit Agreement incorporates fallback language mechanisms to accommodate the eventual establishment of an alternate rate of interest, including alternative benchmark rates such as the Secured Overnight Financing Rate, upon the occurrence of certain events related to the phase-out of any applicable interest rate. The transition from LIBOR to a new replacement benchmark is uncertain at this time and the consequences of such developments cannot be entirely predicted but could result in an increase in the cost of our borrowings under our existing credit facility and any future borrowings.

The revolving credit facility under our 2017 Credit Agreement contains a financial covenant that requires us to satisfy a leverage ratio test. Our ability to comply with the leverage ratio covenant is dependent upon our ability to continue to generate sufficient earnings each quarter, or in the alternative, to reduce expenses and/or reduce the level of our outstanding debt, and we cannot assure that we will be successful in any or all of these regards.
 
Our 2017 Credit Agreement also includes several 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;
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engage in transactions with affiliates;

engage in sale-leaseback transactions;

sell certain assets;

change our lines of business;

make investments, loans, or advances; and

engage in consolidations, mergers, liquidations, or dissolutions.

These covenants could limit our ability to plan for or react to market conditions, to meet our capital needs, or to otherwise engage in transactions that might be considered beneficial to us.

If certain events of default occur under our 2017 Credit Agreement, our lenders could declare all amounts outstanding to be immediately due and payable. An acceleration of indebtedness under our 2017 Credit Agreement may also result in an event of default under the indenture governing the 2021 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 repay all our outstanding obligations under the facilities.

In connection with the maturity of our debt obligations or if any of the events described above were to occur, we may need to seek an amendment of and/or waiver under our debt agreements, raise additional capital through securities offerings, asset sales,
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or other transactions, or seek to refinance or restructure our debt. In such a case, there can be no assurance that we will be able to consummate such a transaction on reasonable terms or at all.

We consider other financing and refinancing options from time to time; however, we cannot assure you that such options will be available to us on reasonable terms or at all. If one or more rating agencies were to downgrade our credit ratings, that could also impede our ability to refinance our existing debt or secure new debt, increase our future cost of borrowing, and create third-party concerns about our financial condition or results of operations.

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 may incur withholding taxes in order to repatriate certain overseas cash balances, or we may need to raise additional capital in the future.

As a result of the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”), we do not expect to incur any significant U.S. taxes on repatriation of foreign earnings. 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 foreign withholding tax, is not sufficient to fund our domestic operations, our broader corporate initiatives such as acquisitions, and other strategic opportunities, and to service our outstanding indebtedness, we may need to raise additional funds through public or private debt or equity financings, or we may need to obtain new credit facilities to the extent we choose not to repatriate 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 and incur a significant tax cost (in addition to amounts previously accrued) or we may not be able to take advantage of strategic opportunities, develop new products, respond to competitive pressures, repurchase outstanding stock or repay our outstanding indebtedness. In any such case, our business, operating results or financial condition could be adversely impacted.
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We may be adversely affected by our acquisition of CTI or our historical affiliation with CTI and its former subsidiaries.

As a result of the February 2013 acquisition of our former parent company, CTI (the “CTI Merger”), CTI’s liabilities, including contingent liabilities, have been consolidated into our financial statements. If CTI’s liabilities are greater than represented, if the contingent liabilities we have assumed become fixed, or if there are obligations of CTI of which we were not aware at the time of completion of the CTI Merger, we may have exposure for those obligations and our business or financial condition could be materially and adversely affected. Adjustments to the CTI consolidated group’s net operating losses (“NOLs”) for periods prior to the CTI Merger could also affect NOLs allocated to Verint as a result of the CTI Merger and cause us to incur additional tax liability in future periods. In addition, adjustments to the historical CTI consolidated group’s NOLs for periods prior to Verint’s IPO could affect the NOLs allocated to Verint in the IPO and cause us to incur additional tax liability in future periods.

We are entitled to certain indemnification rights from the successor to CTI’s business operations (Mavenir Inc.) under the agreements entered into in connection with the distribution by CTI to its shareholders of substantially all of its assets other than its interest in us (the “Comverse Share Distribution”) 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 become responsible for liabilities not covered by indemnification or substantially in excess of amounts covered by indemnification, or if Mavenir becomes unwilling or 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 of earnings in countries with differing statutory tax rates, changes in the valuation allowance on deferred tax assets (including our NOL carryforwards), changes in unrecognized tax benefits, or changes in tax laws or their interpretation. Any of these changes could have a material adverse effect on our profitability. In addition, the tax authorities in the jurisdictions in which we operate, including the United States, may from time to time review the pricing arrangements between us and our foreign subsidiaries or among our foreign subsidiaries. An adverse determination by one or more tax authorities in this regard may have a material adverse effect on our financial results.
We have significant deferred tax assets which can provide us with significant future cash tax savings if we are able to use them, including significant NOLs inherited as a result of the CTI Merger. However, the extent to which we will be able to use these NOLs may be impacted, restricted, or eliminated by a number of factors, including changes in tax rates, laws or regulations, whether we generate sufficient future taxable income, and possible adjustments to the tax attributes of CTI or its non-Verint subsidiaries for periods prior to the CTI Merger. To the extent that we are unable to utilize our NOLs or other losses, our results of operations, liquidity, and financial condition could be materially adversely affected. When we cease to have NOLs available
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to us in a particular tax jurisdiction, either through their expiration, disallowance, or utilization, our cash tax liability will increase in that jurisdiction.

Changes in accounting principles, or interpretations thereof, could adversely impact our financial condition or operating results.

We prepare our Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“GAAP”). These principles are subject to 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 affect previously reported operating results. In addition, the implementation of new accounting principles may require significant changes to our customer and vendor contracts, business processes, accounting systems, and internal controls over financial reporting. TheThese changes can be difficult to predict and the costs and effects of these changes could adversely impact our operatingfinancial condition and our results of operations, and difficulties in implementing new accounting principles could cause us to fail to meet our financial reporting obligations. In some cases, we may be required to apply a new or revised accounting standard retroactively, resulting in a requirement to restate our prior period financial statements.

OurIf we are unable to maintain an effective system of internal controls over financial reporting, we may not prevent misstatements and material weaknesses or deficiencies could arise in the future which could lead to restatements or filing delays.delays and potential stockholders may lose confidence in our financial reporting.

Our system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. We are required, on a quarterly basis, to evaluate the effectiveness of our internal controls and disclose any changes and material weaknesses in those internal controls. Because of its inherent limitations, our system of internal control over financial reporting may not prevent or detect every misstatement. An evaluation of effectiveness is subject to the risk that the controls may become inadequate because of changes in conditions, because the degree of compliance with policies or procedures decreases over time,
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or because of unanticipated circumstances or other factors. As a result, although our management has concluded that our internal controls are effective as of January 31, 2021,2022, we cannot assure you that our internal controls will prevent or detect every misstatement, that material weaknesses or other deficiencies will not occur or be identified in the future, that this or future financial reports will not contain material misstatements or omissions, that future restatements will not be required, or that we will be able to timely comply with our reporting obligations in the future. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

If our goodwill or other intangible assets become impaired, our financial condition and results of operations could be negatively affected.

Because we have historically acquired a significant number of companies, goodwill and other intangible assets have represented a substantial portion of our assets. Goodwill and other intangible assets totaled approximately $1.6$1.5 billion, or approximately 50%62% of our total assets, as of January 31, 2021.2022. We test our goodwill for impairment at least annually, or more frequently if an event occurs indicating the potential for impairment, and we assess on an as-needed basis whether there have been impairments in our other intangible assets. We make assumptions and estimates in this assessment which are complex and often subjective. These assumptions and estimates can be affected by a variety of factors, including external factors such as industry anddeteriorating economic trends, and internal factors such asconditions, including those caused by future COVID-19 pandemic developments, technological changes, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in our business strategy or our internal forecasts.use of the assets, intensified competition, divestitures, market capitalization declines and other factors. To the extent that the factors described above change, we could be required to record additional non-cash impairment charges in the future, which could negatively affect our financial condition and results of operations.

Our international operations subject usWe are exposed to fluctuations in foreign currency exchange risk.rates that could negatively impact our financial results.

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, euro, Australian dollar, Indian rupee, Singapore dollar, Brazilian real,Israeli shekel, and AustraliaCanadian dollar, among others. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenue, expenses, assets, and liabilities of entities using non-U.S. dollar functional currencies into U.S. dollars using currency exchange rates in effect during or at the end of each reporting period, meaning that we are exposed to the impact of changes in currency exchange rates. In addition, our net income is impacted by the revaluation and settlement of monetary assets and liabilities denominated in currencies other than an entity’s functional currency, gains or losses on which are recorded within other income (expense), net.
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We attempt to mitigate a portion of these risks through foreign currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and expense. However, our hedging activities are limited in scope and duration and may not be effective at reducing the U.S. dollar cost of our global operations.

In addition, our financial outlooks do not assume fluctuations in currency exchange rates. Adverse fluctuations in currency exchange rates after providing our financial outlooks could cause our actual results to differ materially from those anticipated in our outlooks, which could negatively affect the price of our common stock.

The prices of our common stock and the 2021 Notes have been, and may continue to be, volatile and your investment could lose value.

The prices of our common stock and the 2021 Notes have been, and may continue to be, volatile. Those prices could be affected by any of the risk factors discussed in this Item. In addition, other factors that could impact the prices of our common stock and/or the 2021 Notes include:

announcements by us or our competitors regarding, among other things, strategic changes, expectations regarding our cloud transition, new products, product enhancements or technological advances, 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, speculation regarding 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 into in connection with the issuance of the Notes;parties; and

dilution that may occur upon any conversion of the 2021 Notes.

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A significant drop in the price of our common stock or the 2021 Notes could also expose us to the risk of securities class action lawsuits, which could result in substantial costs and divert management’s attention and resources, which could adversely affect our business.

Actions of activist stockholders may cause us to incur substantial costs, disrupt our operations, divert management’s attention, or have other material adverse effects on us.

From time to time, activist investors may take a position in our stock. These activist investors may disagree with decisions we have made or may believe that alternative strategies or personnel, either at a management level or at a board level, would produce higher returns. Such activists may or may not be aligned with the views of our other stockholders, may be focused on short-term outcomes, or may be focused on building their reputation in the market. These activists may not have a full understanding of our business and markets and the alternative personnel they may propose may also not have the qualifications or experience necessary to lead the company.

Responding to advances or actions by activist investors may be costly and time-consuming, may disrupt our operations, and may divert the attention of our board of directors, management team, and employees from running our business and maximizing performance. Such activist activities could also interfere with our ability to execute our strategic plan, disrupt the functioning of our board of directors, or negatively impact our ability to attract and retain qualified executive leadership or board members, who may be unwilling to serve with activist personnel. Uncertainty as to the impact of activist activities may also affect the market price and volatility of our common stock.

Apax owns a substantial portion of our equity and its interests may not be aligned with yours.

On December 4, 2019, we announced thatentered into an Investment Agreement (the “Investment Agreement”) with Valor Parent LPan affiliate (the “Apax Investor”), an affiliate of Apax Partners (“Apax”) would make an investment in us in an amount of up to $400 million. . Under the terms of the Investment Agreement, dated as of December 4, 2019 (the “Investment Agreement”),on May 7, 2020, the Apax Investor initially purchased $200$200.0 million of our Series A convertible preferred stock (“Series A Preferred Stock”), in an issuance that closed on May 7, 2020.. In connection with the completion of the Spin-Off, on April 6, 2021, the Apax Investor will purchase, subject to certain conditions, $200purchased $200.0 million of our Series B convertible preferred stock (“Series B Preferred Stock”) in Verint, as and, together with the entity holding the Customer Engagement Solutions business. Following completion of its Series A convertible preferred stock investment and giving effect toPreferred Stock, the Spin-Off, Apax currently owns approximately 7.5%“Preferred Stock”). As of our common stock and, assuming the completion of the Series B convertible preferred stock investment, Apax will own between 12% and 13% of our common stock,January 31, 2022, Apax’s ownership in each caseus on an as-converted basis.basis was approximately 12.9%. Additionally, we have increased the size of our board of directors, giving Apax has the right to designate one director asto our board of the closing of the Series A convertible preferred stock investmentdirectors and the right to mutually select with us a second independent director following the closing of the Series B convertible preferred stock investment.director. Circumstances may occur in
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which the interests of Apax could conflict with the interests of our other stockholders. For example, the existence of Apax as a significant stockholder and Apax’s board appointment rights may have the effect of limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of the Company.

The investment agreement relating to the investment by an affiliate of Apax Partners contains a number of closing conditions and, if these conditions are not satisfied, the Apax investment may not be completed.

The investment agreement relating to the Apax investment (the “Investment Agreement”) contains a number of closing conditions and, if these conditions are not satisfied or waived (to the extent permitted by law), the Series B convertible preferred stock portion of the Apax investment may not be completed. Several of these conditions were satisfied in connection with the completion of the Spin-Off. The remaining conditions include no temporary or permanent judgment of a governmental authority restraining, enjoining or prohibiting the investment having been issued, required government authorizations having been obtained (or applicable waiting periods having expired), the representations and warranties of the parties in the Investment Agreement being true and correct (in some instances, in all material respects) and no “Material Adverse Effect” (as defined in the Investment Agreement) having occurred. The conditions to the Series B purchase may not be satisfied and, accordingly, that portion of the Apax investment may not be completed. If that were to occur, we may not realize the full anticipated benefits of the Apax investment.

Risks Related to the Spin-Off

The Spin-Off may not achieve the anticipated benefits and will expose us to new risks.

On February 1, 2021, we completed the separation of our Cyber Intelligence Solutions business through the Spin-Off of Cognyte Software Ltd. to our shareholders. We may not realize the anticipated strategic, financial, operational, or other benefits
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from the Spin-Off. We cannot predict with certainty when the benefits expected from the Spin-Off will occur or the extent to which they will be achieved. In addition, we incurred one-time costs in connection with the Spin-Off that may negate some of the benefits we expect to achieve. If we do not realize these assumed benefits, we could suffer a material adverse effect on our financial condition. As a result of the Spin-Off, our operational and financial profile has changed, and we face new risks. We are now a smaller, less-diversified company than we were prior to the Spin-Off and may be more vulnerable to changing market conditions as a result.

We may be exposed to claims and liabilities or incur operational difficulties as a result of the Spin-Off.

The Spin-Off continues to involve a number of risks, including, among other things, certain indemnification risks and risk associated with the provision of transitional services.risks. In connection with the Spin-Off, we entered into a separation and distribution agreement and various other agreements (including a transition services agreement, a tax matters agreement, an employee matters agreement and intellectual property and trademark cross license agreements) (the “Spin-Off Agreements”). The Spin-Off Agreements govern the Spin-Off and the relationship between the two companies going forward. They also provide for the performance of services by each company for the benefit of the other for a limited period of time.

The Spin-Off Agreements provide for indemnification obligations designed to make Cognyte financially responsible for certain liabilities that may exist relating to its business activities, whether incurred prior to or after the Spin-Off, including any pending or future litigation. It is possible that a court would disregard the allocation agreed to between us and Cognyte and require us to assume responsibility for obligations allocated to Cognyte. Third parties could also seek to hold us responsible for any of these liabilities or obligations, and the indemnity rights we have under the separation and distribution agreement may not be sufficient to fully cover all of these liabilities and obligations. Even if we are successful in obtaining indemnification, we may have to bear costs temporarily. In addition, our indemnity obligations to Cognyte may be significant. These risks could negatively affect our business, financial condition or results of operations.

In addition, certain of the Spin-Off Agreements provide for the performance of services by each company for the benefit of the other for a limited period of time. As such, there is continued risk that management’s and our employees’ attention will be significantly diverted by the provision of transitional services. The Spin-Off Agreements could also lead to disputes over rights to certain shared property and rights and over the allocation of costs and revenues for products and operations. If Cognyte is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur losses.

The Spin-Off could result in substantial tax liability to us and our shareholders if the Spin-Off distribution does not qualify as a tax-free transaction.

In connection with the Spin-Off, we received tax rulings from U.S. and Israeli tax authorities as well as an opinion of our U.S. tax advisor. However, the U.S. tax ruling only addressed certain requirements for tax-free treatment and the remaining requirements were addressed by the tax opinion. The tax opinion will not be binding on any taxing authority or court. Accordingly, taxing authorities or the courts may reach conclusions with respect to the Spin-Off that are different from the conclusions reached in the tax opinion. Moreover, the U.S. tax ruling and tax opinion were based on certain statements and representations made by us, which, if incomplete or inaccurate in any material respect, could invalidate the ruling or the opinion. If the Spin-Off and certain related transactions were determined to be taxable, we could be subject to a substantial tax liability that could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, if the Spin-Off were taxable, each holder of our common stock who received Cognyte shares in the Spin-Off would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares received.

We might not be able to engage in certain strategic transactions because we have agreed to certain restrictions to comply with U.S. federal income tax requirements for a tax‑free spin‑off.

To preserve the intended tax treatment of the distribution of Cognyte shares in the Spin-Off, we agreed to comply with certain restrictions under current U.S. federal income tax laws for spin‑offs, including (i) continuing to own and manage our historic
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business and (ii) limiting sales or redemptions of our common stock. These restrictions could prevent us from pursuing otherwise attractive business opportunities, result in our inability to respond effectively to competitive pressures, industry developments and future opportunities and may otherwise harm our business, financial results and operations. If these restrictions, among others, are not followed, the Spin-Off distribution could be treated as a dividend to our stockholders and subject us to taxable gain on the distribution of Cognyte shares. In addition, we could be required to indemnify Cognyte for any tax liability incurred by Cognyte as a result of our non‑compliance with these restrictions, and such indemnity obligations could be substantial.
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Item 1B. Unresolved Staff Comments

None.


Item 2. Properties

The following describes our material properties as of the date of this report.
We lease a total of approximately 711,000470,000 square feet of office space covering more than 4030 offices around the world, excluding space under certain leases that we have accelerated and terminated in advance of their originally scheduled lease term. In addition, we own an aggregate of approximately 53,000 square feet of office space at two sites in Scotland and Indonesia.
Other than as described below, these properties are comprised of small and mid-sized facilities that are used to support our administrative, marketing, manufacturing, product development, sales, training, support, and services needs.
Our corporate headquarters is located in a leased facility in Melville, New York, and consists of approximately 49,000 square feet of space under a lease that we entered into on February 13, 2015 and that expires in 2027. The Melville facility is used primarily by our executive management and corporate groups, including finance, legal, and human resources, as well as for customer support and services.
We lease approximately 133,000 square feet of space at a facility in Alpharetta, Georgia under a lease that expires in 2026.2023. The Alpharetta facility is used primarily by the administrative, marketing, product development, support, and sales groups.
Currently, the majority of our employees are working remotely. We expect to incur additional costs to the extent we further resume business-related travel and as we prepare our facilities for a safe return to work environment as we anticipate implementing a hybrid work model during the year ending January 31, 2023. During the year ended January 31, 2022, we decided to exit twenty-one leased offices. We will continue to evaluate our real estate footprint to determine where we can exit, consolidate, or modify our office space leases, and we anticipate exiting or reducing additional office leases in the future as we continue to assess how and to what extent our employees will return to work in our offices. We will continue to evaluate our real estate footprint to determine where we can exit, consolidate, or modify our office space leases, and we anticipate exiting or reducing additional office leases in the future as we continue to assess how and to what extent our employees will return to work in our offices.
From time to time, we may lease or sublease portions of our owned or leased facilities to third parties based on our operational needs. For additional information regarding our lease obligations, see Note 16,17, “Leases” to our consolidated financial statements included underin Part II, Item 8 of this report.
We believe that our leased and owned facilities are in good operating condition and are adequate for our current requirements, although changes in our business may require us to acquirerequirements. If required, we believe that additional facilities or modify existing facilities. We believe that alternative locations are available on commercially reasonable terms in all areas where we currently do business.


Item 3. Legal Proceedings

CTI Litigation

In March 2009, one of our former employees, Ms. Orit Deutsch, commenced legal actions in Israel against our former primary Israeli subsidiary, Cognyte Technologies Israel Ltd. (formerly known as Verint Systems Limited or “VSL”) (Case Number 4186/09) and against our former 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). In these actions, the plaintiffs generally sought to certify class action suits against the
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defendants on behalf of current 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 a result 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 three defendants: VSL, CTI, and Comverse Limited.

On October 31, 2012, CTI distributed of 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 (the “Comverse Share Distribution”). In the period leading up to the Comverse Share Distribution, CTI either sold or transferred substantially all of its business operations and assets (other than its equity ownership interests in Verint and in its then-subsidiary, Comverse, Inc.) to Comverse, Inc. or to unaffiliated third parties. As the result of these transactions, Comverse, Inc. became an independent company 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 of the 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 District Court 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, Verint assumed certain rights and liabilities of CTI, including any liability of CTI arising out of the foregoing legal actions. However, under the terms of a Distribution Agreement entered into in connection with the Comverse
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Share Distribution, we, as successor to CTI, are entitled to indemnification from Comverse, 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 with respect to all claims relating to Verint stock options, (ii) dismissed the motion to certify the suit against VSL and Comverse Limited, and (iii) approved the plaintiffs’ motion to certify the suit as a class action against CTI with respect to claims of current or former employees of Comverse Limited (now part of Mavenir) 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 case would 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 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 appeal and 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’ expert opinions.

Following two unsuccessful rounds of mediation in mid to late 2018 and in mid-2019, the proceedings resumed. On April 16, 2020, the District Court accepted plaintiffs’ application to amend the motion to certify a class action and set deadlines for filing amended pleadings by the parties. CTI submitted a motion to appeal the District Court’s decision to the Israeli Supreme Court, as well as a motion to stay the proceedings in the District Court pending the resolution of the appeal. On July 6, 2020, the Israeli Supreme Court granted the motion for a stay. On July 27, 2020, the plaintiffs filed their response on the merits of the motion for leave to appeal. On December 15, 2021, the Israeli Supreme Court rejected CTI’s motion to appeal and the parties are waiting for further instructions or decisions fromproceedings in the Israeli Supreme Court.District Court resumed.

On February 1, 2021, we completed the Spin-Off. As a result of the Spin-Off, Cognyte is now an independent, publicly traded company. Under the terms of the Separation and Distribution Agreement entered into between Verint and Cognyte, Cognyte has agreed to indemnify Verint for Cognyte’s share of any losses that Verint may suffer related to the foregoing legal actions either in its capacity as successor to CTI, to the extent not indemnified by Mavenir, or due to its former ownership of Cognyte and VSL.

Unfair Competition Litigation and Related Investigation

On February 14, 2022, Verint Americas Inc., as successor to ForeSee Results, Inc. (“ForeSee”), received negative partial summary judgment decisions in two cases pending against it in the United States District Court for the Eastern District of Michigan. As discussed below, we believe that the court’s decisions were wrongly decided and are contrary to the facts and the law. We are seeking reconsideration of the rulings and will ultimately appeal the rulings if necessary. We believe that the claims asserted by the plaintiffs are without merit. In addition, as explained in our affirmative Delaware litigation, we also believe that by bringing the claims, plaintiffs breached an agreement not to pursue such claims in an improper attempt by them and their founder, Claes Fornell, to extract additional monies from ForeSee.
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The two Eastern District of Michigan cases are captioned ACSI LLC v. ForeSee Results, Inc. and CFI Group USA LLC v. Verint Americas Inc. The former case was filed on October 24, 2018 against ForeSee Results, Inc. by American Customer Satisfaction Index, LLC (“ACSI LLC”). Case No. 2:18-cv-13319. Verint completed its acquisition of ForeSee on December 19, 2018. In its complaint, ACSI LLC alleged infringement of two federally registered trademarks and common law unfair competition under federal and state law. ACSI LLC asserts that ForeSee, despite cancelling its license to use ACSI LLC’s alleged trademarks in 2013, has continued to use ACSI LLC’s trademarks. The trademark infringement claim was subsequently dismissed, but the common law unfair competition claims have proceeded. The latter case was filed on September 5, 2019 against Verint Americas Inc. (as successor in interest to ForeSee) by CFI Group USA LLC (“CFI”). Case No. 2:19-cv-12602. In its complaint, CFI alleges unfair competition and false advertising under federal and state law, as well as tortious interference with contract. CFI asserts that ForeSee engaged in unfair competition by using ACSI LLC’s trademarks without a license, and that ForeSee engaged in false advertising by mis-describing its customer satisfaction products. ACSI LLC’s and CFI’s complaints seek unspecified damages on their claims.

Following discovery, on June 3, 2021, ACSI LLC and CFI moved for partial summary judgment on their claims and ForeSee moved for summary judgment against their claims. On February 14, 2022, the Eastern District of Michigan generally granted ACSI LLC’s and CFI’s motions for partial summary judgment and generally denied ForeSee’s motions for summary judgment. As noted above, ForeSee believes that the court’s decisions were wrongly decided, ignore substantial factual evidence in the record, and are contrary to applicable law. On February 28, 2022, ForeSee moved for reconsideration, and that motion is pending before the court. ForeSee continues to believe that there are substantial defenses to the claims in the ACSI LLC and CFI litigations and intends to continue to defend them vigorously.

Verint has also been informed that the U.S. Attorney’s Office for the Eastern District of Michigan’s Civil Division (“USAO”) is conducting a False Claims Act investigation concerning allegations ForeSee and/or Verint failed to provide the federal government the services described in certain government contracts. Verint received a Civil Investigation Demand (“CID”) in connection with this investigation and has provided responses. The False Claims Act contains provisions that allow for private persons to initiate actions by filing claims under seal. We believe that this investigation was initiated in coordination with the Eastern District of Michigan litigation discussed above. Verint continues to work cooperatively with the USAO in its review of this matter. At this point, Verint has not determined that there were any deficiencies in ForeSee’s and/or Verint’s performance of the government contracts.

ForeSee also filed affirmative litigation in the Northern District of Georgia (Case No. 1:19-cv-02892, Complaint filed on June 25, 2019) against ACSI LLC’s predecessor in interest. ACSI LLC has now been substituted as the named defendant. In that action, ForeSee seeks cancellation of ACSI LLC’s federally registered trademarks. In response to ASCI LLC’s motion to dismiss the action, on March 15, 2022, the Georgia court issued an order transferring that action to the Eastern District of Michigan.

ForeSee has also filed affirmative litigation in the District of Delaware (Case No. 1:21-cv-00674, Complaint filed on May 7, 2021) against ACSI LLC, CFI, Claes Fornell, and CFI Software LLC. Claes Fornell founded both ACSI LLC and CFI, and previously co-founded ForeSee before selling it in December 2013 for a significant gain. The Delaware action asserts claims against ACSI LLC, CFI, Fornell, and CFI Software for their breach of a “Joinder and Waiver Agreement” entered into in connection with the December 2013 sale in which they represented that they had no claims against ForeSee and in which they released any such claims. The Delaware action alleges that the Eastern District of Michigan litigations effectively represent an improper attempt by Fornell and his affiliates to profit off of ForeSee a second time (first by selling it in 2013 as a law-abiding company, only to sue it in 2018 and 2019 claiming violations of law for business practices that began while Fornell owned a significant position in ForeSee (via CFI Software) and during the time that Fornell served as chairman of ForeSee’s board). The Delaware action also asserts fraud claims against Fornell and CFI Software for affirmative statements they made in the December 2013 merger agreement which effectuated the sale and in other contemporaneous materials that ForeSee was not engaging in unfair competition or other violations of law. The Delaware litigation seeks as damages any amounts recovered by ACSI LLC, CFI or the USAO in the proceedings discussed above, as well as attorneys’ fees. Defendants moved to dismiss, stay or transfer the Delaware litigation, and the magistrate judge assigned to the case denied the motions to dismiss and transfer but recommended temporarily staying the case pending decisions on the motions for summary judgment in the Eastern District of Michigan. ForeSee objected to the recommended stay, and those objections are currently pending before the Delaware court.

We are a party to various other litigation matters and claims that arise from time to time in the ordinary course of our business. While we believe that the ultimate outcome of any such current matters will not have a material adverse effect on us, their outcomes are not determinable and negative outcomes may adversely affect our financial position, liquidity, or results of operations.

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Item 4. Mine Safety Disclosures
 
Not applicable.
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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Market Information

Our common stock trades on the NASDAQ Global Select Market under the symbol “VRNT”.

Holders

There were approximately 1,6501,625 holders of record of our common stock at March 15, 2021.2022. Such record holders include holders who are nominees for an undetermined number of beneficial owners.

Dividends

Common Stock

We have not declared or paid any cash dividends on our common stock and have no current plans to pay any dividends on our equity securities, except as may be required by the terms of any preferred equity securities we have issued or may in the future issue. We intend to retain our earnings to finance the development of our business, repay debt, and for other corporate purposes. Any future determination as to the payment of dividends on our common stock will be made by our board of directors at its discretion, subject to the limitations contained in our 2017 Credit Agreement and the terms of any preferred equity securities we may issue, and will depend upon our earnings, financial condition, capital requirements, and other relevant factors.

Preferred Stock

HoldersEach series of our Series A Preferred Stock are entitled to a cumulative dividendpays dividends at aan annual rate of 5.2% per annum until the 48-month anniversary of the Series A Closing Date, and thereafter at a rate of 4.0% per annum., subject to adjustment under certain circumstances. Dividends on our Series A Preferred Stock are cumulative and payable semi-annually in arrears in cash. All dividends that are not paid in cash will remain accumulated dividends with respect to each share of Series A Preferred Stock. The dividend rate is subject to increase in certain circumstances, as described in greater detail in Note 9,10, “Convertible Preferred Stock”, to our consolidated financial statements included underin Part II, Item 8 of this report. For the year ended January 31, 2021,2022, we had cumulative declared dividends on our Series A Preferred Stock of $6.8paid $12.9 million of preferred stock dividends, of which $1.6 million was paid and $5.2 million was accrued and we had $0.9as of January 31, 2021. There were $12.1 million of cumulative undeclared and unpaid preferred stock dividends.dividends at January 31, 2022.

For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report.

Stock Performance Graph

The following table compares the cumulative total stockholder return on our common stock with the cumulative total return on the NASDAQ Composite Index and the NASDAQ Computer & Data Processing Services Index, assuming an investment of $100 on January 31, 20162017 through January 31, 2021,2022, and the reinvestment of any dividends. The comparisons in the graph below are based upon the closing sale prices on NASDAQ for our common stock from January 31, 20162017 through January 31, 2021.2022. This data is not indicative of, nor intended to forecast, future performance of our common stock.

On February 1, 2021, we completed the spin-off of Cognyte with the pro rata distribution to our stockholders of one ordinary share of Cognyte for every one share of Verint common stock held of record as of the close of business on January 25, 2021, pursuant to which Cognyte became an independent public company. For the purpose of the following table, the effect of the separation of Cognyte is reflected in the cumulative total return of Verint common stock as a reinvested dividend.
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vrnt-20210131_g2.jpgvrnt-20220131_g5.jpg

January 31,January 31,201620172018201920202021January 31,201720182019202020212022
Verint Systems Inc.Verint Systems Inc.$100.00 $102.02 $114.04 $132.12 $158.43 $201.67 Verint Systems Inc.$100.00 $111.78 $129.50 $155.29 $207.34 $204.87 
NASDAQ Composite IndexNASDAQ Composite Index$100.00 $123.23 $164.43 $163.31 $207.46 $298.92 NASDAQ Composite Index$100.00 $133.43 $132.52 $168.35 $242.57 $265.98 
NASDAQ Computer & Data Processing IndexNASDAQ Computer & Data Processing Index$100.00 $115.99 $168.44 $171.25 $230.15 $315.42 NASDAQ Computer & Data Processing Index$100.00 $144.17 $136.45 $180.82 $258.69 $293.64 

Note: 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 it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing.

RecentUnregistered Sales of UnregisteredEquity Securities and Use of Proceeds

None.From August 30, 2021 through January 21, 2022 we issued 293,143 shares of our common stock as part of the cashless exercise of approximately 5,031,000 Warrants that were issued concurrently with the issuance of the 2014 Notes (each as defined in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). For additional information regarding these Warrants and the issuance of equity in settlement of the cashless exercise of these Warrants, see “Management Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Financing Arrangements—Note Hedges and Warrants—Warrants” in Part II, Item 7 of this report.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On December 4, 2019,March 31, 2021, we announced that our board of directors had authorized a stock repurchase program whereby we were authorized to repurchase up to $300 million of common stock from the date of inception until February 1, 2021. There were no stock repurchases made under this stock repurchase program during the three months ended January 31, 2021. This program expired on February 1, 2021. We made a total of $150.1 million in repurchases under the program.

On March 31, 2021, we announced that our board of directors had authorized a new stock repurchase program whereby we may repurchase up to a number of shares of common stock approximately equal to the number of shares to be issued as
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equity compensation during the fiscal year ending January 31, 2022. Repurchases are expectedDuring the year ended January 31, 2022, we acquired approximately 1,600,000 shares of our common stock at a cost of $75.4 million under this program.

On December 2, 2021, we announced that our board of directors had authorized a new stock repurchase program for the fiscal year ending January 31, 2023 whereby we may repurchase up to 1.5 million shares of common stock to offset dilution from our equity compensation program for such fiscal year. Subsequent to January 31, 2022, we repurchased 1.5 million shares under this stock repurchase program with available cash in the United States. On March 22, 2022, our board of directors authorized an additional 500,000 shares of common stock to be financed with available cash of up to 60% of our free cash flow during such period (as determined by management), subject to compliance with applicable laws, rules and regulations.repurchased under this program. Please refer to Note 19,21, “Subsequent Events”Event”, in Part II, Item 8 of this report for more information regarding this stock repurchase program.
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From time to time, we have purchased shares of our common stock from our directors, officers, and other employees to facilitate income tax withholding and payment requirements upon vesting of equity awards during Company-imposed trading blackout or lockup periods. There was no such

Share purchase activity during the three months ended January 31, 2021.2022 was as follows:

PeriodTotal Number Shares PurchasedAverage Price Paid per Share (1)Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(in thousands)
November 1, 2021 - November 30, 2021480 $46.60 — $— 
December 1, 2021 - December 31, 2021— — — — 
January 1, 2022 - January 31, 2022— — — — 
480 $46.60  $— 

(1) Represents the approximate weighted-average price paid per share.


Item 6. [Reserved]


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Item 6. Selected Financial Data

Information required by Item 6 of Form 10-K is omitted pursuant to the SEC's adoption of amendments to Regulation S-K effective February 10, 2021.



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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” underin Item 1, and our consolidated financial statements and the related notes thereto included underin Part II, Item 8 of this report. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and all of which could be affected by uncertainties and risks. Our actual results may differ materially from the results contemplated in these forward-looking statements as a result of many factors including, but not limited to, those described in “Risk Factors” underin Part I, Item 1A of this report.

Overview

Recent Developments

SeparationSpin-Off of BusinessesCognyte Software Ltd.

On February 1, 2021, we completed the previously announced spin-off (the “Spin-Off”) of Cognyte Software Ltd. (“Cognyte”), a company limited by shares incorporated under the laws of the State of Israel whose business and operations consist of our former Cyber Intelligence Solutions business (the “Cognyte Business”). The Spin-Off was completed by way of a pro rata distribution on February 1, 2021 of all of the then-issued and outstanding ordinary shares, no par value, of Cognyte to holders of record of our common stock as of the close of business on January 25, 2021. After the distribution, we do not beneficially own any ordinary shares of Cognyte and willbeginning February 1, 2021, we no longer consolidate Cognyte intowithin our financial results for periods ending after January 31, 2021.or reflect the financial results of Cognyte within our continuing results of operations.

We have incurred significantcumulative transaction costs of $53.0 million prior to the completion of the Spin-Off, of which $47.7 million and $5.3 million is reflected in connection withour consolidated statement of operations within discontinued operations for the Spin-Off. Theyears ended January 31, 2021 and 2020, respectively. Transaction costs include developing stand-aloneprimarily consisted of costs incurred for the establishment of separate information systems andfor each company, along with related ITinformation technology costs, for Cognyte, third-party advisory, consulting, legal and professional services, as well as other items that arewere incremental and one-time in nature that are related to the Spin-Off. We capitalized $8.8 million of these costs and expensed $47.7 million during the year ended January 31, 2021. We have capitalized $12.8 million and expensed $53.0 million of separation related costs since commencing in the year ended January 31, 2020. The expense portion is primarily reflected in selling, general and administrative expenses.

In connection with the Spin-Off, we entered into several agreements with Cognyte that provide a framework for the relationship between the parties going forward, including a limited duration Transition Services Agreement under which we and Cognyte willagreed to provide and/or make available various administrative services and assets to each other for a given period based on each individual service. In no case will services be provided for more than 24 months after the Spin-Off. Services to be provided includeincluded certain services related to finance, accounting, business technology, human resources, information systems, facilities, document management and record retention and technical support. In consideration for such services, we and Cognyte will each paypaid fees to theeach other for the services provided, and those fees willwere generally be in amounts intended to allow the party providing services to recover all of its direct and indirect costs incurred in providing those services, plus a standard markup. As of January 31, 2022, the performance of services under the Transition Services Agreement was substantially concluded.

The historical results of operations and financial positions of Cognyte are reported as discontinued operations in our consolidated financial statements. For further information on discontinued operations, see Note 2, “Discontinued Operations”, to the consolidated financial statements in Part II, Item 8 of this report. Pursuant to the Spin-Off of the Cognyte Business, we now operate in a single reportable segment, which is described in the “Our Business” section below.

Apax Investment

On December 4, 2019, we announced that Valor Parent LP, an affiliate (the “Apax Investor”) of Apax Partners would make an investment in us in an amount of up to $400.0 million. Under the terms of the Investment Agreement, on May 7, 2020 the Apax Investor initially purchased $200.0 million of our Series A convertible preferred stock (“Series A Preferred Stock”). Further discussion regarding the Apax investment and the initial closing appears in the “Liquidity and Capital Resources - Overview” section below. In connection with the completion of the Spin-Off, on February 1,April 6, 2021 we expect to complete the second tranche of the investment through the issuance ofApax Investor purchased $200.0 million of our Series B convertible preferred stock (“Series B Preferred Stock” and, together with the Series A Preferred Stock, the “Preferred Stock”) during our first fiscal quarter ending April 30, 2021.. Further discussion regarding the Apax investments and details of the closing of both tranches appears in the “Liquidity and Capital Resources-Overview” section below.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreakpandemic has reached all of the regions in which we do business,caused significant economic disruption and uncertainty and governmental authorities around the world have implemented
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numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, shutdowns, limitations or closures of non-essential businesses, and social distancing requirements. Companies around the world, including us, ourrequirements and many such restrictions remain in place. Our customers, partners, and vendors, have also implemented actions in response to the pandemic, including among others, office closings, site restrictions, and employee travel restrictions. Notwithstanding the loosening of these restrictions in certain countries in certain periods since the onset of the pandemic, the global spread of COVID-19 and actions taken in response have negatively affected us, our customers, partners, and vendors and caused significant economic and business disruption the extent and duration of which is not currently known. In response to these
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challenges, we quickly adjusted our operations to work from home and we believe our business continuity plan isestablished remote working well. We are monitoring and assessing the impact of the COVID-19 pandemic, including recommendations and orders issued by government and public health authorities in countries where we operate. We continue to work to help our customers during this difficult time and are managing our operations with a view to resuming normal business activity as soon as possible.

We saw an improvement in the business environment during the second half of 2020 after an initial downturn early in the year; however, during the year ended January 31, 2021, revenue in both of our operating segments was negatively impacted by delays and reduced spending attributed to the impact of the COVID-19 pandemic on our customers’ operational priorities and as a result of cost containment measures they have implemented. Due to the pandemic, we saw a reduction or delay in certain large customer contracts, particularly on-premises arrangements and we have generally been unable to conduct face-to-face meetings with existing or prospective customers and partners, present in-person demonstrations of our solutions, or host or attend in-person trade shows and conferences. Limitations on access to the facilities of our customers have also impacted our ability to deliver some of our products, complete certain implementations, and provide in-person consulting and training services, negatively impacting our ability to recognize revenue. We continued to experience high recurring revenue renewal rates and witnessed a steady pick up in demand for our cloud-based solutions during this fiscal year. Notwithstandingemployees, limited non-essential business travel, and canceled or shifted our strong recurring renewal ratescustomer, employee, and the recovery in the business environment during the second half of 2020, our abilityindustry events to predict how the pandemic will impact our results in future periods is limited.

In light of the adverse impact of COVID-19 on global economic conditions and our revenue, along with the uncertainty associated with the extent and timing of a potential recovery, duringvirtual-only format. During the first half of the year ended January 31, 2021, we also implemented certain cost-reduction actions of varying durations. Such actions included, but were not limited to, reducing our discretionary spending, decreasing capital expenditures, reconsidering the optimal uses of our cash and other capital resources, including with respect to our stock repurchases, and reducing workforce-related costs. During the first half of the year ended January 31, 2021, our revenue was adversely impacted by delays and reduced spending attributed to the impact of the pandemic on our customers’ operational priorities and as a result of cost containment measures they had implemented. We saw a reduction or delay in certain large customer contracts, particularly on-premises arrangements, and limitations on access to the facilities of our customers also impacted our ability to deliver some of our products and complete certain implementations, negatively impacting our ability to recognize revenue.

We saw an improvement in the business environment during the second half of the year ended January 31, 2021, which continued through the year ended January 31, 2022 as our customers accelerated the digitization of their customer interactions and internal operations due to the pandemic. This ongoing shift to a digital-first world has increased the importance and relevance of our solutions. Based on the improved business environment and our financial performance, during the second half of the year, we have in many cases resumed investments and other spending; however, these actions may need to be reassessed depending on how the facts and circumstances surrounding the pandemic evolve and we continue to evaluate and may decide to implement further cost control strategies to help us mitigate the impact of the pandemic, if required.evolve. Any such actionsrenewed cost controls may have an adverse impact on us, particularly if they remain in place for an extended period. As the pandemic has evolved, we have also adapted our pandemic response on a localized basis based on the prevailing conditions in the locations in which we and our customers, partners, or vendors operate. Currently, the majority of our employees are working remotely. We expect to incur additional costs to the extent we further resume business-related travel and as we prepare our facilities for a safe return to work environment as we anticipate implementing a hybrid work model during the year ending January 31, 2023. During the year ended January 31, 2022, we decided to exit twenty-one leased offices, which resulted in the recognition of accelerated lease expense and other asset impairments of $13.3 million, which is reflected in our consolidated statement of operations within selling, general, and administrative expenses for the year ended January 31, 2022. We will continue to evaluate our real estate footprint to determine where we can exit, consolidate, or modify our office space leases, and we anticipate exiting or reducing additional office leases in the future as we continue to assess how and to what extent our employees will return to work in our offices.

The ultimateWe are monitoring developments related to the U.S. federal, state, and local vaccination mandates and testing requirements and are evaluating the impact such mandates and requirements may have on our business and results of operations, including any potential impact on our employees, customers, partners, and vendors. Notwithstanding the COVID-19 pandemicstrong demand for our cloud-based solutions and the effects ofrecovery in the operational alterations we have made in response onbusiness environment, given the uncertainty associated with the pandemic, our ability to predict how it will impact our business, financial condition, liquidity, and financial results cannot be predicted atin future periods is limited, particularly if the pandemic fails to abate for an extended period of time or worsens. See Part I, Item IA “Risk Factors” of this time.report for additional discussion of the impact that the COVID-19 pandemic could have on our business and results of operations in the future.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES)(“CARES”) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material impact on our consolidated financial condition or results of operations as of and for the year ended January 31, 2021.2022. However, we have deferred the timing of employer payroll taxes and accelerated the refund of AMT credits as permitted by the CARES Act. Where taxes payable to government entities have been deferred to a later date, no reduction of expenses has been recorded.

Our Business

Verint helps brands provide Boundless Customer Engagement™. For more than two decades, the world’s most iconic brands – including more than 85 of the Fortune 100 companies – have trusted Verint to provide the technology and domain expertise they require to effectively build enduring customer relationships.

Verint is uniquely positioned to help organizations close the Engagement Capacity Gap™ with our differentiated Verint Customer Engagement Cloud Platform. Brands today are challenged by new workforce dynamics, ever-expanding customer engagement channels and exponentially more consumer interactions – often while facing limited budgets and resources. As a result, brands are finding it more challenging to deliver the desired customer experience. This creates an Engagement Capacity Gap™,a capacity gap, which is widening as the digital transformation continues. Organizations are increasingly seeking technology to close this gap, solutions
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that are based on AIartificial intelligence (AI) and analytics toare developed specifically for customer engagement. These solutions automate workflows across enterprise silos to optimize the workforce expense and toat the same time drive an elevated consumer experience.

Verint is uniquely positioned to help organizations closeheadquartered in Melville, New York, and has more than 30 offices worldwide. We have approximately 4,400 passionate professionals around the capacity gap with our differentiated Verint Cloud Platform.

For all historical periods included in this Annual Reportglobe exclusively focused on Form 10-K, we reported our business in two operating segments:helping brands provide Boundless Customer Engagement and Cyber Intelligence. For each of the years ended January 31, 2021, 2020, and 2019, our Customer Engagement segment represented approximately 65% of our total revenue, while for each of those same years, our Cyber Intelligence segment represented approximately 35% of our total revenue.Engagement™.

Key Trends and Factors That May Impact our Performance
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In addition toWe believe there are three market trends that are benefiting Verint today: the impactacceleration of digital transformation, changes in the COVID-19 pandemic discussed above, we seeworkforce shaping the following business trendsfuture of work, and factors which may impact our performance:elevated customer expectations.

Acceleration of Digital TransformationTransformation: Digital transformation is Accelerating.accelerating, and it is driving significant change in customer engagement for the contact center and across the enterprise. Long gone are the days when customer journeys were limited to phone calls into a contact center. Today, customer journeys take place across many touchpoints in the enterprise and across many communication and collaboration platforms, with digital leading the way. Customer touchpoints take place in contact centers, in back-office and branch operations, in ecommerce, in digital marketing, in self-service, and in customer experience departments. TheWe believe that the breadth of customer touchpoints across the enterprise and the rapid growth in digital interactions, and the emergence of the new workforce – with humans and bots working together – are creatingbenefit Verint as these trends create demand for new solutions.solutions that increase automation and connect organizational silos to increase efficiency and elevate the customer experience.

The Engagement Capacity Gap is Widening.A Changing Workforce Shapes the Future of Work: Brands are seekingfacing unprecedented challenges when it comes to differentiate themselves by providing consumershow they manage their changing workforce. Increasingly, brands are managing employees that may work from anywhere. Providing flexibility for where their employees work creates challenges in managing and coaching their teams. And because of the limited resources that are available, brands must find ways to use technology like AI-powered bots to augment their workforce. “The Great Resignation” has put a spotlight on the importance of employee experience and brands must quickly evolve how they recruit, onboard, and retain employees. We believe that these trends benefit Verint as they create demand for new solutions that can shape the future of work, with a strong brand experience. But they cannot afford to do so by hiring more people. Withworkforce of people and bots working together, increased automation, greater employee flexibility and a greater focus on the exponential growth in digital journeys and more demanding consumer expectations, organizations require more resources, but hiring more knowledge workers and further increasing workforce expenses is often not a sustainable solution. This creates an Engagement Capacity Gap, and asvoice of the digital transformation accelerates, the gap is widening. Brands are looking for new technology and solutions to help close the Engagement Capacity Gap.employees.

Elevated Customer Expectations: Customer expectations for faster, more consistent, and contextual responses continue to rise and meeting those expectations is becoming more difficult with legacy technology. The Marketincrease in the number of channels and customer desire to seamlessly shift between channels creates a more complex customer journey for brands to support and manage. Customers also expect that each brand will have a deep understanding of the customer’s relationship with the brand - one that is Shifting Rapidlyunified across the enterprise regardless of whether the customer touchpoint is in the contact center, on a website, through a mobile app, or in the back office or branch. We believe that this trend benefits Verint as it creates demand for new solutions that help brands support complex customer journeys and increase automation to Cloud-Based, AI-Driven Solutions. To effectively address the Engagement Capacity Gap, brands are seeking open, cloud-based solutions to break down silos and facilitate the sharing of data across enterprise functions. Brand are also seeking to leverage AI and other advanced data analytic tools to reduce manual work, increase workforce efficiency, and manage the new workforce of humans and bots.meet elevated customer expectations.

Cyber Intelligence Solutions Business (Cognyte Business)

As noted above, on February 1, 2021, we completed the Spin-Off of our former Cyber Intelligence Solutions business (also known as the Cognyte Business) into an independent, publicly traded company called Cognyte Software Ltd. (“Cognyte”). Cognyte is a global leader in security analytics software that empowers governments and enterprises with Actionable Intelligence® for a safer world. Cognyte’s open software fuses, analyzes and visualizes disparate data sets at scale to help security organizations find the needles in the haystacks. Over 1,000 government and enterprise customers in more than 100 countries rely on Cognyte’s solutions to accelerate security investigations and connect the dots to successfully identify, neutralize, and prevent national security, personal safety, business continuity and cyber threats. Cognyte’s government customers consist of governments around the world, including national, regional, and local government agencies.Cognyte’s enterprise customers consist of commercial customers and physical security customers.

See Item 1, “Business”, of this report for more information on key trends that we believe are driving demand for our solutions and “Risk Factors” under Item 1A of this report for a more complete description of risks that may impact future revenue and profitability. As discussed above, the current COVID-19 pandemic is also a material factor that may negatively impact us and demand for our solutions.


Critical Accounting Policies and Estimates

An appreciation of our critical accounting policies is necessary to understand our financial results. The accounting policies outlined below are considered to be critical because they can materially affect our operating results and financial condition, as these policies may require us to make difficult and subjective judgments regarding uncertainties. The accuracy of these estimates and the likelihood of future changes depend on a range of possible outcomes and a number of underlying variables, many of which are beyond our control, and there can be no assurance that our estimates are accurate.

Revenue Recognition

We derive and report our revenue in two categories: (a) productrecurring revenue, including licensing of software products,which includes bundled SaaS, unbundled SaaS and the sale of hardware products (which include software that works together with the hardware to deliver the product’s essential functionality), and (b) service and support revenue, including revenue from cloud deployments, bundled SaaS, hosting services, optional managed services, installation services, initial and renewal support project management,revenue, and product warranties, and (b) nonrecurring revenue, which primarily consists of our perpetual licenses, hardware, installation services, and business advisory consulting and training services. We account for a contract with a customer when it has written approval, the contract is committed, the
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rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. We recognize revenue when control of the promised goods or services is
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transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Products sold by us are delivered electronically, shipped from our facilities, or drop-shipped directly from the vendor. We generate all of our revenue from contracts with customers. We generally invoice a customer upon delivery, or in accordance with specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our goods and services, and not to provide financing to or from customers.

We account for revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). Our revenue recognition policies require us to make significant judgments and estimates. In applying our revenue recognition policy, we must determine which portions of our revenue are recognized at a point in time (generally productperpetual and term license revenue) and which portions must be deferred and recognized over time (generally cloud, professional services, and support revenue). We analyze various factors including, but not limited to, the selling price of undelivered services when sold on a stand-alone basis, our pricing policies, the creditworthiness of our customers, and contractual terms and conditions in helping us to make such judgments about revenue recognition. Changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a given period.

Our contracts with customers often include promises to transfer multiple products and services to a customer. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software. For bundled SaaS arrangements, we determine whether the services performed during the initial phases of an arrangement, such as setup activities, are distinct. In most cases, we consider our bundled SaaS arrangementsdeliverable to represent a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). We record deferred revenue attributable to certain process transition, setup activities where such activities do not represent separate performance obligations.Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software. The transaction price is generally in the form of a fixed fee at contract inception, and excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer.

We allocate the transaction price to each distinct performance obligation based on the estimated standalone selling price (“SSP”) for each performance obligation. Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable, such as when 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 an adjusted market assessment approach. We may have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.

We then look to how control transfers to the customer in order to determine the timing of revenue recognition. SoftwareRevenue related to bundled SaaS, professional services and customer education services is typically recognized over time as the services are performed. We recognize support revenue, 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 for perpetual licenses support and one to three years for unbundled SaaS support. Unbundled SaaS and perpetual license revenue is typically recognized 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 obtain substantially all of the remaining benefits from the functional intellectual property. We do not recognize software revenue related to the renewal of software licenses earlier than the beginning of the renewal period. In situations where arrangements include customer acceptance provisions, revenue is recognized when we can objectively verify the software complies with the specifications underlying acceptance and the customer has control of the software.We recognize support revenue, 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 to bundled SaaS, professional services and customer education services is typically recognized over time as the services are performed.

Some of our customer contracts require significant customization of the software to meet the particular requirements specified by each customer. The contract pricing is stated as a fixed amount and generally results in the transfer of control of the applicable performance obligation over time. We recognize revenue based on the proportion of labor hours expended to the total hours expected to complete the performance obligation. The determination of the total labor hours expected to complete the performance obligation on fixed fee contracts involves significant judgment. We incorporate revisions to hour and cost estimates when the causal facts become known. We measure our estimate of completion on fixed-price contracts, which in turn determines the amount of revenue 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 and handling activities that are billed to customers and occur after control over a product has
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transferred to a customer are accounted for as fulfillment costs and are included in cost of revenue. Historically, these expenses have not been material.

Accounting for Business Combinations

We allocate the purchase price of acquired companies to the tangible and intangible assets acquired, including in-process research and development assets, and liabilities assumed, based upon their estimated fair values at the acquisition date.dates, with
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the remaining unallocated purchase prices recorded as goodwill. These fair values are typically estimated with assistance from independent valuation specialists. The purchase price allocation process requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets, contractual support obligations assumed, 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 historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

future expected cash flows from software license sales, SaaS and support agreements, consulting contracts, other customer contracts, and acquired developed technologies;

expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed;

the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio;

cost of capital and discount rates; and

estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize.

In connection with the purchase price allocations for applicable acquisitions, we estimate the fair value of the contractual SaaS and support obligations we are assuming from the acquired business. The estimated fair value of the SaaS and support obligations is determined utilizing a cost build-up approach, which determines fair value by estimating the costs related to fulfilling the obligations plus a reasonable profit margin. The estimated costs to fulfill the SaaS and support obligations are based on the historical direct costs related to providing the services. The sum of these costs and operating profit represents an approximation of the amount that we would be required to pay a third party to assume these obligations.

Goodwill and Other Acquired Intangible Assets

We test goodwill for impairment at the reporting unit level, which can be an operating segment or one level below an operating segment, on an annual basis as of November 1, or more frequently if changes in facts and circumstances indicate that impairment in the value of goodwill may exist. AsSubsequent to the Spin-Off of January 31,Cognyte on February 1, 2021, ourwe became a pure-play customer engagement company that operates as a single reporting units were Customer Engagement, Cyber Intelligence (excluding situational intelligence solutions), and Situational Intelligence, a component of our Cyber Intelligence operating segment.unit.

In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we elect to bypass a qualitative assessment, or if our qualitative assessment indicates that goodwill impairment is more likely than not, we perform quantitative impairment testing. If our quantitative testing determines that the carrying value of athe reporting unit exceeds its fair value, goodwill impairment is recognized in an amount equal to that excess, limited to the total goodwill allocated to thatthe reporting unit.

For reporting units whereWhen we decide to perform a qualitative assessment, we assess and make judgments regarding a variety of factors which potentially impact the fair value of athe reporting unit, including general economic conditions, industry and market-specific conditions, customer behavior, cost factors, our financial performance and trends, our strategies and business plans, capital requirements, management and personnel issues, and our stock price, among others. We then consider the totality of these and other factors, placing more weight on the events and circumstances that are judged to most affect athe reporting unit’s fair value or the carrying amount of its net assets, to reach a qualitative conclusion regarding whether it is more likely than not that the fair value of athe reporting unit exceeds its carrying amount.
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For reporting units whereWhen 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, using valuation multiples of comparable companies, and (c) a transaction-based approach, using valuation multiples for recent acquisitions of similar businesses made in the marketplace.

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Our estimate of fair value of eachour reporting unit is based on a number of subjective factors, including: (a) appropriate consideration of valuation approaches (income approach, comparable public company approach, and comparable transaction approach), (b) estimates of future growth rates, (c) estimates of our future cost structure, (d) discount rates for our estimated cash flows, (e) selection of peer group companies for the comparable public company and the comparable transaction approaches, (f) required levels of working capital, (g) assumed terminal value, and (h) time horizon of cash flow forecasts.

The determination of reporting units also requires judgment. We assess whether a reporting unit exists within a reportable segment by identifying the unit, determining whether the unit qualifies as a business under GAAP, and assessing the availability and regular review by segment management of discrete financial information for the unit.

We review intangible assets that have finite useful lives and other long-lived assets when an event occurs indicating the potential for impairment. If any indicators are present, we perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the assets in question to their carrying amounts. If the undiscounted cash flows used in the test for recoverability are less than the long-lived assets carrying amount, we determine the fair value of the long-lived asset and recognize an impairment loss if the carrying amount of the long-lived asset exceeds its fair value. The impairment loss recognized is the amount by which the carrying amount of the long-lived asset exceeds its fair value.

For all our goodwill and other intangible asset impairment reviews, the assumptions and estimates used in the process are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the assumptions, judgments, and estimates we have used in our assessments are reasonable and appropriate, a material change in any of our assumptions or external factors could lead to future goodwill or other intangible asset impairment charges.

Based upon our November 1, 20202021 quantitative goodwill impairment review of eachour reporting unit, we concluded that the estimated fair valuesvalue of our Customer Engagement, Cyber Intelligence, and Situational Intelligence reporting unitsunit significantly exceeded theirits carrying values.value. Our Customer Engagement, Cyber Intelligence, and Situational Intelligence reporting unitsunit carried goodwill of $1.3 billion, $135.7$1,353.4 million and $22.5 million, respectively, at January 31, 2021.2022.

Income Taxes

We account for income taxes under the asset and liability method, which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.

We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our income tax provision involves the application of complex tax laws and requires significant judgment and estimates.

We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and we establish a valuation allowance when it is more likely than not that all or a portion of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more likely than not realizable, we establish a valuation allowance.

We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more likely than not sustainable, based solely on their technical merits, upon examination, and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that we believe is more likely than not realizable.
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Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets. Our policy is to include interest (expense and/or income) and penalties related to unrecognized income tax benefits as a component of the provision for income taxes.

Accounting for Stock-Based Compensation

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We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of the award.

During the three-year period ended January 31, 2021,2022, restricted stock units were our predominant stock-based payment award. The fair value of these awards is equivalent to the market value of our common stock on the grant date.

We periodically award restricted stock units to executive officers and certain employees that vest upon the achievement of specified performance goals or market conditions. The recognition of the compensation costs of the performance-based awards with performance goals requires an assessment of the probability that the specified performance criteria will be achieved. At each reporting date, we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the award, if necessary. For the performance-based awards with market conditions, the condition is incorporated into the grant date fair value valuation of the award and compensation costs are recognized even if the market condition is not satisfied.

Awards are generally subject to multi-year vesting periods. We recognize compensation expense for awards on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods, reduced by estimated forfeitures.

Changes in assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognized. The assumptions we use in calculating the fair value of stock-based payment awards represent our best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.


Results of Operations

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended January 31, 2021 and 2020. A discussion regarding our financial condition and results of operations for the year ended January 31, 2020 compared to the year ended January 31, 2019 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on March 31, 2020, which is hereby incorporated by reference herein and considered part of this Annual Report on Form 10-K only to the extent referenced and is available free of charge on the SEC’s website at www.sec.gov and our website at www.verint.com/investor-relations.

Seasonality and Cyclicality

As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most years, our revenue and operating income are typically highest in the fourth quarter and lowest in the first quarter (prior to the impact of unusual or nonrecurring items). Moreover, revenue and operating income in the first quarter of a new year may be lower than in the fourth quarter of the preceding year, in some years, by a significant margin. In addition, we generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that month. We believe that these seasonal and cyclical factors primarily reflect customer spending patterns and budget cycles, as well as the impact of incentive compensation plans for our sales personnel. While seasonal and cyclical factors such as these are common in the software and technology industry, this pattern should not be considered a reliable indicator of our future revenue or financial performance. Many other factors, including general economic conditions, may also have an impact on our business and financial results.

Overview of Operating Results

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The following table sets forth a summary of certain key financial information for the years ended January 31, 2022, 2021, 2020, and 2019: 2020: 
Year Ended January 31,
(in thousands, except per share data)202220212020
Revenue$874,509 $830,247 $846,525 
Operating income (loss)$46,843 $57,422 $(1,973)
Net loss from continuing operations attributable to Verint Systems Inc. common shares$(4,509)$(57,310)$(47,089)
Net loss from continuing operations per common share attributable to Verint Systems Inc.:  
   Basic$(0.07)$(0.88)$(0.71)
   Diluted$(0.07)$(0.88)$(0.71)

Year Ended January 31,
(in thousands, except per share data)202120202019
Revenue$1,273,705 $1,303,634 $1,229,747 
Operating income$108,705 $87,856 $114,235 
Net (loss) income attributable to Verint Systems Inc. common shares$(14,923)$28,684 $65,991 
Net (loss) income per common share attributable to Verint Systems Inc.:  
   Basic$(0.23)$0.43 $1.02 
   Diluted$(0.23)$0.43 $1.00 
Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Our revenue increased approximately $44.3 million, or 5%, from $830.2 million in the year ended January 31, 2021 to $874.5 million in the year ended January 31, 2022. The increase consisted of a $57.5 million increase in recurring revenue, partially offset by a $13.2 million decrease in nonrecurring revenue. For additional details on our revenue by category, see “—Revenue”. Revenue in the Americas, EMEA, and APAC represented approximately 69%, 20%, and 11% of our total revenue, respectively, in the year ended January 31, 2022,
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compared to approximately 69%, 21%, and 10%, respectively, in the year ended January 31, 2021. Further details of changes in revenue are provided below.

Operating income was $46.8 million in the year ended January 31, 2022, compared to $57.4 million in the year ended January 31, 2021. This decrease in operating income was primarily due to a $43.8 million increase in operating expenses, partially offset by a $33.2 million increase in gross profit. The increase in operating expenses consisted of a $49.5 million increase in selling, general and administrative expenses, partially offset by a $4.9 million decrease in net research and development expenses and a $0.8 million decrease in amortization of other acquired intangible assets. Further details of changes in operating income are provided below.

Net loss from continuing operations attributable to Verint Systems Inc. common shares was $4.5 million and diluted net loss per common share was $0.07 in the year ended January 31, 2022, compared to net loss from continuing operations attributable to Verint Systems Inc. common shares of $57.3 million and diluted net loss per common share of $0.88 in the year ended January 31, 2021. The decrease in net loss from continuing operations attributable to Verint Systems Inc. per common share and diluted net loss per common share in the year ended January 31, 2022 was primarily due to a $91.8 million decrease in total other expense, net primarily due to the elimination of a non-cash revaluation loss related to the Future Tranche Right as a result of the issuance of the Series B Preferred Stock, partially offset by a $16.9 million increase in our provision for income taxes, an $11.3 million increase in Preferred Stock dividends due to the issuance of the Series B Preferred Stock, a $10.6 million decrease in operating income, as described above, and a $0.2 million increase in net income from continuing operations attributable to our noncontrolling interests. 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 fluctuations in applicable foreign currency exchange rates. When comparing average exchange rates for the year ended January 31, 2022 to average exchange rates for the year ended January 31, 2021, the U.S. dollar weakened relative to the British pound sterling, the Australian dollar, the euro, and the Israeli shekel rate (hedged and unhedged), resulting in an overall increase in our revenue, cost of revenue and operating expenses on a U.S. dollar-denominated basis. For the year ended January 31, 2022, had foreign exchange rates remained unchanged from rates in effect for the year ended January 31, 2021, our revenue would have been approximately $9.2 million lower and our cost of revenue and operating expenses on a combined basis would have been approximately $11.9 million lower, which would have resulted in a $2.7 million increase in operating income.

As of January 31, 2022, we employed approximately 4,400 professionals, including part-time employees and certain contractors, compared to approximately 4,300 at January 31, 2021.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Our revenue decreased approximately $29.9 million, or 2%, from $1,303.6 million in the year ended January 31, 2020 to $1,273.7 million in the year ended January 31, 2021. The decrease consisted of a $48.6 million decrease in product revenue, partially offset by an $18.7 million increase in service and support revenue. In our Customer Engagement segment, revenue decreased approximately $16.3 million, or 2%, from $846.5 million in the year ended January 31, 2020 to $830.2 million in the year ended January 31, 2021. The decrease consisted of a $24.0$57.5 million decrease in productnonrecurring revenue, partially offset by a $7.7$41.2 million increase in service and support revenue. In our Cyber Intelligence segment, revenue decreased approximately $13.6 million, or 3%, from $457.1 million in the year ended January 31, 2020 to $443.5 million in the year ended January 31, 2021. The decrease consisted of a $24.6 million decrease in product revenue, partially offset by an $11.0 million increase in service and supportrecurring revenue. For additional details on our revenue by segment,category, see “—Revenue by Operating Segment”Revenue”. Revenue in the Americas, EMEA, and APAC represented approximately 52%69%, 28%21%, and 20%10% of our total revenue, respectively, in the year ended January 31, 2021, compared to approximately 52%70%, 29%20%, and 19%10%, respectively, in the year ended January 31, 2020. Further details of changes in revenue are provided below.

Operating income was $108.7$57.4 million in the year ended January 31, 2021, compared to $87.9an operating loss of $2.0 million in the year ended January 31, 2020. This increase in operating income was primarily due to a $18.2$59.1 million decrease in operating expenses and a $0.3 million increase in gross profit, primarily reflecting increased gross profit in our Cyber Intelligence segment and a decrease in amortization of acquired technology intangible assets, and a $2.6 million decrease in operating expenses.profit. The decrease in operating expenses consisted of a $10.6$51.9 million decrease in selling, general and administrative expenses primarily due to cost reduction initiatives we implemented in response to the COVID-19 pandemic, a $6.1 million decrease in net research and development expenses, and a $0.5$1.1 million decrease in amortization of other acquired intangible assets, partially offset by a $8.5 million increase in net research and development expenses.assets. Further details of changes in operating income are provided below.

Net loss from continuing operations attributable to Verint Systems Inc. common shares was $14.9$57.3 million and diluted net loss per common share was $0.23$0.88 in the year ended January 31, 2021, compared to net incomeloss from continuing operations attributable to Verint Systems Inc. common shares of $28.7$47.1 million and diluted net incomeloss per common share of $0.43$0.71 in the year ended January 31, 2020. The decreaseincrease in net incomeloss from continuing operations attributable to Verint Systems Inc. per common share and diluted net incomeloss per common share in the year ended January 31, 2021 was primarily due to a $57.9$61.5 million increase in total other expense, net primarily due to the change in fair value of the Future Tranche Right issued in connection with our preferred stock,Preferred Stock, a $7.7 million increase in dividends on preferred stock, Preferred Stock, and a $0.2$0.5 million increase in net income from continuing operations attributable to our noncontrolling interests, partially offset by a $20.8$59.4 million increase in operating income, as described above, and a $1.3 million decrease in our provision for income taxes.above. Further details of these changes are provided below.

A
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As noted above, a portion of our business is conducted in currencies other than the U.S. dollar, and therefore our revenue and operating expenses are affected by fluctuations in applicable foreign currency exchange rates. When comparing average exchange rates for the year ended January 31, 2021 to average exchange rates for the year ended January 31, 2020, the U.S. dollar strengthened relative to the Brazilian real, Singapore dollar, and Indian rupee and weakened against the euro, British pound sterling, and our Israeli shekel rate (hedged and unhedged), resulting in an overall increase in our revenue and operating expenses, and a slight decrease in our cost of revenue on a U.S. dollar-denominated basis. For the year ended January 31, 2021, had foreign exchange rates remained unchanged from rates in effect for the year ended January 31, 2020, our revenue would have been approximately $0.5$1.3 million lower and our cost of revenue and operating expenses on a combined basis would have been approximately $5.0$0.5 million lower, which would have resulted in a $4.5$0.8 million increasedecrease in operating income.

As of January 31, 2021 and 2020, we employed approximately 6,3004,300 professionals, including part-time employees and certain contractors, compared to approximately 6,500 at January 31, 2020. In connection with the Spin-Off, approximately 2,000 professionals, including certain contractors, became part of Cognyte.contractors.

Revenue by Operating Segment

38

TableWe derive and report our revenue in two categories: (a) recurring revenue, which includes bundled SaaS, unbundled SaaS, hosting services, optional managed services, initial and renewal support revenue, and product warranties, and (b) nonrecurring revenue, which primarily consists of Contents
our perpetual licenses, hardware, installation services, and business advisory consulting and training services.

The following table sets forth revenue for each of our operating segmentsby category for the years ended January 31, 2022, 2021, 2020, and 2019:2020:

 Year Ended January 31,% Change
(in thousands)2021202020192021 - 20202020 - 2019
Customer Engagement$830,247 $846,525 $796,287 (2)%6%
Cyber Intelligence443,458 457,109 433,460 (3)%5%
Total revenue$1,273,705 $1,303,634 $1,229,747 (2)%6%
Year Ended January 31,% Change
(in thousands)2022202120202022 - 20212021 - 2020
Recurring revenue
Bundled SaaS revenue$183,035 $145,962 $115,925 25 %26 %
Unbundled SaaS revenue139,729 71,990 48,018 94 %50 %
Optional managed services revenue65,648 59,459 56,534 10 %%
Total cloud revenue388,412 277,411 220,477 40 %26 %
Support revenue244,717 298,213 313,901 (18)%(5)%
Total recurring revenue633,129 575,624 534,378 10 %%
Nonrecurring revenue
Perpetual revenue138,078 141,840 179,882 (3)%(21)%
Professional services revenue103,302 112,783 132,265 (8)%(15)%
Total nonrecurring revenue241,380 254,623 312,147 (5)%(18)%
Total revenue$874,509 $830,247 $846,525 %(2)%
Customer Engagement Segment
Recurring Revenue

Year Ended January 31, 20212022 compared to Year Ended January 31, 2020.2021. Customer EngagementRecurring revenue decreasedincreased approximately $16.3$57.5 million, or 2%10%, from $846.5$575.6 million in the year ended January 31, 20202021 to $830.2$633.1 million in the year ended January 31, 2021.2022. The decreaseincrease consisted of a $24.0$111.0 million decreaseincrease in productcloud revenue, partially offset by a $7.7$53.5 million increasedecrease in service and support revenue. The decreaseincrease in productcloud revenue was primarily driven by delayed purchasing decisions on large contracts, particularly on-premises arrangements, and reduced product spending by customers, both due to COVID-19, and a shift in spending by our customers towards our cloud solutions. Our product revenue can fluctuate from period to period as some large contracts can represent a significant share of our product revenue for a given period. Thean increase in serviceunbundled SaaS revenue resulting from support conversion transactions and support revenue was primarily driven by growthnew cloud deployments, and an increase in recurring revenuebundled SaaS and optional managed services as we continue to see positive demand from customers across our portfolio of cloud-based solutions partially offset by aand services. The decrease in implementationsupport revenue was primarily due to COVID-19 and related containment measures, including customer facility closures and travel restrictions.customers migrating to our cloud-based solutions. We expect our revenue mix to continue to shift to recurring sources, which is consistent with our cloud-first strategy and a general market shift from on-premises to cloudcloud-based solutions.

Cyber Intelligence Segment

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Cyber IntelligenceRecurring revenue decreasedincreased approximately $13.6$41.2 million, or 3%8%, from $457.1$534.4 million in the year ended January 31, 2020 to $443.5$575.6 million in the year ended January 31, 2021. The decreaseincrease consisted of a $24.6$56.9 million decreaseincrease in productcloud revenue, partially offset by an $11.0a $15.7 million decrease in support revenue. The increase in service and support revenue. The decrease in productcloud revenue was primarily due to aan increase in bundled SaaS driven by positive demand from customers across our portfolio for cloud-based solutions and services, and an increase in unbundled SaaS revenue resulting from new cloud deployments and support conversion transactions. The decrease in product deliveries due to delays attributed to the impact of COVID-19, as our customers shifted their attention to addressing operational challenges associated with the pandemic, a reduction in the amount of pass-through hardware reselling activity as we transitioned more of our business to a software model, and a decrease in progress realized during the current period on long-term projects for which revenue is recognized over time using the percentage-of-completion (“POC”) method. The increase in service and support revenue was primarily attributable to an increase in support revenue from existing customers and an increase in SaaS revenue, partially offset by a decrease in progress realized during the current year on long-term projects for which revenue is recognized over time using the POC method, and to a lesser extent a decrease in deployment services due to COVID-19 restrictions.customers migrating to our cloud-based solutions.

Product Revenue and Service and Support Revenue

We derive and report our revenue in two categories: (a) product revenue, including licensing of software products, unbundled SaaS, and the sale of hardware products (which include software that works together with the hardware to deliver the product’s essential functionality), and (b) service and support revenue, including revenue from cloud deployments, bundled SaaS, hosting services, optional managed services, installation services, initial and renewal support, project management, 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, 2021, 2020, and 2019:

 Year Ended January 31,% Change
(in thousands)2021202020192021 - 20202020 - 2019
Product revenue$406,254 $454,875 $454,650 (11)%—%
Service and support revenue867,451 848,759 775,097 2%10%
Total revenue$1,273,705 $1,303,634 $1,229,747 (2)%6%

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Nonrecurring Revenue

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Nonrecurring revenue decreased approximately $13.2 million, or 5%, from $254.6 million in the year ended January 31, 2021 to $241.4 million in the year ended January 31, 2022. The decrease consisted of a $9.5 million decrease in professional services revenue and a $3.7 million decrease in perpetual revenue. The decrease in professional services revenue was primarily driven by a decrease in implementation services as a result of the overall shift in our business to a cloud-based model. The decrease in perpetual revenue was primarily due to a continued shift in spending by our customers towards our cloud-based solutions. Our nonrecurring revenue can fluctuate from period to period, as some large contracts can represent a significant share of our nonrecurring revenue for a given period.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. ProductNonrecurring revenue decreased approximately $48.6$57.5 million, or 18%, from $454.9$312.1 million forin the year ended January 31, 2020 to $406.3$254.6 million forin the year ended January 31, 2021, resulting from2021. The decrease consisted of a $24.6$38.0 million decrease in our Cyber Intelligence segmentperpetual revenue and a $24.0$19.5 million decrease in professional services revenue. The decrease in perpetual revenue was primarily driven by delayed purchasing decisions on large contracts, particularly on-premises arrangements, and reduced product spending by customers, both due to the COVID-19 pandemic, and a shift in spending by our Customer Engagement segment.customers towards our cloud-based solutions. The decrease in professional services revenue was due to the impact of the COVID-19 pandemic and related containment measures, including customer facility closures and travel restrictions, and an overall shift in our business to a cloud-based model.

For additional information see “—Revenue by Operating Segment”.

Service and Support Revenue

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Service and support revenue increased approximately $18.7 million, or 2%, from $848.8 million for the year ended January 31, 2020 to $867.5 million for the year ended January 31, 2021, resulting from a $11.0 million increase in our Cyber Intelligence segment and a $7.7 million increase in our Customer Engagement segment.

For additional information see “— Revenue by Operating Segment”.

Cost of Revenue

The following table sets forth cost of revenue by productrecurring and service and support,nonrecurring, as well as amortization of acquired technology for the years ended January 31, 2022, 2021, 2020, and 2019:2020:

 Year Ended January 31,% Change
(in thousands)2021202020192021 - 20202020 - 2019
Cost of product revenue$96,161 $127,183 $129,922 (24)%(2)%
Cost of service and support revenue300,528 312,599 293,888 (4)%6%
Amortization of acquired technology18,905 23,984 25,403 (21)%(6)%
Total cost of revenue$415,594 $463,766 $449,213 (10)%3%

We exclude certain costs of both product revenue and service and support revenue, including shared support costs, stock-based compensation, and asset impairment charges, among others, when calculating our operating segment gross margins.
 Year Ended January 31,% Change
(in thousands)2022202120202022 - 20212021 - 2020
Cost of recurring revenue$156,569 $139,044 $132,789 13%5%
Cost of nonrecurring revenue124,226 130,545 149,795 (5)%(13)%
Amortization of acquired technology17,777 17,962 21,579 (1)%(17)%
Total cost of revenue$298,572 $287,551 $304,163 4%(5)%

Cost of ProductRecurring Revenue

Cost of productrecurring revenue primarily consists of employee compensation and related expenses for our cloud operations and support teams, contractor costs, cloud infrastructure and data center costs, travel expenses relating to optional managed services and support, and royalties due to third parties for software components that are embedded in our cloud-based solutions. Cost of recurring revenue also includes stock-based compensation expenses, facility costs, and other allocated overhead expenses.

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Cost of recurring revenue increased approximately $17.6 million, or 13%, from $139.0 million for the year ended January 31, 2021 to $156.6 million for the year ended January 31, 2022. The increase was primarily due to an increase in employee compensation, contractor expenses, and general overhead costs compared to the prior year during which we had implemented certain cost reduction measures due to the COVID-19 pandemic, as well as an increase in headcount, the write-off of prepaid license royalties that are not core to our growth strategy, and an increase in data center and cloud costs associated with the increase in cloud revenue. Our recurring revenue gross margins decreased slightly from 76% in the year ended January 31, 2021 to 75% in the year ended January 31, 2022, primarily due to the one-time write-off of prepaid license royalties during the year ended January 31, 2022.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Cost of recurring revenue increased approximately $6.2 million, or 5%, from $132.8 million for the year ended January 31, 2020 to $139.0 million for the year ended January 31, 2021, primarily due to an increase in data center and cloud costs associated with the corresponding increase in cloud revenue and an increase in employee compensation and related expenses, partially offset by a decrease in travel and general overhead costs as a result of cost reduction initiatives related to the COVID-19 pandemic. Our recurring revenue gross margins increased from 75% in the year ended January 31, 2020 to 76% in the year ended January 31, 2021, primarily due to temporary COVID-19 pandemic cost containment measures that we implemented.

We expect our cost of recurring revenue to continue to increase as we continue to invest in our cloud operations to support our growing cloud customer base and improve the security of our solutions.
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Cost of Nonrecurring Revenue

Cost of nonrecurring revenue primarily consists of employee compensation and related expenses, contractor costs, travel expenses relating to installation, training and consulting services, hardware material costs, and royalties due to third parties for software components that are embedded in our on-premises software solutions. Cost of productnonrecurring revenue also includes amortization of capitalized software development costs, employee compensation and related expenses associated with our global operations, facility costs, and other allocated overhead expenses. In our Cyber Intelligence segment, cost

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Cost of productnonrecurring revenue also includesdecreased approximately $6.3 million, or 5%, from $130.5 million in the year ended January 31, 2021 to $124.2 million in the year ended January 31, 2022. The decrease was primarily driven by a decrease in general overhead expenses as a result of the Spin-Off, a decrease in employee compensation and related expenses due to a decrease in headcount supporting nonrecurring revenue offerings, and lower contractor costs. These decreases were offset by an increase in third-party hardware delivered and consulting expenses,related shipping and travel expenses,handling costs during the current year. Our overall nonrecurring gross margins were 49% in each case for resources dedicated to project managementof the years ended January 31, 2022 and associated product delivery.

2021.
As with many other technology companies, our software products tend to have higher gross margins than our hardware products, so the mix of products we sell in a particular period can have a significant impact on our gross margins in that period.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Cost of productnonrecurring revenue decreased approximately $31.0$19.3 million, or 24%13%, from $127.2 million for the year ended January 31, 2020 to $96.2 million for the year ended January 31, 2021, primarily due to decreased cost of product revenue in our Cyber Intelligence segment, driven primarily by a corresponding decrease in product revenue as discussed above, cost reduction initiatives we implemented related to COVID-19, including reducing employee costs and travel expenses, and a decrease in subcontractor costs resulting from prior investments to further productize our Cyber Intelligence portfolio. Our overall product gross margins increased from 72% in the year ended January 31, 2020 to 76% in the year ended January 31, 2021. Product gross margins in our Cyber Intelligence segment increased from 64% in the year ended January 31, 2020 to 73% in the year ended January 31, 2021 primarily due to a favorable change in product mix, as a result of an increase in software transactions during the current year, temporary cost reduction initiatives we implemented related to COVID-19, and a decrease in product customization work that is not considered a separate performance obligation driven by recent and ongoing investments to productize our Cyber Intelligence portfolio. Cyber Intelligence product margins are subject to considerable fluctuation from period to period based on the product mix sold. Product gross margins in our Customer Engagement segment decreased from 84% in the year ended January 31, 2020 to 83%
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in the year ended January 31, 2021, primarily due to lower sales volume due to COVID-19, which resulted in revenue decreasing at a faster rate than product costs, including software amortization costs.

Cost of Service and Support Revenue

Cost of service and support revenue primarily consists of employee compensation and related expenses, contractor costs, hosting infrastructure costs, and travel expenses relating to installation, training, consulting, and maintenance services. Cost of service and support revenue also includes certain stock-based compensation expenses, facility costs, and other overhead expenses. In accordance with GAAP and our accounting policy, the cost of service and support revenue is generally expensed as incurred in the period in which the services are performed.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Cost of service and support revenue decreased approximately $12.1 million, or 4%, from $312.6$149.8 million in the year ended January 31, 2020 to $300.5$130.5 million in the year ended January 31, 2021. The decrease was primarily due to a decrease in travel costs, and employee compensation, expensesand contractor costs as a result of cost reduction initiatives related to the COVID-19 partially offset by an increase in data centerpandemic and cloud costs associated with the increase in cloud revenue. our overall shift towards cloud-based solutions. Our overall service and supportnonrecurring gross margin increaseddecreased from 63%52% in the year ended January 31, 2020 to 65%49% in the year ended January 31, 2021, primarily due to temporarylower sales volume due to the COVID-19 cost containment measures that we implemented.pandemic, which resulted in revenue decreasing at a faster rate than nonrecurring costs.

Amortization of Acquired Technology

Amortization of acquired technology consists of amortization of technology assets acquired in connection with business combinations.

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Amortization of acquired technology decreased approximately $0.2 million, or 1%, from $18.0 million in the year ended January 31, 2021 to $17.8 million in the year ended January 31, 2022. The decrease was attributable to acquired technology intangible assets from historical business combinations becoming fully amortized during the year ended January 31, 2022, partially offset by amortization expense of acquired technology intangible assets associated with recent business combinations.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Amortization of acquired technology decreased approximately $5.1$3.6 million, or 21%17%, from $24.0$21.6 million in the year ended January 31, 2020 to $18.9$18.0 million in the year ended January 31, 2021. The decrease was attributable to acquired technology intangible assets from historical business combinations becoming fully amortized during the year ended January 31, 2021, partially offset by amortization expense of acquired technology intangible assets associated with business combinations that closed during the prior year, for which a full year of amortization expense iswas reflected in the current year.year ended January 31, 2021.

Further discussion regarding our business combinations appears in Note 5,6, “Business Combinations and Divestitures” to our consolidated financial statements included underin Part II, Item 8 of this report.

Research and Development, Net

Research and development expenses consist primarily of personnel and subcontracting expenses, facility costs, and other allocated overhead, net of certain software development costs that are capitalized, as well as reimbursements under government programs.capitalized. Software development costs are capitalized upon the establishment of technological feasibility and continue to be capitalized through the general release of the related software product.

The following table sets forth research and development, net for the years ended January 31, 2022, 2021, 2020, and 2019:2020:

 Year Ended January 31,% Change
(in thousands)2021202020192021 - 20202020 - 2019
Research and development, net$240,169 $231,683 $209,106 4%11%
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 Year Ended January 31,% Change
(in thousands)2022202120202022 - 20212021 - 2020
Research and development, net$123,291 $128,152 $134,236 (4)%(5)%

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Research and development, net decreased approximately $4.9 million, or 4%, from $128.2 million in the year ended January 31, 2021 to $123.3 million in the year ended January 31, 2022. This decrease was primarily attributable to a $16.9 million decrease in indirect R&D shared support services and facility expenses due to a reduction in our shared support services workforce as a result of the completion of the Spin-Off, a $3.6 million increase in benefits from participation in certain government-sponsored programs for the support of R&D activities, and a $2.5 million decrease in general overhead costs. These decreases were partially offset by a $7.8 million increase in employee compensation and related expenses compared to the prior year period during which we had implemented certain cost reduction measures due to the COVID-19 pandemic, and increased investment in R&D headcount, a $5.7 million increase in contractor costs, a $3.6 million increase in stock-based compensation expenses due to a shorter vesting schedule for prior year grants which resulted in a greater charge in the current year, additional performance based awards in connection with completion of the Spin-Off, and a change in our R&D employee bonus payment structure, and a $1.1 million increase in third party software components in support of our cloud business.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Research and development, net increaseddecreased approximately $8.5$6.0 million, or 4%5%, from $231.7$134.2 million in the year ended January 31, 2020 to $240.2$128.2 million in the year ended January 31, 2021. The increasedecrease was primarily due to a $9.3 million increase in employee compensation and related expenses, excluding stock-based compensation, which largely reflected further investment to productize our Cyber Intelligence portfolio during its ongoing software model transition. In addition, costs related to the purchase of third-party software components to accelerate development increased $4.3 million and capitalized software development costs were lower by $2.6 million in the year ended January 31, 2021 compared to the year ended January 31, 2020. These increases to R&D expense were partially offset by a $3.9$3.3 million decrease in stock-based compensation as a result of a change in our R&D employee bonus payment structure and cost reduction initiatives we implemented in response to the COVID-19 pandemic, which resulted in a $2.5$1.8 million decrease in travel related expenses, and a $0.9$1.3 million decrease in contractor costs,employee compensation and related expenses, excluding stock-based compensation, partially offset by a $0.5$0.4 million decrease in R&Dcapitalized software development costs.
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office expenses. Certain R&D costs that were temporarily reduced due to COVID-19 cost-saving initiatives were restored in the latter part of our fiscal second quarter.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel costs and related expenses, professional fees, changes in the fair values of our obligations under contingent consideration arrangements, 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, 2022, 2021, 2020, and 2019:2020:

Year Ended January 31,% Change Year Ended January 31,% Change
(in thousands)(in thousands)2021202020192021 - 20202020 - 2019(in thousands)2022202120202022 - 20212021 - 2020
Selling, general and administrativeSelling, general and administrative$478,242 $488,871 $426,183 (2)%15%Selling, general and administrative$376,808 $327,345 $379,234 15%(14)%

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Selling, general and administrative expenses increased approximately $49.5 million, or 15%, from $327.3 million in the year ended January 31, 2021 to $376.8 million in the year ended January 31, 2022. This increase was primarily due to an increase of $14.9 million in employee compensation and related expenses, a $7.0 million increase in contractor costs, and a $3.8 million increase in marketing related expenses compared to the prior year during which we had implemented certain cost reduction measures due to the COVID-19 pandemic, a $17.5 million increase in stock-based compensation expenses due to a shorter vesting schedule for prior year grants which resulted in a greater charge in the current year period, additional performance-based awards in connection with completion of the Spin-Off, and a change in the employee bonus payment structure, $13.3 million of accelerated facility costs and asset impairment charges due to the early termination or abandonment of certain office leases, a $5.0 million increase in professional service fees primarily related to recent business combinations, and $2.6 million of one-time nonrecurring operational costs incurred during the current period related to the Spin-Off, in that they are only necessary because of the Spin-Off, but they are not transactional type costs. These increases in SG&A expenses were partially offset by a $13.4 million decrease in indirect SG&A shared support services and facilities expenses due to a reduction in our shared support services workforce as a result of the completion of the Spin-Off. SG&A expenses were also impacted by a $1.7 million increase due to a change in the fair value of our obligations under contingent consideration arrangements, from a net benefit of $0.8 million for the year ended January 31, 2021 to a net charge of $0.9 million during the year ended January 31, 2022, as a result of revised outlooks for achieving the performance targets under several unrelated contingent consideration arrangements.

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Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Selling, general and administrative expenses decreased approximately $10.7$51.9 million, or 2%14%, from $488.9$379.2 million in the year ended January 31, 2020 to $478.2$327.3 million in the year ended January 31, 2021. This decrease was primarily attributable to cost reduction initiatives we implemented in response to the COVID-19 pandemic, which resulted in a $20.0$13.7 million decrease in travel related costs, a $7.5$7.8 million decrease in contractors used for corporate support activities, and a $7.0$5.6 million decrease in marketing related expenses due to the cancellation of certain sales and marketing events and trade shows. Certain selling, general and administrative costs that were temporarily reduced due to COVID-19 cost-saving initiatives were restored in the latter part of our fiscal second quarter. Additionally, stock-based compensation decreased by $13.6$14.2 million primarily due to a change in employee bonus payment structure and professional fees decreased by $7.9 million due to a shareholder proxy contest that impacted the year ended January 31, 2020. Selling, general, and administrative expenses were also impacted by a $4.0$5.7 million decrease due to the change in the fair value of our obligations under contingent consideration arrangements, from a net benefitexpense of $0.5$4.9 million in the year ended January 31, 2020 to a net benefit of $4.5$0.8 million during the year ended January 31, 2021, as a result of revised outlooks for achieving the performance targets under several unrelated contingent consideration arrangements. These decreases were partially offset by a $41.9 million increase in expenses related to the Spin-Off, a $4.7$4.6 million increase in depreciation expense on fixed assets used for general administration purposes, and a $3.1 million increase in employee compensation and related expenses, excluding stock-based compensation.purposes.

The impact of contingent consideration arrangements on our operating results can vary over time as we revise our outlook for achieving the performance targets underlying the arrangements. This impact on our operating results may be more significant in some periods than 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 number of contingent consideration arrangements in place, the liabilities requiring adjustment in that period, and the net effect of those adjustments.

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, 2022, 2021, 2020, and 2019:2020:

Year Ended January 31,% Change Year Ended January 31,% Change
(in thousands) (in thousands) 2021202020192021 - 20202020 - 2019(in thousands) 2022202120202022 - 20212021 - 2020
Amortization of other acquired intangible assetsAmortization of other acquired intangible assets$30,995 $31,458 $31,010 (1)%1%Amortization of other acquired intangible assets$28,995 $29,777 $30,865 (3)%(4)%

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Amortization of other acquired intangible assets decreased approximately $0.8 million, or 3%, from $29.8 million in the year ended January 31, 2021 to $29.0 million in the year ended January 31, 2022. The decrease was attributable to acquired customer-related intangible assets from historical business combinations becoming fully amortized during the year ended January 31, 2022, partially offset by amortization expense associated with acquired intangible assets from recent business combinations.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Amortization of other acquired intangible assets decreased approximately $0.5$1.1 million, or 1%4%, from $31.5$30.9 million in the year ended January 31, 2020 to $31.0$29.8 million in the year ended January 31, 2021. The decrease was attributable to acquired customer-related intangible assets from historical business combinations becoming fully amortized during the year ended January 31, 2021, partially offset by amortization
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expense associated with acquired intangible assets from business combinations that closed during the prior year, for which a full year of amortization expense iswas reflected in the current year.year ended January 31, 2021.

Further discussion regarding our business combinations appears in Note 5,6, “Business Combinations and Divestitures” to our consolidated financial statements included underin Part II, Item 8 of this report.

Other Expense, Net

The following table sets forth total other expense, net for the years ended January 31, 2022, 2021, 2020, and 2019:2020:

 Year Ended January 31,% Change
(in thousands)2021202020192021 - 20202020 - 2019
Interest income$2,808 $5,620 $4,777 (50)%18%
Interest expense(39,975)(40,378)(37,344)(1)%8%
Other income (expense):   
Foreign currency gains (losses)98 (56)(5,519)*(99)%
(Losses) gains on derivatives(1,362)599 2,511 *(76)%
Change in fair value of future tranche right(56,146)— — *—%
Other, net2,095 (338)(898)*(62)%
Total other (expense) income, net(55,315)205 (3,906)*(105)%
Total other expense, net$(92,482)$(34,553)$(36,473)168%(5)%
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 Year Ended January 31,% Change
(in thousands)2022202120202022 - 20212021 - 2020
Interest income$233 $1,461 $2,111 (84)%(31)%
Interest expense(10,325)(39,803)(40,314)(74)%(1)%
Losses on early retirements of debt(2,474)(143)— **
Other income (expense):   
Foreign currency (losses) gains(1,644)(1,584)672 4%*
(Losses) gains on derivatives(14,374)(1,267)204 **
Fair value change of future tranche right15,810 (56,146)— (128)%*
Other, net5,435 (1,604)(267)**
Total other income (expense), net5,227 (60,601)609 (109)%*
Total other expense, net$(7,339)$(99,086)$(37,594)(93)%164%

* Percentage is not meaningful.

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Total other expense, net, decreased by $91.7 million from $99.1 million in the year ended January 31, 2021 to $7.3 million in the year ended January 31, 2022.

Interest expense decreased to $10.3 million in the year ended January 31, 2022 from $39.8 million in the year ended January 31, 2021 due to lower interest expense related to our 2014 Notes, as a result of the 2014 Notes maturing on June 1, 2021 and our early adoption of ASU No. 2020-06 on February 1, 2021. As a result of this adoption, the 2014 Notes were accounted for as a single liability until maturity as the new accounting guidance eliminated the amortization of the debt discount. Prior to February 1, 2021, the carrying amount of the equity component of the 2014 Notes was recorded as a debt discount and amortized to interest expense. Interest expense related to the amortization of debt discount costs associated with the 2014 Notes was $12.9 million in the year ended January 31, 2021. See Note 1, “Description of Business and Summary of Significant Accounting Policies” in our notes to our consolidated financial statements included in Part II, Item 8 of this report for more information regarding the adoption of ASU No. 2020-06. Interest expense also decreased due to lower interest rates on outstanding borrowings as well as lower outstanding borrowings as a result of the partial prepayment of our 2017 Term Loan in conjunction with the issuance of the 2021 Notes and no outstanding balances under our 2017 Revolving Credit Facility during the year ended January 31, 2022.

During the year ended January 31, 2022, we recorded $2.5 million of losses on early retirements of debt, $2.0 million of which was a result of repaying $309.0 million of our 2017 Term Loan. In April 2021, we also amended the 2017 Credit Agreement and refinanced our 2017 Revolving Credit Facility, which otherwise would have matured on June 29, 2022, resulting in the write off of $0.5 million of unamortized deferred debt issuance costs related to certain lenders who will no longer provide commitments under the 2021 Revolving Credit Facility. Further discussion regarding our 2017 Credit Agreement, 2017 Term Loan and 2021 Revolving Credit Facility appears in Note 8, “Long-term Debt” to our consolidated financial statements included in Part II, Item 8 of this report.

We recorded $1.6 million of net foreign currency losses in each of the years ended January 31, 2022 and 2021. Our foreign currency losses in the current year period resulted primarily from fluctuations associated with the exchange rate movement of the U.S. dollar against the British pound sterling, the Australian dollar, and the Brazilian real.

During the year ended January 31, 2022, we recorded a $14.4 million loss on our interest rate swap as a result of the partial early retirement of our 2017 Term Loan, with no comparable transaction in the prior year period.

During the year ended January 31, 2022, we recorded a non-cash Future Tranche Right revaluation gain of $15.8 million compared to a revaluation loss of $56.1 million during year ended January 31, 2021. The non-cash gain for the current period relates to the final mark-to-market adjustment of the Future Tranche Right, issued in connection with the closing of the Series A Preferred Stock on May 7, 2020 relative to the potential future issuance of the Series B Preferred Stock. The change in fair value was primarily due to a decrease in our stock price from January 31, 2021 to immediately prior to the issuance of the Series B Preferred Stock, which decreased the estimated fair value of the Future Tranche Right. Upon the issuance of the Series B Preferred Stock on April 6, 2021, the Future Tranche Right was settled and no further charges (or benefits) will be recorded. The non-cash charge for the prior year period relates to the change in fair value of the Future Tranche Right primarily due to a significant increase in our stock price during the period, which increased the estimated fair value of the Future Tranche Right. Please refer to Note 10, “Convertible Preferred Stock” and Note 14, “Fair Value Measurements” to our consolidated financial statements included in Part II, Item 8 of this report for additional information regarding the Future Tranche Right.
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We recorded $5.4 million of income within other, net in the year ended January 31, 2022, primarily due to the recognition of a $3.1 million unrealized gain from a fair value adjustment to a noncontrolling equity investment related to an observable price change in the period. During the year ended January 31, 2021, we recorded $1.6 million of expenses within other, net primarily due to fees in connection with our second amendment to the 2017 Credit Agreement.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Total other expense, net, increased by $57.9$61.5 million from $34.6$37.6 million in the year ended January 31, 2020 to $92.5$99.1 million in the year ended January 31, 2021.

Interest income decreased from $5.6$2.1 million in the year ended January 31, 2020 to $2.8$1.5 million in the year ended January 31, 2021 due to a decrease in average interest rates, partially offset by interest earned on higher cash balances.

Interest expense decreased to $40.0$39.8 million in the year ended January 31, 2021 from $40.4$40.3 million in the year ended January 31, 2020 primarily due to lower interest rates on outstanding borrowings discussed in Note 7, “Long-term Debt” to our consolidated financial statements included under Item 8 of this report.borrowings.

We recorded $0.1$1.6 million of net foreign currency gainslosses in the year ended January 31, 2021 compared to $0.1$0.7 million of net foreign currency lossesgains in the year ended January 31, 2020. Our foreign currency gains and losses are primarily the result of fluctuations associated with the fluctuation of the valueexchange rate movement of the U.S. dollar relative to other foreign currencies, mainlyagainst the euro, the Israeli shekel, the Brazilian real, and the British pound sterling.

InDuring the year ended January 31, 2021, there were net losses on derivative financial instruments (not designated as hedging
instruments) of $1.4$1.3 million, compared to $0.6$0.2 million of net gains on such instruments for the year ended January 31, 2020. The net losses induring the current period areyear ended January 31, 2021 were primarily the result of an unrealized loss associated with our interest rate swap contract, and to a lesser extent losses on contracts executed to hedge movements in the exchange rate between the U.S. dollar and the Singapore dollar.contract.

InDuring the year ended January 31, 2021, we recorded a non-cash Future Tranche Right revaluation losscharge of $56.1 million. This non-cash charge for the period relates to the mark-to-market adjustmentchange in fair value of the Future Tranche Right (right(the right of the Apax Investor to purchase the Series B Preferred Stock at a future date), issued in connection with the closing of the Series A Preferred Stock on May 7, 2020. The change in fair value was primarily due to a significant increase in our stock price during the period, which increased the estimated fair value of the Future Tranche Right. Our diluted net income per common share for

During the year ended January 31, 2021, would have been $0.85 higher without this non-cash charge. The Future Tranche Right will be remeasured at each reporting period until the redemption feature is exercised in connection with the sale and issuance of the Series B Preferred Stock, which is expected to occur during our first fiscal quarter ending April 30, 2021. Following the closing of the Series B Preferred Stock issuance, the Future Tranche Right will cease to exist, and no further charges (or benefits) will be recorded. Please refer to Note 9, “Convertible Preferred Stock” and Note 13, “Fair Value Measurements” to our consolidated financial statements included under Item 8 of this report for additional information regarding the Future Tranche Right.

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Wewe recorded $2.1$1.6 million of expenses within other, net income in the year ended January 31, 2021 compared to $0.3 million of other, net expenses infor the year ended January 31, 2020. The other, net income in the current period is due primarily to a $3.2 million unrealized gain from a fair value adjustment to a noncontrolling equity investment related to an observable price change in the period and a $0.6 million realized gain recognized upon the receipt of proceeds related to the partial sale of the same equity investmentexpenses during the period, partially offset byyear ended January 31, 2021 were primarily due to fees in connection with our second amendment to the 2017 Credit Agreement. Further discussion of the second amendment to the 2017 Credit Agreement appears in Note 7,8, “Long-Term Debt” to our consolidated financial statements included underin Part II, Item 8 of this report.

Provision for Income Taxes

The following table sets forth our provision for income taxes from continuing operations for the years ended January 31, 2022, 2021, 2020, and 2019:2020:

Year Ended January 31, Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Provision for income taxesProvision for income taxes$16,330 $17,620 $7,542 Provision for income taxes$23,853 $6,937 $6,943 

Intra-period allocation rules require us to allocate our provision for income taxes between continuing operations and other categories such as discontinued operations or comprehensive income (loss). As described in Item 8, Note 2, “Discontinued Operations”, the results of Cognyte have been reported as discontinued operations for all periods presented.

Year Ended January 31, 2022 compared to Year Ended January 31, 2021. Our effective income tax rate was 60.4% for the year ended January 31, 2022, compared to a negative effective income tax rate of 16.6% for the year ended January 31, 2021. For the year ended January 31, 2022, our effective income tax rate was higher than the U.S. federal statutory income tax rate of 21.0% primarily due to the U.S. taxation of certain foreign income and impact of a tax rate change in a foreign jurisdiction, offset by the change in the fair value of the Future Tranche Right associated with the Preferred Stock issuance. The effective tax rate is further impacted by the mix and levels of income and losses among taxing jurisdictions, changes in valuation allowances, and changes in unrecognized income tax benefits.
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For the year ended January 31, 2021, our effective income tax rate was lower than the U.S. federal statutory income tax rate of 21.0% primarily due to the impact of U.S. taxation of certain foreign activities, and the change in the fair value of the Future Tranche Right associated with the Preferred Stock issuance. The effective rate is further impacted by the mix and levels of income and losses among taxing jurisdictions, changes in valuation allowances, and changes in unrecognized income tax benefits.

Year Ended January 31, 2021 compared to Year Ended January 31, 2020. Our effective income tax rate was 100.7%negative 16.6% for the year ended January 31, 2021, compared to ana negative effective income tax rate of 33.1%17.5% for the year ended January 31, 2020. For the year ended January 31, 2021, our effective income tax rate was higherlower than the U.S. federal statutory income tax rate of 21.0% primarily due to a non-deductible expense for the change in fair value of the Future Tranche Right of $11.8 million and the impact of U.S. taxation of certain foreign activities and the change in the fair value of $4.5 million.the Future Tranche Right associated with the Preferred Stock. The effective tax rate is further impacted by the mix and levels of income and losses among taxing jurisdictions, changes in valuation allowances, and changes in unrecognized income tax benefits.

For the year ended January 31, 2020, our effective income tax rate was higherlower than the U.S. federal statutory income tax rate of 21.0% primarily due to the impact of U.S. taxation of certain foreign activities, of $12.0 million, offset by a net tax benefit of $6.7 million recorded in relation to changes in unrecognized income tax benefits and other items as a result of an audit settlement in a foreign jurisdiction, the mix and levels of income and losses among taxing jurisdictions, and other changes in valuation allowances and in unrecognized income tax benefits.

Net Income from Discontinued Operations

As more fully described in Note 2, “Discontinued Operations” to our consolidated financial statements included in Part II, Item 8 of this report, on February 1, 2021, we completed the Spin-Off of our Cognyte Business into an independent public company, Cognyte. As a result, the historical results of operations for Cognyte have been included within discontinued operations in our consolidated financial statements.


Liquidity and Capital Resources

Overview

Our primary recurring source of cash is the collection of proceeds from the sale of products and services to our customers, including cash periodically collected in advance of delivery or performance.

On December 4, 2019, we announced that Valor Parent LP (the “Apax Investor”), an affiliate of the Apax Partners (“Apax”)Investor would make an investment in us in an amount of up to $400.0 million. Under the terms of the Investment Agreement, dated as of December 4, 2019, the Apax Investor initially purchased $200.0 million of our Series A Preferred Stock whichin an issuance that closed on May 7, 2020, with an initial conversion price of $53.50 per share. The initial conversion price represented a conversion premium of 17.1% over the volume-weighted average price per share of our common stock over the 45 consecutive trading days immediately prior to the signing date. Following the closing of the Series A Preferred Stock investment, Apax’s ownership in us on an as-converted basis was approximately 5.5% as of January 31, 2021. In accordance with the Investment Agreement, the Series A Preferred Stock did not participate in the Spin-Off distribution of the Cognyte shares described above and the Series A conversion price was instead adjusted to $36.38 per share based on the ratio of the relative trading prices of Verint and Cognyte following the Spin-Off. Based on the adjusted conversion price, Apax’s ownership in us on an as-converted basis is currently approximately 7.5%. In connection with the completion of the Spin-Off, the Apax Investor will purchase, subject to certain conditions,purchased $200.0 million of our Series B Preferred Stock in Verint, which is expected to occur during our first fiscal quarter endingan issuance that closed on April 30,6, 2021. The Series B Preferred Stock will beis convertible at a conversion price of $50.25, based in part on our trading price over the 20 trading day period following the Spin-Off. Following the issuanceAs of the Series B Preferred Stock,January 31, 2022, Apax’s ownership in us on an as-converted basis is expected to be between 12% and 13%was approximately 12.9%.

Each series of convertible preferred stock will payPreferred Stock pays dividends at an annual rate of 5.2% until the 48-month anniversary of the closing of the Series A Preferred Stock investment, and thereafter at a rate of 4.0%, subject to adjustment under certain circumstances. Dividends will be cumulative and payable semiannually in arrears in cash. All dividends that are not paid in cash will remain accumulated dividends with respect to each share of convertible preferred stock. During the year ended January 31,
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2021, wePreferred Stock. We used the proceeds from the initial Apax investment to repay outstanding indebtedness, including borrowings under our revolving credit facility, that were used to fund a portion of our stock repurchase programprograms (as described below under “Liquidity and Capital Resources Requirements”), and/or for general corporate purposes. We plan to use the proceeds from the Series B Preferred Stock investment to repay outstanding indebtedness and/or for general corporate purposes. ReferPlease refer to Note 9,10, “Convertible Preferred Stock”, to our consolidated financial statementstatements included underin Part II, Item 8 of this report for more information regarding the Apax convertible preferred stock investment.

Our primary recurring use of cash is payment of our operating costs, which consist primarily of employee-related expenses, such as compensation and benefits, as well as general operating expenses for cloud operations, marketing, facilities and overhead costs, and capital expenditures. We also utilize cash for debt service, stock repurchases, to pay dividends on the convertible preferred stock,Preferred Stock, and periodically for business acquisitions. Cash generated from operations, along with our existing cash, cash equivalents, and short-term investments, are our primary sources of operating liquidity, and we believe that our operating liquidity is currently
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sufficient to support our business operations, including debt service, capital expenditure requirements, and the payment of dividends on the convertible preferred stock.

On June 29, 2017, we entered into the 2017 Credit Agreement with certain lenders, and terminated a prior credit agreement. The 2017 Credit Agreement was amended on January 31, 2018 (the “2018 Amendment”), and again on June 8, 2020 (the “2020 Amendment”), and again on April 9, 2021 (the “2021 Amendment”). Pursuant to the 2020 Amendment, we were permitted to effect the Spin-Off within the parameters set forth in the 2017 Credit Agreement, as amended, and our 2014 Notes arewould not be deemed to be outstanding if such 2014 Notes arewere cash collateralized in accordance with the 2017 Credit Agreement, as amended, for purposes of the determination of the maturity dates of the 2017 Term Loan and the 2017 Revolving Credit Facility. On February 26, 2021, we deposited approximately $390.0 million of cash, representing the full principal amount of the 2014 Notes then outstanding, as well as the final interest payment on the 2014 Notes due at maturity, into an escrow account maintained by JPMorgan Chase Bank, N.A., as escrow agent, in satisfaction of the cash collateralization provisions of the 2020 Amendment. On May 28, 2021, prior to the June 1, 2021 maturity date of the 2014 Notes, we used the escrowed cash to settle the principal amount, including the final interest payment, and the incremental conversion value of $57.7 million was settled with approximately 1,250,000 shares of common stock. Further discussion of our 2017 Credit Agreement as amended, appears below, under “Financing Arrangements”.

We have historically expanded our business in part by investing in strategic growth initiatives, including acquisitions of products, technologies, and businesses. We may finance such acquisitions using cash, debt, stock, or a combination of the foregoing, however, we have used cash as consideration for substantially all of our historical business acquisitions, including approximately $74.1$57.0 million of net cash expended for business acquisitions during the year ended January 31, 2020.2022. There were no business acquisitions during the year ended January 31, 2021. Please refer to Note 6, “Business Combinations”, to our consolidated financial statements included in Part II, Item 8 of this report for more information regarding our recent business combinations.

We continually examine our options with respect to terms and sources of existing and future short-term and long-term capital resources to enhance our operating results and to ensure that we retain financial flexibility, and may from time to time elect to raise capital through the issuance of additional equity or the incurrence of additional debt. In connection with the completion of the Spin-Off, the Apax Investor purchased $200.0 million of our Series B Preferred Stock in an issuance that closed on April 6, 2021. Additionally, we issued $315.0 million in aggregate principal amount of 0.25% convertible senior notes due April 15, 2026, unless earlier converted by the holders pursuant to their terms, on April 9, 2021 (the “2021 Notes”). We used a portion of the net proceeds from the issuance of the 2021 Notes to pay the costs of the capped call transactions. We also used a portion of the net proceeds from the issuance of the 2021 Notes, together with the net proceeds from the issuance of the Series B Preferred Stock, to repay a portion of the outstanding indebtedness under our 2017 Credit Agreement, to terminate an interest rate swap agreement, and to repurchase shares of our common stock. The remainder is being used for working capital and other general corporate purposes.

A considerable portion of our operating income is earned outside the United States. Cash, cash equivalents, short-term investments, and restricted cash and cash equivalents, and restricted bank time deposits (excluding any long-term portions) held by our subsidiaries outside of the United States were $348.1$140.2 million and $426.6$241.1 million as of January 31, 20212022 and 2020,2021, respectively, and are generally used to fund the subsidiaries’ operating requirements and to invest in growth initiatives, including business acquisitions. These subsidiaries also held long-term restricted cash and cash equivalents, and restricted bank time deposits of $15.7$0.4 million and $26.3$0.6 million, at January 31, 20212022 and 2020,2021, respectively.

We currently intend to continue to indefinitely reinvest a portion of the earnings of our foreign subsidiaries, which, as a result of the 2017 Tax Cuts and Jobs Act, may now be 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 otherwise consider 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 onthat earnings of our foreign subsidiaries have been subject to U.S. taxation as of January 31, 2021,2022, and withholding taxes of approximately $16.2$1.0 million accrued as of January 31, 2021,2022 with respect to certain identified cash that may be repatriated to the United States, we have not provided tax on the outside basis difference of foreign subsidiaries nor have we provided for any additional withholding or other tax that may be applicable should a future distribution be made from any unremitted earnings of foreign subsidiaries. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the total amount of income and withholding taxes that would have to be provided on such earnings.

The following table summarizes our total cash, cash equivalents, restricted cash, cash equivalents, and bank time deposits, and short-term investments, as well as our total debt, as of January 31, 20212022 and 2020:2021:
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January 31,January 31,
(in thousands) (in thousands) 20212020(in thousands) 20222021
Cash and cash equivalentsCash and cash equivalents$663,843 $379,146 Cash and cash equivalents$358,805 $585,273 
Restricted cash and cash equivalents, and restricted bank time deposits (excluding long term portions)Restricted cash and cash equivalents, and restricted bank time deposits (excluding long term portions)27,057 43,860 Restricted cash and cash equivalents, and restricted bank time deposits (excluding long term portions)15 
Short-term investmentsShort-term investments51,013 20,215 Short-term investments765 46,300 
Total cash, cash equivalents, restricted cash and cash equivalents, restricted bank time deposits, and short-term investmentsTotal cash, cash equivalents, restricted cash and cash equivalents, restricted bank time deposits, and short-term investments$741,913 $443,221 Total cash, cash equivalents, restricted cash and cash equivalents, restricted bank time deposits, and short-term investments$359,576 $631,588 
Total debt, including current portionsTotal debt, including current portions$789,494 $837,048 Total debt, including current portions$406,954 $789,494 

Capital Allocation Framework

As noted above, after cash utilization required for working capital, capital expenditures, required debt service, and the payment of dividends on the convertible preferred stock,Preferred Stock, we expect that our primary usage of cash will be for business combinations, the repayment of outstanding indebtedness, andand/or stock repurchases under repurchase programs that may be in place from time to repurchase shares of common stock under our new stock repurchase programtime (subject to the terms of our 2017 Credit Agreement). Further discussion regarding this new stock repurchase program appears inPlease see the “Liquidity and Capital Resources Requirements” section below.below for further information about our recent stock repurchase programs.

Consolidated Cash Flow Activity

The following table summarizes selected items from our consolidated statements of cash flows for the years ended January 31, 2022, 2021, 2020, and 2019:2020:
 Year Ended January 31,
(in thousands)202120202019
Net cash provided by operating activities$253,846 $237,904 $215,251 
Net cash used in investing activities(37,243)(125,801)(175,723)
Net cash provided by (used in) financing activities71,933 (111,322)(21,881)
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents(60)(1,823)(3,158)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents$288,476 $(1,042)$14,489 
 Year Ended January 31,
(in thousands)202220212020
Net cash provided by operating activities from continuing operations$134,654 $159,653 $126,998 
Net cash used in investing activities from continuing operations(35,900)(54,015)(96,261)
Net cash (used in) provided by financing activities from continuing operations(430,123)76,810 (107,903)
Effect of foreign currency exchange rate changes on cash and cash equivalents(841)(60)(1,823)
Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalents from discontinued operations(9,055)106,088 77,947 
Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalents$(341,265)$288,476 $(1,042)

Our operatingfinancing activities generated $253.8from continuing operations used $430.1 million of net cash and our investing activities from continuing operations used $35.9 million of net cash during the year ended January 31, 2021,2022, which was supplemented by $71.9 million of net cash provided by financing activities, and partially offset by $37.2$134.7 million of net cash used in investinggenerated from operating activities during this period.from continuing operations. Further discussion of these items appears below.

Net Cash Provided by Operating Activities from Continuing Operations

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 from continuing operations generated $253.8$134.7 million of net cash during the year ended January 31, 2022, compared to $159.7 million generated during the year ended January 31, 2021. Our operating cash flow in the current year decreased despite a year-over-year increase in collections due to lower cash operating costs in the prior year as a result of the COVID-19 pandemic, one-time separation costs and higher income tax payments related to the Spin-Off in the current year period, and a greater portion of bonuses being paid in cash compared to the prior year.

Operating activities from continuing operations generated $159.7 million of net cash during the year ended January 31, 2021, compared to $237.9$127.0 million generated during the year ended January 31, 2020. Our improved operating cash flow in the current year ended January 31, 2021 was primarily due to a $2.7 million decreasecost reduction initiatives we implemented in the non-financing portion of payments under contingent consideration arrangements, a favorable impact on operating cash flow from changes in operating assets and liabilities and the net effect of non-cash items, as comparedresponse to the prior period,COVID-19 pandemic during the first half of the year, partially offset by $8.9$8.0 million of higher combined interest and net income tax payments and a net loss forduring the year ended January 31, 2021 as compared to net income in the prior year.

Our cash flow from operating activities can fluctuate from period to period due to several factors, including the timing of our billings and collections, the timing and amounts of interest, income tax and other payments, and our operating results.

Net Cash Used in Investing Activities from Continuing Operations
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During the year ended January 31, 2022, our investing activities from continuing operations used $35.9 million of net cash, consisting primarily of $57.0 million of net cash utilized for business combinations and $24.5 million of payments for property, equipment, and capitalized software development, partially offset by a $45.5 million of net sales and maturities of short-term investments and a $0.1 million decrease in restricted bank time deposits.

During the year ended January 31, 2021, our investing activities from continuing operations used $37.2$54.0 million of net cash, including $40.3consisting primarily of $32.8 million of net purchases of short-term investments and $21.3 million of payments for property, equipment, and capitalized software development and $30.2 million of net purchases of short-term investments,costs, partially offset by a $31.2$0.1 million decrease in restricted bank time deposits during the period. Restricted bank time deposits are typically deposits, which do not qualify as cash equivalents, used to secure bank guarantees in connection with sales contracts, the amounts of which will fluctuate from period to period.deposits.

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During the year ended January 31, 2020, our investing activities from continuing operations used $125.8$96.3 million of net cash, including $74.1consisting primarily of $55.4 million of net cash utilized for business acquisitions, $52.3combinations, $30.9 million of payments for property, equipment, and capitalized software development costs, and $12.5 million of which $4.0 million relates to the separationnet purchases of our businesses as described above, and a $14.2 million increase in restricted bank time deposits during the period. Restricted bank time deposits are typically deposits, which do not qualify as cash equivalents, used to secure bank guarantees in connection with sales contracts, the amounts of which will fluctuate from period to period. The cash used by these investing activities wasshort-term investments, partially offset by $11.9$2.9 million of net maturities and sales of short-term investments and proceeds from settlements of our derivative financial instruments not designated as hedges.

We had no significant commitments for capital expenditures at January 31, 2021.2022.

Net Cash (Used in) Provided by (Used in) Financing Activities from Continuing Operations

For the year ended January 31, 2022, our financing activities from continuing operations used $430.1 million of net cash primarily due to $386.9 million of payments to settle our 2014 Notes, $310.1 million of repayments of borrowings under our 2017 Term Loan, $114.7 million of net cash transferred to Cognyte upon the completion of the Spin-Off, $76.0 million of payments to repurchase common stock, $41.1 million of payments to purchase the capped calls in connection with the issuance of our 2021 Notes, $16.5 million paid to terminate our interest rate swap, $12.9 million of payments of Preferred Stock dividends, $10.7 million paid for debt-related issuance fees, $4.5 million for the financing portion of payments under contingent consideration arrangements related to prior business combinations, $4.5 million paid to exercise an option to acquire the noncontrolling interests of two majority owned subsidiaries, $3.1 million of finance lease payments, and a $1.1 million distribution to a noncontrolling shareholder of one of our subsidiaries, partially offset by $315.0 million of proceeds from the issuance of our 2021 Notes, $198.7 million of net proceeds from the issuance of the Series B Preferred Stock, and $38.3 million from a dividend and other settlements received from Cognyte during the period in connection with the Spin-Off.

For the year ended January 31, 2021, our financing activities from continuing operations generated $71.9$76.8 million of net cash, primarily due to $197.3 million of net proceeds from the issuance of preferred stock and $155.0 million of proceeds from borrowings under our revolving credit facility used to fund our stock repurchase program,share repurchases, partially offset by $207.2 million for repayments of borrowings and other financing obligations, $36.8 million of payments for share repurchases, $14.1to repurchase common stock, $13.0 million of payments to repurchase $13.1 million principal amount of our 2014 Notes, $9.3 million for the financing portion of payments under contingent consideration arrangements related to prior business combinations, $13.0 million of payments to repurchase $13.1 million principal amount of our convertible notes,a $5.4 million distribution to a noncontrolling shareholder of distributions and dividends to the noncontrolling shareholders of twoone of our subsidiaries, $2.3 million of payments for debt-related costs, and $1.6 million of payments of Series A Preferred Stockpreferred stock dividends.

For the year ended January 31, 2020, our financing activities from continuing operations used $111.3$107.9 million of net cash, the most significant portions of which were $113.7 million of payments for share repurchases, $24.5to repurchase common stock, $21.0 million for the financing portion of payments under contingent consideration arrangements related to prior business combinations, $6.5 million for repayments of borrowings and other financing obligations, payments of $6.0 million related to deferred purchase price of a prior period business combination, $6.5 million for repayments of borrowings and other financing obligations, anda $5.5 million distribution to a noncontrolling shareholder of distributions and dividends to the noncontrolling shareholders of twoone of our subsidiaries. The cash used by these financing activities was partially offset by $45.0 million of proceeds from borrowings under our revolving credit facility used to fund our stock repurchase program.share repurchases.

Liquidity and Capital Resources Requirements

Based on past performance and current expectations, we believe that our cash, cash equivalents, short-term investments and cash generated from operations will be sufficient to meet anticipated operating costs, required payments of principal and interest, dividends on convertible preferred stock,Preferred Stock, working capital needs, ordinary course capital expenditures, research and development spending, and other commitments for at least the next 12 months. Currently, we have no plans to pay any cash dividends on our common stock, which are subject to certain restrictions under our 2017 Credit Agreement.

Our liquidity could be negatively impacted by a decrease in demand for our products and service and support,services, including the impact of changes in customer buying behavior due to circumstances over which we have no control, including, but not limited to, the
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effects of the COVID-19 pandemic. If we determine to make additional business acquisitions or otherwise require additional funds, we may need to raise additional capital, which could involve the issuance of additional equity or debt securities or an increase in our borrowings under our credit facility.

On December 4, 2019, we announced that our board of directors had authorized a stock repurchase program whereby we were authorized to repurchase up to $300.0 million of common stock over the period ending on February 1, 2021. During the year ended January 31, 2021, we acquired approximately 613,000 shares of our common stock at a cost of $34.0 million under this program. During the year ended January 31, 2020, we acquired approximately 2,119,000 shares of our common stock at a cost of $116.1$116.1 million under this program, of which $2.8 million was settled in cash in February 2020. Total repurchases under the program, which expired on February 1, 2021, were $150.1 million.

On March 31, 2021, we announced that our board of directors had authorized a new stock repurchase program whereby we maywere authorized to repurchase up to a number of shares of common stock approximately equal to the number of shares to be issued as equity compensation during the fiscal year ending January 31, 2022. Repurchases are expectedDuring the year ended January 31, 2022, we acquired approximately 1,600,000 shares of our common stock at a cost of $75.4 million under this program.

On December 2, 2021, we announced that our board of directors had authorized a new stock repurchase program for the fiscal
year ending January 31, 2023 whereby we may repurchase up to 1.5 million shares of common stock to offset dilution from our
equity compensation program for such fiscal year. Subsequent to January 31, 2022, we repurchased 1.5 million shares under this stock repurchase program with available cash in the United States. On March 22, 2022, our board of directors authorized an additional 500,000 shares of common stock to be financed with available cash of up to 60% of our free cash flow during such period (as determined by management), subject to compliance with applicable laws, rules and regulations.repurchased under this program. Please refer to Note 19,21, “Subsequent Events”Event”, for more information regarding this stock repurchase program.

Financing Arrangements

2021 Notes

On April 9, 2021, we issued $315.0 million in aggregate principal amount of 0.25% convertible senior notes due April 15, 2026, unless earlier converted by the holders pursuant to their terms. The 2021 Notes are unsecured and pay interest in cash semiannually in arrears at a rate of 0.25% per annum.

We used a portion of the net proceeds from the issuance of the 2021 Notes to pay the costs of the capped call transactions described below. We also used a portion of the net proceeds from the issuance of the 2021 Notes, together with the net proceeds from the April 6, 2021 issuance of $200.0 million of Series B Preferred Stock, to repay a portion of the outstanding indebtedness under our 2017 Credit Agreement described below, to terminate an interest rate swap agreement, and to repurchase shares of our common stock. The remainder is being used for working capital and other general corporate purposes.

The 2021 Notes are convertible into shares of our common stock at an initial conversion rate of 16.1092 shares per $1,000 principal amount of 2021 Notes, which represents an initial conversion price of approximately $62.08 per share, subject to adjustment upon the occurrence of certain events, and subject to customary anti-dilution adjustments. Prior to January 15, 2026, the 2021 Notes will be convertible only upon the occurrence of certain events and during certain periods, and will be convertible thereafter at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2021 Notes. Upon conversion of the 2021 Notes, holders will receive cash up to the aggregate principal amount, with any remainder to be settled with cash or common stock, or a combination thereof, at our election. As of January 31, 2022, the 2021 Notes were not convertible.

Based on the closing market price of our common stock on January 31, 2022, the if-converted value of the 2021 Notes was less than their aggregate principal amount.

Capped Calls

In connection with the issuance of the 2021 Notes, on April 6, 2021 and April 8, 2021, we entered into capped call transactions (the “Capped Calls”) with certain counterparties. The Capped Calls are intended generally to reduce the potential dilution to our common stock upon any conversion of the 2021 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2021 Notes, in the event that at the time of conversion our common stock price exceeds the conversion price, with such reduction and/or offset subject to a cap.

The Capped Calls exercise price is equal to the $62.08 initial conversion price of each of the 2021 Notes, and the cap price is $100.00, each subject to certain adjustments under the terms of the Capped Calls. The Capped Calls have the economic effect of
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increasing the conversion price of the 2021 Notes from $62.08 per share to $100.00 per share. Our exercise rights under the Capped Calls generally trigger upon conversion of the 2021 Notes, and the Capped Calls terminate upon maturity of the 2021 Notes, or the first day the 2021 Notes are no longer outstanding. As of January 31, 2022, no Capped Calls have been exercised.

1.50% Convertible SeniorPursuant to their terms, the Capped Calls qualify for classification within stockholders’ equity, and their fair value is not remeasured and adjusted, as long as they continue to qualify for stockholders’ equity classification. We paid approximately $41.1 million for the Capped Calls, including applicable transaction costs, which was recorded as a reduction to additional paid in capital.

2014 Notes

On June 18, 2014, we issued $400.0 million in aggregate principal amount of 1.50% convertible senior notes duewith a maturity date of June 1, 2021 (“(the “2014 Notes”), unless earlier converted by the holders pursuant to their terms.. Net proceeds from the 2014 Notes after underwriting discounts were $391.9 million. The 2014 Notes paypaid interest in cash semiannually in arrears at a rate of 1.50% per annum.

The 2014 Notes were issued concurrently with our public issuance of 5,750,000 shares of common stock, the majority of the combined net proceeds of which were used to partially repay certain indebtedness under a prior credit agreement.

The Notes are unsecured and are convertible into cash for the principal amount outstanding, with the incremental conversion value settled in shares. On February 26, 2021, we deposited approximately $390.0 million of cash, representing the full principal amount of the 2014 Notes then outstanding as well as the final interest payment on the 2014 Notes due at maturity, into an escrow account to cash collateralize the 2014 Notes. On May 28, 2021, prior to the maturity of the 2014 Notes on June 1, 2021, we paid an aggregate of $389.8 million in cash for the settlement of the 2014 Notes, which included $386.9 million in satisfaction of the outstanding principal of the 2014 Notes and $2.9 million related to the final interest payment on the 2014 Notes. We currently expectfunded the repayment of the outstanding principal amount of the 2014 Notes and accrued interest thereon using the cash we had placed in escrow. Additionally, the 2014 Notes had an incremental conversion value of $57.7 million, as the market value per share of our common stock, as measured under the terms of the 2014 Notes, was greater than the conversion price of the 2014 Notes. We issued approximately 1,250,000 shares of common stock to retire the holders of the 2014 Notes at or prior to maturity using our existing cash (includingas payment of the amounts in escrow) and/or with proceedsconversion premium, which we issued from the issuance of new equity or debt.treasury stock.

As of January 31, 2021, the 2014 Notes had a conversion rate of 15.5129 shares of common stock per $1,000 principal amount of 2014 Notes, which represented an effective conversion price of approximately $64.46 per share of common stock and would have resulted in the issuance of approximately 6,002,000 shares of common stock if all of the 2014 Notes were converted. Based onconverted and the closing market price of ourconversions were settled entirely in common stock on January 31, 2021, the if-converted value of the Notes was approximately $56.2 million greater than the aggregate principal amount of the Notes.stock. As a result of the Spin-Off, the conversion rate was adjusted to 24.6622 shares of common stock per $1,000 principal amount of 2014 Notes, which representsrepresented an effective conversion price of $40.55 per share of common stock and would resulthave resulted in the issuance of approximately 9,541,000 shares of common stock if all of the 2014 Notes had been converted prior to maturity and the conversions were converted. Upon adjustment of the conversion ratio on the date of Spin-Off, the if-converted value of the Notes continued to be greater than the aggregate principal amount of the Notes.settled entirely in common stock.

During the year ended January 31, 2021, we repurchased $13.1 million principal amount of our 2014 Notes (the “Repurchased 2014 Notes”) in open market transactions for an aggregate of $13.0 million in cash. As of January 31, 2021, the outstanding principal of the Notes was $386.9 million, which is classified within current maturities of long-term debt on our consolidated balance sheet as the Notes are due June 1, 2021.

Note Hedges and Warrants

Concurrently with the issuance of the 2014 Notes, we entered into convertible note hedge transactions (the “Note Hedges”) and sold warrants (the “Warrants”). Prior to the Spin-Off, the combination of the Note Hedges and the Warrants served to increase the effective initial conversion price for the 2014 Notes to $75.00 per share. Subsequent to the Spin-Off, as a result of the conversion rate adjustments, the Note Hedges and the Warrants will serveserved to increase the effective conversion price for the 2014 Notes to $47.18 per share. The Note Hedges and Warrants arewere each separate instruments from the 2014 Notes.

Note Hedges

Pursuant to the Note Hedges, we purchased call options on our common stock, under which we havehad the right to acquire from the counterparties up to approximately 6,205,000 shares of our common stock, subject to customary anti-dilution adjustments, at a price of $64.46, which equaled the initial conversion price of the 2014 Notes. As a result of the Spin-Off, on February 1, 2021, the call options on our stock were adjusted to allow us to purchase up to 9,541,0009,865,000 shares of our common stock at a price of $40.55, which iswas equal to the adjusted conversion price of the 2014 Notes. Our exercise rights underWe were permitted to settle the Note Hedges generally trigger upon conversion of the Notes and the Note Hedges terminate upon maturity of the Notes, or the first day the Notes are no longer outstanding. The Note Hedges may be settled in cash, shares of our common stock, or a combination thereof, at our option, and arethey were intended to reduce our exposure to potential dilution upon conversion of the 2014 Notes. As we intend to settle the principal amount of the Notes in cash,We paid $60.8 million for the Note Hedges, will be usedwhich was recorded as a charge to additional paid-in capital. Our exercise rights under the Note Hedges were automatically triggered upon conversion of any 2014 Notes and the Note Hedges otherwise terminated upon maturity of the 2014 Notes, on June 1, 2021. In connection
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with the maturity of the 2014 Notes on June 1, 2021, we received approximately 1,250,000 shares of our common stock from the counterparties under the Note Hedges, which offset any potentialthe dilution resulting from the settlement of the conversion ifpremium on the 2014 Notes as the market value per share of our common stock, as measured under the terms of the Note Hedges, iswas greater than the strike price of the Note Hedges. We paid $60.8 million for the Note Hedges, which was recorded as a reduction to additional paid-in capital. As of January 31, 2021, we had not purchased any shares of our common stock under the Note Hedges.

The Note repurchases executedRepurchased 2014 Notes acquired during the year ended January 31, 2021 as described above did not change the number of common shares subject to the Note Hedges. However, since a Note conversion is a prerequisite to exercisingHedges as the call rightcounterparties agreed that the options under the Note Hedges remained outstanding notwithstanding such repurchase. Upon maturity of the number2014 Notes, we received approximately 42,000 shares of our common shares subjectstock from the counterparties to call under the Note Hedges was effectively reduced sinceas reimbursement for the repurchased Notes can no longer be converted.in-the-money portion of the Repurchased 2014 Notes.

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Warrants

We sold the Warrants to several counterparties. The Warrants initially provided the counterparties rights to acquire from us up to approximately 6,205,000 shares of our common stock at a price of $75.00 per share. As a result of the Spin-Off, the terms of the Warrants now provideprovided the counterparties rights to acquire from us up to approximately 9,541,0009,865,000 shares of our common stock at a price of $47.18 per share. The Warrants expire incrementally on a series of expiration dates beginning in August 2021. At expiration, if the market price per share of our common stock exceeds the strike price of the Warrants, we will be obligated to issue shares of our common stock having a value equal to such excess. The Warrants could have a dilutive effect on net income per share to the extent that the market value of our common stock exceeds the strike price of the Warrants. Proceeds from the sale of the Warrants were $45.2 million and were recorded as additional paid-in capital. AsThe Warrants expired incrementally on a series of expiration dates between August 30, 2021 and January 21, 2022. At each expiration date the Warrants were exercised where the market price per share of our common stock exceeded the strike price of the Warrants, and we issued an aggregate of 293,143 shares of our common stock as part of the cashless exercise of approximately 5,031,000 Warrants. The Warrants had a dilutive effect on net income per share to the extent that the average market value of our common stock, exceeded the strike price of the Warrants. There are no Warrants outstanding as of January 31, 2021, no Warrants had been exercised and all Warrants remained outstanding.2022.

Credit Agreements

On June 29, 2017, we entered into the 2017 Credit Agreementa credit agreement with certain lenders, and terminated a prior credit agreement. The credit agreement was amended in 2018, 2020, and 2021, as further described below (as amended, the “2017 Credit Agreement”).

The 2017 Credit Agreement currently 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”), of which $100.0 million and $410.1 million was outstanding at January 31, 2022 and 2021, respectively, and a $300.0 million revolving credit facility maturing on June 29, 2022April 9, 2026 (the “2021 Revolving Credit Facility”), which refinanced our prior $300.0 million revolving credit facility (the “2017 Revolving Credit Facility”), subject to increase 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 were used to repay all outstanding term loans under our prior credit agreement.

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 remain outstanding, unless such outstanding Notes are cash collateralized pursuant to the 2020 Amendment to the 2017 Credit Agreement, as further described below.

The 2017 Term Loan was subject to an original issuance discount of approximately $0.5 million. This discount is being amortized as interest expense over the 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 the 2017 Credit Agreement), plus in each case a margin.

We are requiredDuring the three months ended April 30, 2021, in addition to payour regular quarterly $1.1 million principal payment, we repaid $309.0 million of our 2017 Term Loan, reducing the outstanding balance to $100.0 million. As a commitment feeresult, $1.8 million of deferred debt issuance costs and $0.2 million of unamortized discount associated with respect to unused availability under the 2017 Revolving Credit Facility at a rate per annum determined by reference toTerm Loan were written off, and are included within losses on early retirements of debt on our Consolidated Total Debt to Consolidated EBITDA (each as defined inconsolidated statement of operations for the 2017 Credit Agreement) leverage ratio (the “Leverage Ratio”).year ended January 31, 2022.

The 2017 Term Loan requires quarterly principal payments of approximately $1.1 million, which commenced on August 1, 2017, with the remaining balance due 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 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 of the impact of the 2018 Amendment was accounted for as a debt modification. For the portionmaturity dates of the 2017 Term Loan which was considered extinguished and replaced by new loans, we wrote off $0.2 million of unamortized deferred debt issuance costs as a loss2017 Revolving Credit Facility would have been accelerated to March 1, 2021 if on early retirement of debt during the three months ended January 31, 2018. The remaining unamortized deferred debt issuance costs and discount are being amortized over the remaining term of the 2017 Term Loan.

On June 8, 2020, we entered intosuch date any 2014 Notes remained outstanding, unless such outstanding 2014 Notes were cash collateralized pursuant to a second amendment to the 2017 Credit Agreement (the “2020 Amendment”)., entered into on June 8, 2020. Pursuant to the 2020 Amendment, we were permitted to effect the previously announced Spin-Off of our Cyber Intelligence Solutions business within the parameters set forth in the 2017 Credit Agreement, as amended, and our 2014 Notes willwould not be deemed to be outstanding if such Notes are cash collateralized in accordance with the 2017 Credit Agreement, as amended, for purposes of the determination of the maturity dates of the 2017 Term Loan and the 2017 Revolving Credit Facility discussed above.above if such 2014 Notes were cash collateralized in accordance with the 2017 Credit Agreement. On February 26, 2021, as noted above, we deposited approximately $390 million of cash representingcollateralized the full principal amount of the2014 Notes then outstanding as well as the final interest payment on the Notes due at maturity, into an escrow account in satisfaction of the cash collateralization provisions of the 2020 Amendment. Accordingly, the maturity dates of the term loan2017 Term Loan and revolving credit facility will2017 Revolving Credit Facility were not be accelerated to March 1, 2021 as a result2021. In connection with, the maturity of any Convertiblethe 2014 Notes, remaining outstanding on or after that date. Referwe used the escrowed cash to Note 19, “Subsequent Events” to our consolidated financial statements included under Part II, Item 8settle the principal amount, including the final interest payment, and the incremental conversion value of this report for more information regarding the cash collateralization$57.7 million was settled with approximately 1,250,000 shares of our Notes.common stock.

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We currently expectOn April 9, 2021, we amended the 2017 Credit Agreement (the “2021 Amendment”), pursuant to retire the Notes at or prior to maturity using our existing cash (including the amounts in escrow) and/or with proceeds from the issuance of new equity or debt.

For loans underwhich we refinanced the 2017 Revolving Credit Facility, which would otherwise have matured on June 29, 2022, with the margin is determined by reference to our Leverage Ratio. During the six months ended July 31, 2020, we increased borrowings under our revolving credit facility by $155.0$300.0 million to a total of $200.0 million, the proceeds of which were used to fund a portion of our stock repurchase program and for general corporate purposes. During the three months ended October 31, 2020, we repaid the $200.0 million of borrowings in full using cash2021 Revolving Credit Facility maturing on hand.April 9, 2026.

As of January 31, 2021,2022, the interest rate on the 2017 Term Loan was 2.14%2.10%. Taking into account the impact of the original issuance discount and related deferred debt issuance costs, the effective interest rate on the 2017 Term Loan was approximately 2.34%2.30% at January 31, 2021.2022. As of January 31, 2020,2021, the interest rate on the 2017 Term Loan was 3.85%2.14%.

In February 2016, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institutionFor borrowings under the 2021 Revolving Credit Facility, and previously under the 2017 Revolving Credit Facility, the margin is determined by reference to partially mitigate risks associated withour Consolidated Total Debt to Consolidated EBITDA (each as defined in the variable interest rate on the term loans under our prior credit agreement, under which we paid interest at a fixed rate of 4.143% and received 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 million2017 Credit Agreement) leverage ratio (the “2016 Swap”“Leverage Ratio”). AlthoughIn addition, under the prior2021 Revolving Credit Facility, and previously under the 2017 Revolving Credit Facility, we are required to pay a commitment fee with respect to unused availability at rates per annum determined by reference to our Leverage Ratio. The 2017 Credit Agreement contains certain customary affirmative and negative covenants for credit agreementfacilities of this type. The 2017 Credit Agreement also contains a financial covenant that, solely with respect to the 2021 Revolving Credit Facility, requires us to maintain a Leverage Ratio of no greater than 4.50 to 1. At January 31, 2022, our Leverage Ratio was terminated on June 29,approximately 1.1 to 1. The limitations imposed by the covenants are subject to certain exceptions as detailed in the 2017 the 2016 Swap remained in effect until September 6, 2019, and served as an economic hedge to partially mitigate the riskCredit Agreement.

Optional prepayments of higher borrowing costsloans under the 2017 Credit Agreement resulting from increases in market interest rates. Effective June 29, 2017, concurrent with the execution ofare generally permitted without premium or penalty.
Our obligations under the 2017 Credit Agreement are guaranteed by each of our direct and terminationindirect existing and future material domestic wholly owned restricted subsidiaries, and are secured by a security interest in substantially all of our assets and the assets of the priorguarantor subsidiaries, subject to certain exceptions.

The 2017 Credit Agreement provides for events of default with corresponding grace periods that we believe are customary for credit agreement,facilities of this type. Upon an event of default, all of our obligations owed under the 20162017 Credit Agreement may be declared immediately due and payable, and the lenders’ commitments to make loans under the 2017 Credit Agreement may be terminated.

Interest Rate Swap was no longer formally designated as a cash flow hedge for accounting purposes, and therefore subsequent settlements were reported within other income (expense), net on the consolidated statement of operations, not within interest expense. The 2016 Swap matured on September 6, 2019.

In April 2018, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risks associated with the variable interest rate on our 2017 Term Loan, for periods following the termination of the 2016 Swap, under which we paypaid interest at a fixed rate of 2.949% and receivereceived variable interest of three-month LIBOR (subject to a minimum of 0.00%), on a notional amount of $200.0200.0 million (the “2018 Swap”). The effective date of the 2018 Swap was September 6, 2019, and settlements with the counterparty began on November 1, 2019 and occuroccurred on a quarterly basis. The 2018 Swap will terminate onhad a termination date of June 29, 2024.

Prior to May 1, 2020, the 2018 Swap was designated as a cash flow hedge for accounting purposes and as such, changes in its fair value were recognized in accumulated other comprehensive income (loss) in the consolidated balance sheet and were reclassified into the consolidated statement of operations within interest expense in the periods in which the hedged transactions affected earnings.

On May 1, 2020, which was an interest rate reset date on our 2017 Term Loan, we selected an interest rate other than three-month LIBOR. As a result, the 2018 Swap, which was designated specifically to hedge three-month LIBOR interest payments, no longer qualified as a cash flow hedge. Subsequent to May 1, 2020, changes in fair value of the 2018 Swap are beingwere accounted for as a component of other income (expense), net. Accumulated deferred losses on the 2018 Swap of $20.4 million, or $16.0 million after tax, at May 1, 2020 that were previously recorded as a component of accumulated other comprehensive loss, will bewere being amortized to interest expense in the consolidated statement of operations over the remaining term of the 2018 Swap, as the hedged interest payments occur.occurred.

Our obligations underOn April 13, 2021, we paid $16.5 million to the 2017 Credit Agreementcounterparty to settle the 2018 Swap prior to its June 2024 maturity. Upon settlement, we recorded an unrealized gain of $1.3 million in other income (expense), net to adjust the 2018 Swap to its fair value at settlement date and reclassified the remaining $15.7 million of pretax accumulated deferred losses from accumulated other comprehensive loss within stockholders’ equity to other income (expense), net on our consolidated statement of operations for the year ended January 31, 2022. The associated $3.7 million deferred tax asset was reclassified from accumulated other comprehensive loss and netted against income taxes receivable, which are guaranteed by eachincluded within prepaid expenses and other current assets on our consolidated balance sheet as of our direct and indirect existing and future material domestic wholly owned restricted subsidiaries, and are secured by a security interest in substantially all of our assets and the assets of the guarantor subsidiaries, subject to certain exceptions.January 31, 2022.

The 2017 Credit Agreement contains certain customary affirmative and negative covenants for credit facilities of this type. The 2017 Credit Agreement also contains a financial covenant that, solely with respect to the 2017 Revolving Credit Facility, requires us to maintain a Leverage Ratio of no greater than 4.50 to 1. At January 31, 2021, our Leverage Ratio was approximately 2.0 to 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.
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Contractual Obligations

Our principal commitments primarily consist of long-term debt, dividends on Preferred Stock, leases for office space and open non-cancellable purchase orders. We discloseAs of January 31, 2022, our long-term debt in Note 7, “Long Term Debt,” ourtotal operating lease obligations in Note 16, “Leases,”liabilities were $53.0 million, of which $24.5 million is included within accrued expenses and our unconditional purchase obligations in Note 17, “Commitmentsother current liabilities (current portions), and Contingencies” to$28.5 million is included as
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operating lease liabilities (long-term portions), on our consolidated financial statements included under Item 8 of this report.balance sheets. We have no current plans to lease significant additional office spacespace. During the year ended January 31, 2022, we decided to exit certain leased offices, and many ofwe anticipate exiting or reducing additional office leases in the future as we continue to assess how and to what extent our existing lease agreements provide us with the optionemployees will return to renew.work in our offices.

As of January 31, 2021,2022, our unconditional purchase obligations totaled approximately $203.8 million.$240.3 million, the majority of which is due over the next 12 to 36 months. Our purchase obligations are primarily commitments to vendors for the procurement of goods and services in the ordinary course of business, commitments with contract manufacturers, and data center hosting services. Agreements to purchase goods or services that have cancellation provisions with no penalties are excluded from these purchase obligations.

It is not our business practice to enter into off-balance sheet arrangements. However, in the normal course of business, we enter into contracts in which we make representations and warranties that guarantee the performance of our products and services. Historically, there have been no significant losses related to such guarantees.

Our consolidated balance sheet at January 31, 20212022 included $21.3$16.3 million of non-current tax reserves, net of related benefits (including interest and penalties of $3.4 million) for uncertain tax positions. We do not expect to make any significant payments for these uncertain tax positions within the next 12 months.

For additional information regarding our long-term debt, Preferred Stock, and our commitments and contingencies, see Note 8, “Long-Term Debt”, Note 10, “Convertible Preferred Stock”, Note 17, “Leases”, and Note 18, “Commitments and Contingencies” in the notes to our consolidated financial statements included in Part II, Item 8 of this report.

Contingent Payments Associated with Business Combinations

In connection with certain of our business combinations, we have agreed to make contingent cash payments to the former owners of the acquired companies based upon the achievement of performance targets following the acquisition dates.

For the year ended January 31, 2021,2022, we made $20.1$9.6 million of payments under contingent consideration arrangements. As of January 31, 2021, potential future cash payments, and earned2022, consideration expected to be paid subsequent to January 31, 2021,2022 under contingent consideration arrangements total $30.6totaled $7.8 million the estimated fair value of whichand was $18.6 million, including $12.5 million reported in accrued expenses and other current liabilities, and $6.1 million reported in other liabilities. The performance periods associated with these potential payments extend throughexpired during the year ended January 31, 2022.


Recent Accounting Pronouncements

See also Note 1, “Summary of Significant Accounting Policies” to our consolidated financial statements included underin Part II, Item 8 of this report for additional information about recent accounting pronouncements recently adopted and those not yet effective.



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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 
Market risk represents the risk of loss that may impact our financial condition due to adverse changes in financial market prices and rates. We are exposed to market risk related to changes in interest rates and foreign currency exchange rate fluctuations. To manage the volatility relating to interest rate and foreign currency risks, we periodically enter into derivative instruments including foreign currency forward exchange contracts and interest rate swap agreements. It is our policy to use derivative instruments only to the extent considered necessary to meet our risk management objectives. We use derivative instruments solely to reduce the financial impact of these risks and do not use derivative instruments for speculative purposes.

Interest Rate Risk on Our Debt

In June 2014,April 2021, we issued $400.0$315.0 million in aggregate principal amount of 1.50%0.25% convertible senior notes due June 1, 2021. Effective December 1, 2020,April 15, 2026. Prior to January 15, 2026, the 2021 Notes will be convertible only upon the occurrence of certain events and during certain periods, and will be convertible thereafter at any time until the close of business on the second scheduled trading day immediately preceding the June 1, 2021 maturity date holders may surrender their Notes for conversion regardless of whether any of the other specified conditions for conversion have been satisfied.2021 Notes. Upon conversion weof the 2021 Notes, holders will payreceive cash up to the holders cash for theaggregate principal amount, outstanding and the incremental conversion value willwith any remainder to be settled in shares.with cash or common stock, or a combination thereof, at our election. Concurrent with the issuance of the 2021 Notes, we entered into the Note Hedges and sold the Warrants.capped call transactions with certain counterparties. These separate transactions were completed to reduce our exposure to potential dilution upon conversion of the 2021 Notes.

The 2021 Notes have a fixed annual interest rate of 1.50%0.25% and therefore do not have interest rate risk exposure. However, the fair values of the 2021 Notes are subject to interest rate risk, market risk, and other factors due to the convertible feature. The fair values of the 2021 Notes are also affected by our common stock price. Generally, the fair values of the 2021 Notes will increase as interest rates fall and/or our common stock price increases, and decrease as interest rates rise and/or our common stock price decreases. Changes in the fair values of the 2021 Notes do not impact our financial position, cash flows, or results of operations due to the fixed nature of the debt obligations. We do not carry the 2021 Notes at fair value on our consolidated balance sheet, but we report the fair value of the 2021 Notes for disclosure purposes.

On June 29, 2017, we entered into the 2017 Credit Agreement with certain lenders and terminated our prior credit agreement. The 2017 Credit Agreement provides 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 $300.0 million 20172021 Revolving Credit Facility maturing on June 29, 2022,April 6, 2026, subject to increase and reduction from time to time according to the terms of the 2017 Credit 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 the 2017 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. For loans under the Revolving Credit Facility, the margin is determined by reference to our Consolidated Total Debt to Consolidated EBITDA (each as defined in the 2017 Credit Agreement) leverage ratio. As of January 31, 2021, we have $410.1 million of outstanding term loan borrowings. As of January 31, 2021, the interest rate on our term loan borrowings was 2.14%.

Because the interest rates applicable to borrowings under the 2017 Credit Agreement are variable, we are exposed to market risk from changes in the underlying index rates, which affect our cost of borrowing. To partially mitigate risks associated with the variable interest rates on the term loan borrowings, in April 2018, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risks associated with the variable interest rate on our 2017 Term Loan, for periods following the termination of our priorin April 2018, we executed a pay-fixed, receive-variable interest rate swap agreement, in September 2019, under which we 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 amount of $200.0 million (the “2018 Swap”). The effective date of the 2018 Swap was September 6, 2019, and settlements with the counterparty occur on a quarterly basis and began on November 1, 2019. The 2018 Swap was designated as a cash flow hedge for accounting purposes until May 1, 2020, which was an interest rate reset date on our 2017 Term Loan. We selected an interest rate other than the three-month LIBOR, and as a result, the 2018 Swap, which was designated specificallyoriginally set to hedge three-month LIBOR interest payments, no longer qualified as a cash flow hedge. Subsequent to May 1, 2020, changes in fair value of the 2018 Swap are being accounted for as a component of other income (expense), net. Accumulated deferred losses on the 2018 Swap of $20.4 million, or $16.0 million after tax, at May 1, 2020 that were previously recorded as a component of accumulated other comprehensive loss, will be reclassified to the statement of operations as interest expense over the remaining term of the 2018 Swap, as the hedged interest payments occur until the maturityexpire on June 29, 2024. On April 13, 2021, we paid $16.5 million to the counterparty to early-settle the interest rate swap agreement as our interest rate risk exposure had been significantly reduced as we repaid $309.0 million of our 2017 Term Loan, reducing the outstanding balance to $100.0 million as of January 31, 2022. As of January 31, 2021,2022, the fair value of the 2018 Swapinterest rate on our term loan borrowings was a loss of $17.9 million.2.10%.

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.

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TheOn March 5, 2021, the Financial Conduct Authority of the United Kingdom plans to phase out LIBOR by the end of 2021, though the ICE Benchmark Administration, the administrator of LIBOR, announced that it would consider ceasingall LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the publicationcase of the one week and two-month U.S. dollar LIBOR settings atsettings; and (b) immediately after June 30, 2023, in the endcase of 2021 and phase out the remaining U.S. dollar LIBOR settings by June 30, 2023.settings. We are considering the impact the planned phase out would have on our credit facility. The transition from LIBORAlternative Reference Rates Committee has proposed the Secured Overnight Financing Rate (“SOFR”) as its recommended alternative to a new replacement benchmarkLIBOR. However, it is currently uncertain at this timewhat, if any, alternative reference interest rates, including SOFR, or other reforms will be enacted in response to the planned phase out, and the consequences of such developments cannot be entirely predicted but could result in an increase in the cost of our borrowings under our existing credit facility and any future borrowings. Wewe 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, uponUpon our borrowings as of January 31, 2021,2022, for each 1.00% increase in the applicable LIBOR rate, our annual interest expense would increase by approximately $4.2$1.0 million.

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Interest Rate Risk on Our Investments

We invest in cash, cash equivalents, bank time deposits, and marketable debt securities. Market interest rate changes increase or decrease the interest income we generate from these interest-bearing assets. Our cash, cash equivalents, and bank time deposits are primarily maintained at high credit-quality financial institutions around the world, and our marketable debt security investments are restricted to highly rated corporate debt securities. We have not invested in marketable debt securities with remaining maturities in excess of twelve months or in marketable equity securities during the three-year period ended January 31, 2021.2022.

The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk. We have investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.

As of January 31, 20212022 and 2020,2021, we had cash and cash equivalents totaling approximately $663.8$358.8 million and $379.1$585.3 million, respectively, consisting of demand deposits, bank time deposits with maturities of 90 days or less, money market accounts, commercial paper, and marketable debt securities with remaining maturities of 90 days or less. At such dates we also held $42.8$0.4 million and $70.2$0.2 million, respectively, of restricted cash, cash equivalents, and restricted bank time deposits (including long-term portions) which were not available for general operating use. These restricted balances primarily represent deposits to secure bank guarantees in connection with customer sales contracts. The amounts of these deposits can vary depending upon the terms of the underlying contracts. We also had short-term investments of $51.0$0.8 million and $20.2$46.3 million at January 31, 20212022 and 2020,2021, respectively, consisting of bank time deposits and marketable debt securities of corporations, all with remaining maturities in excess of 90 days, but less than one year, at the time of purchase.

To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming, during the year ending January 31, 2022,2023, average short-term interest rates increase or decrease by 50 basis points relative to average rates realized during the year ended January 31, 2021.2022. Such a change would cause our projected interest income from cash, cash equivalents, restricted cash and cash equivalents, bank time deposits, and short-term investments to increase or decrease by approximately $3.8$1.8 million, assuming a similar level of investments in the year ending January 31, 20222023 as in the year ended January 31, 2021.2022.

Due to the short-term nature of our cash and cash equivalents, time deposits, money market accounts, and marketable debt securities, their carrying values approximate their market values and are not generally subject to price risk due to fluctuations in interest rates.

Foreign Currency Exchange Risk

The functional currency for most of our foreign subsidiaries is the applicable local currency, although we have several subsidiaries with functional currencies that differ from their local currency, of which the most notable exceptions areis our subsidiariessubsidiary in Israel, whose functional currencies arecurrency is the U.S. dollar. We are exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars for consolidated reporting purposes. If there are changes in foreign currency exchange rates, the translation of the foreign subsidiaries’ financial statements into U.S. dollars results 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, 2021,2022, a significant portion of our operating expenses, primarily labor expenses, were denominated in the local currencies where our foreign operations are located, primarily Israel, the United Kingdom, Germany, Singapore, Australia, Brazil,Israel, and India. We also generate some portion of our revenue in foreign currencies, mainly the euro,
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British pound sterling, Singapore dollar,euro, Australian dollar, Indian rupee, and Brazilian real.Canadian dollar. As a result, our consolidated U.S. dollar operating results are subject to potential material adverse impact from fluctuations in foreign currency exchange rates between the U.S. dollar and the other currencies in which we transact.

In addition, we have certain monetary assets and liabilities that are denominated in currencies other than the respective entity’s functional currency. Changes in the functional currency value of these assets and liabilities result in gains or losses which are reported within other income (expense), net in our consolidated statement of operations. We recorded net foreign currency gains of $0.1 million, and net foreign currency losses of $0.1$1.6 million and $5.5 million forin each of the years ended January 31, 2022 and 2021, 2020, and 2019 respectively.net foreign currency gains of $0.7 million for the year ended January 31, 2020.

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From time to time, we enter into foreign currency forward contracts in an effort to reduce the volatility of cash flows primarily related to forecasted payroll and payroll-related expenses denominated in Israeli shekels. These contracts are generally limited to durations of approximately 12 months or less. We have also periodically entered into foreign currency forward contracts to manage exposures resulting from forecasted customer collections denominated in currencies other than the respective entity’s functional currency and exposures from cash, cash equivalents, and short-term investments and accounts payable denominated in currencies other than the applicable functional currency.

During the years ended January 31, 2021, 2020, and 2019, respectively, we recordedWe had $0.1 million of net unrealized losses and $0.6 million, and $1.9 million of net gains on outstanding foreign currency forward contracts not designated as hedges for accounting purposes.of January 31, 2022, with notional amounts totaling $7.4 million. We had $0.4$0.1 million of net unrealized gains on outstanding foreign currency forward contracts as of January 31, 2021, with notional amounts totaling $61.4$6.6 million. We had $0.7During the year ended January 31, 2020 we recorded $0.3 million of net unrealized gains on outstanding foreign currency forward contracts not designated as of January 31, 2020, with notional amounts totaling $89.0 million.hedges for accounting purposes.

A sensitivity analysis was performed on all of our foreign exchange derivatives as of January 31, 2021.2022. This sensitivity analysis was based on a modeling technique that measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S. dollar, and assumes no changes in interest rates. A 10% increase in the relative value of the U.S. dollar would decrease the estimated fair value of our foreign exchange derivatives by approximately $4.4$0.7 million. Conversely, a 10% decrease in the relative value of the U.S. dollar would increase the estimated fair value of these financial instruments by approximately $5.4$0.8 million.

The counterparties to our foreign currency forward contracts are multinational commercial banks. While we believe the risk of counterparty nonperformance is not material, past disruptions in the global financial markets have impacted some of the financial institutions with which we do business. A sustained decline in the financial stability of financial institutions as a result of disruption in the financial markets could affect our ability to secure creditworthy counterparties for our foreign currency hedging programs.

The foregoing risk management discussion and the effect thereof are forward-looking statements. Actual results in the future may differ materially from these projected results due to actual developments in global financial markets. The analytical methods used by us to assess and minimize the risk discussed above should not be considered projections of future events or losses.
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Item 8.     Financial Statements and Supplementary Data



VERINT SYSTEMS INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and the Board of Directors of Verint Systems Inc.
Melville, New York

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Verint Systems Inc. and subsidiaries (the “Company”) as of January 31, 20212022 and 2020,2021, the related consolidated statements of operations, comprehensive income, (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended January 31, 2021,2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 20212022 and 2020,2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2021,2022, 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’s internal control over financial reporting as of January 31, 2021,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 31, 2021,29, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in 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 reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to 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 included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Over Time Accounting - Input Method -— Software License Arrangements — Refer to Note 2 to the financial statements
Critical Audit Matter Description

The Company recognizesgenerates revenue from multiple sources, including software license revenue, maintenance revenue from customer support, and services revenue primarily derived from the Company’s cloud-based solutions and other software applications and consulting services. The Company’s license and cloud contracts often contain multiple performance obligations. As disclosed by management, the Company’s revenue was $874.5 million for the fiscal year ended January 31, 2022.

New contracts inmeeting certain quantitative and qualitative criteria require a detailed analysis by the Cyber Intelligence Solutions segment that require significant customizationCompany of the softwarecontractual terms and application of more complex accounting guidance, to meetdetermine the requirementsappropriate revenue recognition of the customer over the term of the contract (“over time”) as the Company’sidentified performance does not create an asset with an alternative use and the Company has an enforceable right to payment including a reasonable profit throughout the process. The Company uses labor hours incurred to measure progress towards completion for contracts involving significant customization and the extent of progress towards completion is measured based on the ratio of labor hours incurred to the total estimated labor hours at completion of the performance obligation. The Company’s determination of revenue recognition for contracts accounted for over time that require significant customization of the software involves estimating the total labor hours needed to complete the contracts and updating those estimates throughout the life of those contracts. This requires management to make significant estimates related to forecasts of future labor hours forobligations.
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Factors in these contracts for which revenue is recognized over time. Changes in with potentially significant judgments include:

the estimatesidentification of total labor at completion for such contracts could have a significant impact on the timing or amountcomplete customer contract;
the accounting treatment of revenue recognition during any contract modifications;
the year.valuation and allocation of identified material rights;
the allocation of arrangement consideration.

Given the judgmentsaccounting complexity and the management judgment necessary to estimate total labor hours at completionproperly identify, classify, and account for performance obligations in relation to license and cloud contracts, involving significant customization for which revenue is recognized over time, auditing such estimates required extensive audit effort due to the complexity of long-term contractsthese arrangements and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimates of future labor hourslicense and labor hours at completioncloud revenue contracts included the following, among others:

We tested the effectiveness of controls over revenue recognized over time,recognition, including those over labor hours incurred to datethe identification of performance obligations included in the transaction, accounting treatment of contract modifications, identification of material rights, and estimatesallocation of future labor hours at completion.arrangement consideration.
We selected a sample of customer contracts accounted for over time that required significant customization of the software and performed the following;following:
Evaluated whether the contracts wereCompany properly included in management’s calculation of revenue recognized over time based onidentified the terms of the contracts and conditions of each contract.considered all contract terms that may have an impact on revenue recognition.
Evaluated whether the Company appropriately identified all performance obligations in the contract and whether the methodology to allocate the transaction price to the individual performance obligations was appropriately applied.
Tested the completeness and accuracy of labor hours incurredmanagement’s calculation of revenue for each performance obligation by agreeingdeveloping an expectation for the revenue to supporting documentationbe recorded in the current period and time-charged records and corroboratingcomparing it to the labor hours incurred with project managers.
Evaluated the reasonableness and consistency of the methods and assumptions used by management to develop the estimates of future labor hours and labor hours at completion.Company’s recorded balances.
Evaluated management’s ability to achieve the estimatesassessment of future labor hours and labor hours at completion by comparing the estimates to management’s work plans and performing corroborating inquiriesother contracts with the Company’s project managers relatedsame customer or any ongoing negotiations with the customer to their expectation of labor hours at completion.determine if required to be combined for revenue recognition purposes.
Analyzed the proper accounting treatment for any contract modifications based on 1) whether the additional products and services are distinct from the products and services in the original arrangement, and 2) whether the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services.
Evaluated management’s abilitydetermination of whether certain renewal clauses, additional product offers, or additional usage offers represented material rights included in the contract.
For contracts with a performance obligation of bundled professional services, independently recalculate the stand-alone selling price for each bundled fixed price service.
Obtained evidence of delivery of the elements of the arrangement to estimate total labor hours by comparing the estimated labor hours at contract inception to actual labor hours incurred at project completion or as of year-end.customer.



/s/ DELOITTE & TOUCHE LLP

New York, New York
March 31, 202129, 2022

We have served as the Company’s auditor since 2001.

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VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31,January 31,
(in thousands, except share and per share data) (in thousands, except share and per share data)20212020 (in thousands, except share and per share data)20222021
AssetsAssets  Assets  
Current Assets:Current Assets:  Current Assets:  
Cash and cash equivalentsCash and cash equivalents$663,843 $379,146 Cash and cash equivalents$358,805 $585,273 
Restricted cash and cash equivalents, and restricted bank time depositsRestricted cash and cash equivalents, and restricted bank time deposits27,057 43,860 Restricted cash and cash equivalents, and restricted bank time deposits15 
Short-term investmentsShort-term investments51,013 20,215 Short-term investments765 46,300 
Accounts receivable, net of allowance for doubtful accounts of $6.2 million and $5.3 million, respectively381,158 382,435 
Accounts receivable, net of allowance for credit losses of $1.3 million and $1.6 million, respectivelyAccounts receivable, net of allowance for credit losses of $1.3 million and $1.6 million, respectively193,831 206,157 
Contract assets, netContract assets, net57,033 64,961 Contract assets, net42,688 36,716 
InventoriesInventories20,083 20,495 Inventories5,337 5,541 
Prepaid expenses and other current assetsPrepaid expenses and other current assets77,555 87,946 Prepaid expenses and other current assets53,746 42,814 
Current assets of discontinued operationsCurrent assets of discontinued operations— 354,926 
Total current assets Total current assets1,277,742 999,058  Total current assets655,178 1,277,742 
Property and equipment, netProperty and equipment, net106,242 116,111 Property and equipment, net64,090 69,090 
Operating lease right-of-use assetsOperating lease right-of-use assets88,889 102,149 Operating lease right-of-use assets35,433 57,849 
GoodwillGoodwill1,485,590 1,469,211 Goodwill1,353,421 1,327,407 
Intangible assets, netIntangible assets, net149,043 197,764 Intangible assets, net118,254 143,744 
Deferred income taxes14,489 13,802 
Long-term deferred income taxesLong-term deferred income taxes8,091 7,287 
Other assetsOther assets139,300 117,963 Other assets126,638 97,224 
Long-term assets of discontinued operationsLong-term assets of discontinued operations— 280,952 
Total assets Total assets$3,261,295 $3,016,058  Total assets$2,361,105 $3,261,295 
Liabilities, Temporary Equity, and Stockholders' EquityLiabilities, Temporary Equity, and Stockholders' Equity  Liabilities, Temporary Equity, and Stockholders' Equity  
Current Liabilities:Current Liabilities:  Current Liabilities:  
Accounts payableAccounts payable$76,975 $71,604 Accounts payable$39,501 $35,463 
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities311,706 229,698 Accrued expenses and other current liabilities168,694 211,517 
Current maturities of long-term debtCurrent maturities of long-term debt386,713 4,250 Current maturities of long-term debt— 386,713 
Contract liabilitiesContract liabilities388,045 397,350 Contract liabilities271,271 261,033 
Current liabilities of discontinued operationsCurrent liabilities of discontinued operations— 268,713 
Total current liabilities Total current liabilities1,163,439 702,902  Total current liabilities479,466 1,163,439 
Long-term debtLong-term debt402,781 832,798 Long-term debt406,954 402,781 
Long-term contract liabilitiesLong-term contract liabilities38,539 40,565 Long-term contract liabilities15,872 16,502 
Operating lease liabilitiesOperating lease liabilities79,886 90,372 Operating lease liabilities28,457 56,712 
Deferred income taxes36,976 39,829 
Long-term deferred income taxesLong-term deferred income taxes17,460 32,991 
Other liabilitiesOther liabilities51,641 67,155 Other liabilities21,996 42,719 
Long-term liabilities of discontinued operationsLong-term liabilities of discontinued operations— 58,118 
Total liabilities Total liabilities1,773,262 1,773,621  Total liabilities970,205 1,773,262 
Commitments and ContingenciesCommitments and Contingencies00Commitments and Contingencies00
Temporary Equity:Temporary Equity:Temporary Equity:
Preferred stock - $0.001 par value; authorized 2,207,000; Series A Preferred Stock; 200,000 shares issued and outstanding at January 31, 2021; 0 shares issued and outstanding at January 31, 2020; aggregate liquidation preference and current redemption value of $206,067 at January 31, 2021.200,628 
Preferred Stock — $0.001 par value; authorized 2,207,000 shares
Preferred Stock — $0.001 par value; authorized 2,207,000 shares
Series A Preferred Stock; 200,000 shares issued and outstanding at January 31, 2022 and 2021, respectively; aggregate liquidation preference and current redemption value of $206,067 at January 31, 2022 and 2021, respectively.Series A Preferred Stock; 200,000 shares issued and outstanding at January 31, 2022 and 2021, respectively; aggregate liquidation preference and current redemption value of $206,067 at January 31, 2022 and 2021, respectively.200,628 200,628 
Series B Preferred Stock; 200,000 shares issued and outstanding at January 31, 2022; no shares issued and outstanding at January 31, 2021; aggregate liquidation preference and current redemption value of $206,067 at January 31, 2022.Series B Preferred Stock; 200,000 shares issued and outstanding at January 31, 2022; no shares issued and outstanding at January 31, 2021; aggregate liquidation preference and current redemption value of $206,067 at January 31, 2022.235,693 — 
Equity component of currently redeemable convertible notesEquity component of currently redeemable convertible notes4,841 Equity component of currently redeemable convertible notes— 4,841 
Total temporary equity Total temporary equity205,469 0  Total temporary equity436,321 205,469 
Stockholders' Equity:Stockholders' Equity:  Stockholders' Equity:  
Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 70,177,000 and 68,529,000; outstanding 65,773,000 and 64,738,000 shares at January 31, 2021 and 2020, respectively70 68 
Common stock — $0.001 par value; authorized 120,000,000 shares. Issued 66,211,000 and 70,177,000; outstanding 66,211,000 and 65,773,000 shares at January 31, 2022 and 2021, respectively.Common stock — $0.001 par value; authorized 120,000,000 shares. Issued 66,211,000 and 70,177,000; outstanding 66,211,000 and 65,773,000 shares at January 31, 2022 and 2021, respectively.66 70 
Additional paid-in capitalAdditional paid-in capital1,726,166 1,660,889 Additional paid-in capital1,125,152 1,726,166 
Treasury stock, at cost 4,404,000 and 3,791,000 shares at January 31, 2021 and 2020, respectively(208,124)(174,134)
Treasury stock, at cost — No shares and 4,404,000 shares at January 31, 2022 and 2021, respectively.Treasury stock, at cost — No shares and 4,404,000 shares at January 31, 2022 and 2021, respectively.— (208,124)
Accumulated deficitAccumulated deficit(113,797)(105,590)Accumulated deficit(54,509)(113,797)
Accumulated other comprehensive loss(136,878)(151,865)
Total Verint Systems Inc. stockholders' equity1,267,437 1,229,368 
Noncontrolling interests15,127 13,069 
Total stockholders' equity1,282,564 1,242,437 
Total liabilities, temporary equity, and stockholders' equity$3,261,295 $3,016,058 
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January 31,
 (in thousands, except share and per share data)20222021
Accumulated other comprehensive loss(118,515)(136,878)
Total Verint Systems Inc. stockholders' equity952,194 1,267,437 
Noncontrolling interests2,385 15,127 
  Total stockholders' equity954,579 1,282,564 
  Total liabilities, temporary equity, and stockholders' equity$2,361,105 $3,261,295 

See notes to consolidated financial statements.
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Consolidated Statements of Operations
 
Year Ended January 31, Year Ended January 31,
(in thousands, except per share data) (in thousands, except per share data)202120202019 (in thousands, except per share data)202220212020
Revenue:Revenue:  Revenue:  
Product$406,254 $454,875 $454,650 
Service and support867,451 848,759 775,097 
RecurringRecurring$633,129 $575,624 $534,378 
NonrecurringNonrecurring241,380 254,623 312,147 
Total revenue Total revenue1,273,705 1,303,634 1,229,747  Total revenue874,509 830,247 846,525 
Cost of revenue:Cost of revenue:   Cost of revenue:   
Product96,161 127,183 129,922 
Service and support300,528 312,599 293,888 
RecurringRecurring156,569 139,044 132,789 
NonrecurringNonrecurring124,226 130,545 149,795 
Amortization of acquired technologyAmortization of acquired technology18,905 23,984 25,403 Amortization of acquired technology17,777 17,962 21,579 
Total cost of revenue Total cost of revenue415,594 463,766 449,213  Total cost of revenue298,572 287,551 304,163 
Gross profitGross profit858,111 839,868 780,534 Gross profit575,937 542,696 542,362 
Operating expenses:Operating expenses:   Operating expenses:   
Research and development, netResearch and development, net240,169 231,683 209,106 Research and development, net123,291 128,152 134,236 
Selling, general and administrativeSelling, general and administrative478,242 488,871 426,183 Selling, general and administrative376,808 327,345 379,234 
Amortization of other acquired intangible assetsAmortization of other acquired intangible assets30,995 31,458 31,010 Amortization of other acquired intangible assets28,995 29,777 30,865 
Total operating expenses Total operating expenses749,406 752,012 666,299  Total operating expenses529,094 485,274 544,335 
Operating income108,705 87,856 114,235 
Operating income (loss)Operating income (loss)46,843 57,422 (1,973)
Other income (expense), net:Other income (expense), net:   Other income (expense), net:   
Interest incomeInterest income2,808 5,620 4,777 Interest income233 1,461 2,111 
Interest expenseInterest expense(39,975)(40,378)(37,344)Interest expense(10,325)(39,803)(40,314)
Other (expense) income, net(55,315)205 (3,906)
Losses on early retirements of debtLosses on early retirements of debt(2,474)(143)— 
Other income (expense), netOther income (expense), net5,227 (60,601)609 
Total other expense, net Total other expense, net(92,482)(34,553)(36,473) Total other expense, net(7,339)(99,086)(37,594)
Income before provision for income taxes16,223 53,303 77,762 
Income (loss) from continuing operations before provision for income taxesIncome (loss) from continuing operations before provision for income taxes39,504 (41,664)(39,567)
Provision for income taxesProvision for income taxes16,330 17,620 7,542 Provision for income taxes23,853 6,937 6,943 
Net (loss) income(107)35,683 70,220 
Net income attributable to noncontrolling interests7,160 6,999 4,229 
Net (loss) income attributable to Verint Systems Inc.(7,267)28,684 65,991 
Net income (loss) from continuing operationsNet income (loss) from continuing operations15,651 (48,601)(46,510)
Net income from discontinued operationsNet income from discontinued operations— 48,494 82,193 
Net income (loss)Net income (loss)15,651 (107)35,683 
Net income from continuing operations attributable to noncontrolling interestsNet income from continuing operations attributable to noncontrolling interests1,238 1,053 579 
Net income from discontinued operations attributable to noncontrolling interestsNet income from discontinued operations attributable to noncontrolling interests— 6,107 6,420 
Net income (loss) attributable to Verint Systems Inc.Net income (loss) attributable to Verint Systems Inc.14,413 (7,267)28,684 
Dividends on preferred stockDividends on preferred stock(7,656)Dividends on preferred stock(18,922)(7,656)— 
Net (loss) income attributable to Verint Systems Inc. common sharesNet (loss) income attributable to Verint Systems Inc. common shares$(14,923)$28,684 $65,991 Net (loss) income attributable to Verint Systems Inc. common shares$(4,509)$(14,923)$28,684 
Net (loss) income per common share attributable to Verint Systems Inc.:   
Basic$(0.23)$0.43 $1.02 
Diluted$(0.23)$0.43 $1.00 
Net (loss) income attributable to Verint Systems Inc. common shares:Net (loss) income attributable to Verint Systems Inc. common shares:   
Net loss from continuing operations attributable to Verint Systems Inc. common sharesNet loss from continuing operations attributable to Verint Systems Inc. common shares$(4,509)$(57,310)$(47,089)
Net income from discontinued operations attributable to Verint Systems Inc. common sharesNet income from discontinued operations attributable to Verint Systems Inc. common shares$— $42,387 $75,773 
Basic net (loss) income per common share attributable to Verint Systems Inc.:Basic net (loss) income per common share attributable to Verint Systems Inc.:
Continuing operationsContinuing operations$(0.07)$(0.88)$(0.71)
Discontinued operationsDiscontinued operations— 0.65 1.14 
Total basic net (loss) income per common share attributable to Verint Systems Inc.Total basic net (loss) income per common share attributable to Verint Systems Inc.$(0.07)$(0.23)$0.43 
Diluted net (loss) income per common share attributable to Verint Systems Inc.:Diluted net (loss) income per common share attributable to Verint Systems Inc.:
Continuing operationsContinuing operations$(0.07)$(0.88)$(0.71)
Discontinued operationsDiscontinued operations— 0.65 1.14 
Total diluted net (loss) income per common share attributable to Verint Systems Inc.Total diluted net (loss) income per common share attributable to Verint Systems Inc.$(0.07)$(0.23)$0.43 
Weighted-average common shares outstanding:Weighted-average common shares outstanding:   Weighted-average common shares outstanding:   
Basic65,173 66,129 64,913 
Diluted65,173 67,355 66,245 
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 Year Ended January 31,
 (in thousands, except per share data)202220212020
Basic65,591 65,173 66,129 
Diluted65,591 65,173 66,129 
 
See notes to consolidated financial statements.




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Consolidated Statements of Comprehensive Income

Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Net (loss) income$(107)$35,683 $70,220 
Net income (loss)Net income (loss)$15,651 $(107)$35,683 
Other comprehensive income (loss), net of reclassification adjustments:Other comprehensive income (loss), net of reclassification adjustments:   Other comprehensive income (loss), net of reclassification adjustments:   
Foreign currency translation adjustmentsForeign currency translation adjustments17,794 (772)(34,485)Foreign currency translation adjustments(11,668)17,794 (772)
Net increase (decrease) from foreign exchange contracts designated as hedges37 1,786 (4,774)
Net decrease from interest rate swap designated as a hedge(3,168)(9,473)(4,028)
Benefit for income taxes on net increase (decrease) from foreign exchange contracts and interest rate swap designated as hedges636 1,809 1,466 
Distribution of Cognyte Software Ltd.Distribution of Cognyte Software Ltd.17,123 — — 
Net (decrease) increase from foreign exchange contracts designated as hedgesNet (decrease) increase from foreign exchange contracts designated as hedges(147)37 1,786 
Net increase (decrease) from interest rate swap designated as a hedgeNet increase (decrease) from interest rate swap designated as a hedge1,014 (3,168)(9,473)
Net increase from settlement of interest rate swap due to partial early retirement of 2017 Term LoanNet increase from settlement of interest rate swap due to partial early retirement of 2017 Term Loan12,017 — — 
Benefit from income taxes on net increase from foreign exchange contracts and interest rate swap designated as hedgesBenefit from income taxes on net increase from foreign exchange contracts and interest rate swap designated as hedges24 636 1,809 
Other comprehensive income (loss)Other comprehensive income (loss)15,299 (6,650)(41,821)Other comprehensive income (loss)18,363 15,299 (6,650)
Comprehensive incomeComprehensive income15,192 29,033 28,399 Comprehensive income34,014 15,192 29,033 
Comprehensive income attributable to noncontrolling interestsComprehensive income attributable to noncontrolling interests7,472 6,989 4,173 Comprehensive income attributable to noncontrolling interests1,238 7,472 6,989 
Comprehensive income attributable to Verint Systems Inc.Comprehensive income attributable to Verint Systems Inc.$7,720 $22,044 $24,226 Comprehensive income attributable to Verint Systems Inc.$32,776 $7,720 $22,044 
 
See notes to consolidated financial statements.
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VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Verint Systems Inc. Stockholders’ Equity   Verint Systems Inc. Stockholders’ Equity  
Common StockAdditional Paid-in Capital  
Accumulated Other Comprehensive Loss
Total Verint Systems Inc. Stockholders’ Equity Total Stockholders’ Equity Common StockAdditional Paid-in Capital  
Accumulated Other Comprehensive Loss
Total Verint Systems Inc. Stockholders’ Equity Total Stockholders’ Equity
(in thousands) (in thousands) SharesPar
Value
Treasury
Stock
Accumulated
Deficit
Non-controlling
Interests
(in thousands) SharesPar
Value
Treasury
Stock
Accumulated
Deficit
Non-controlling
Interests
Balances as of January 31, 201863,836 $65 $1,519,724 $(57,425)$(238,312)$(103,460)$1,120,592 $11,744 $1,132,336 
Net income— — — — 65,991 — 65,991 4,229 70,220 
Other comprehensive loss— — — — — (41,765)(41,765)(56)(41,821)
Stock-based compensation - equity-classified awards— — 57,659 — — — 57,659 — 57,659 
Common stock issued for stock awards and stock bonuses1,501 8,883 — — — 8,885 — 8,885 
Treasury stock acquired(4)— — (173)— — (173)— (173)
Capital contributions by noncontrolling interest— — — — — — — 60 60 
Dividends to noncontrolling interest— — — — — — — (4,409)(4,409)
Cumulative effect of adoption of ASU No. 2014-09— — — — 38,047 — 38,047 — 38,047 
Balances as of January 31, 2019Balances as of January 31, 201965,333 67 1,586,266 (57,598)(134,274)(145,225)1,249,236 11,568 1,260,804 Balances as of January 31, 201965,333 $67 $1,586,266 $(57,598)$(134,274)$(145,225)$1,249,236 $11,568 $1,260,804 
Net incomeNet income— — — — 28,684 — 28,684 6,999 35,683 Net income— — — — 28,684 — 28,684 6,999 35,683 
Other comprehensive lossOther comprehensive loss— — — — — (6,640)(6,640)(10)(6,650)Other comprehensive loss— — — — — (6,640)(6,640)(10)(6,650)
Stock-based compensation - equity-classified awards— — 65,080 — — — 65,080 — 65,080 
Stock-based compensation — equity-classified awardsStock-based compensation — equity-classified awards— — 65,080 — — — 65,080 — 65,080 
Common stock issued for stock awards and stock bonusesCommon stock issued for stock awards and stock bonuses1,531 9,543 — — — 9,544 — 9,544 Common stock issued for stock awards and stock bonuses1,531 9,543 — — — 9,544 — 9,544 
Treasury stock acquiredTreasury stock acquired(2,126)— — (116,536)— — (116,536)— (116,536)Treasury stock acquired(2,126)— — (116,536)— — (116,536)— (116,536)
Dividends or distribution to noncontrolling interestsDividends or distribution to noncontrolling interests— — — — — — — (5,488)(5,488)Dividends or distribution to noncontrolling interests— — — — — — — (5,488)(5,488)
Balances as of January 31, 2020Balances as of January 31, 202064,738 68 1,660,889 (174,134)(105,590)(151,865)1,229,368 13,069 1,242,437 Balances as of January 31, 202064,738 68 1,660,889 (174,134)(105,590)(151,865)1,229,368 13,069 1,242,437 
Net (loss) incomeNet (loss) income— — — — (7,267)— (7,267)7,160 (107)Net (loss) income— — — — (7,267)— (7,267)7,160 (107)
Other comprehensive incomeOther comprehensive income— — — — — 14,987 14,987 312 15,299 Other comprehensive income— — — — — 14,987 14,987 312 15,299 
Stock-based compensation - equity-classified awards— — 63,005 — — — 63,005 — 63,005 
Stock-based compensation — equity-classified awardsStock-based compensation — equity-classified awards— — 63,005 — — — 63,005 — 63,005 
Common stock issued for stock awards and stock bonusesCommon stock issued for stock awards and stock bonuses1,646 14,108 — — — 14,110 — 14,110 Common stock issued for stock awards and stock bonuses1,646 14,108 — — — 14,110 — 14,110 
Exercises of stock optionsExercises of stock options— 12 — — — 12 — 12 Exercises of stock options— 12 — — — 12 — 12 
Treasury stock acquiredTreasury stock acquired(613)— — (33,990)— — (33,990)— (33,990)Treasury stock acquired(613)— — (33,990)— — (33,990)— (33,990)
Dividends or distribution to noncontrolling interestsDividends or distribution to noncontrolling interests— — — — — — — (5,414)(5,414)Dividends or distribution to noncontrolling interests— — — — — — — (5,414)(5,414)
Preferred stock dividendsPreferred stock dividends— — (6,789)— — — (6,789)— (6,789)Preferred stock dividends— — (6,789)— — — (6,789)— (6,789)
Reacquisition of equity component from convertible notes repurchases, net of taxesReacquisition of equity component from convertible notes repurchases, net of taxes— — (218)— — — (218)— (218)Reacquisition of equity component from convertible notes repurchases, net of taxes— — (218)— — — (218)— (218)
Temporary equity reclassificationTemporary equity reclassification— — (4,841)— — — (4,841)— (4,841)Temporary equity reclassification— — (4,841)— — — (4,841)— (4,841)
Cumulative effect of adoption of ASU No. 2016-13Cumulative effect of adoption of ASU No. 2016-13— — — — (940)— (940)— (940)Cumulative effect of adoption of ASU No. 2016-13— — — — (940)— (940)— (940)
Balances as of January 31, 2021Balances as of January 31, 202165,773 $70 $1,726,166 $(208,124)$(113,797)$(136,878)$1,267,437 $15,127 $1,282,564 Balances as of January 31, 202165,773 70 1,726,166 (208,124)(113,797)(136,878)1,267,437 15,127 1,282,564 
Net incomeNet income— — — — 14,413 — 14,413 1,238 15,651 
Other comprehensive income, excluding the distribution of Cognyte Software Ltd.Other comprehensive income, excluding the distribution of Cognyte Software Ltd.— — — — — 1,240 1,240 — 1,240 
Distribution of Cognyte Software Ltd.Distribution of Cognyte Software Ltd.— — (281,665)— — 17,123 (264,542)(12,870)(277,412)
Stock-based compensation — equity-classified awardsStock-based compensation — equity-classified awards— — 58,679 — — — 58,679 — 58,679 
Common stock issued for stock awards and stock bonusesCommon stock issued for stock awards and stock bonuses1,800 (2)— — — — —  
Common stock repurchased and retiredCommon stock repurchased and retired(1,058)(1)(49,580)— — — (49,581)— (49,581)
Settlement of conversion premium upon maturity of 2014 NotesSettlement of conversion premium upon maturity of 2014 Notes1,250 — (59,139)59,131 — — (8)— (8)
Common stock received from exercise of Note HedgesCommon stock received from exercise of Note Hedges(1,250)— 57,695 (57,692)— — — 3 
Common stock received from exercise of Note Hedges related to repurchased 2014 NotesCommon stock received from exercise of Note Hedges related to repurchased 2014 Notes(42)— 1,959 (1,959)— — — —  
Common stock issued upon settlement of WarrantsCommon stock issued upon settlement of Warrants293 — (25)20 — — (5)— (5)
Purchases of capped calls, net of taxesPurchases of capped calls, net of taxes— — (32,441)— — — (32,441)— (32,441)
Treasury stock acquiredTreasury stock acquired(555)— — (26,375)— — (26,375)— (26,375)
Treasury stock retiredTreasury stock retired— (5)(234,994)234,999 — — — —  
69


 Verint Systems Inc. Stockholders’ Equity  
 Common StockAdditional Paid-in Capital  
Accumulated Other Comprehensive Loss
Total Verint Systems Inc. Stockholders’ Equity Total Stockholders’ Equity
(in thousands) SharesPar
Value
Treasury
Stock
Accumulated
Deficit
Non-controlling
Interests
Distribution to noncontrolling interest— — — — — — — (1,110)(1,110)
Preferred stock dividends— — (18,056)— — — (18,056)— (18,056)
Cumulative effect of adoption of ASU No. 2020-06, net of taxes— — (43,445)— 44,875 — 1,430 — 1,430 
Balances as of January 31, 202266,211 $66 $1,125,152 $ $(54,509)$(118,515)$952,194 $2,385 $954,579 
 
See notes to consolidated financial statements.statements.
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Consolidated Statements of Cash Flows
Year Ended January 31, Year Ended January 31,
(in thousands) (in thousands) 202120202019(in thousands) 202220212020
Cash flows from operating activities:Cash flows from operating activities:  Cash flows from operating activities:  
Net (loss) income$(107)$35,683 $70,220 
Adjustments to reconcile net income to net cash provided by operating activities:   
Net income (loss)Net income (loss)$15,651 $(107)$35,683 
(Income) from discontinued operations, net of income taxes(Income) from discontinued operations, net of income taxes— (48,494)(82,193)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:   
Depreciation and amortizationDepreciation and amortization100,408 91,532 88,915 Depreciation and amortization75,449 85,380 80,847 
Provision for doubtful accounts3,777 2,572 2,746 
Provision for credit lossesProvision for credit losses1,396 1,959 1,211 
Stock-based compensation, excluding cash-settled awardsStock-based compensation, excluding cash-settled awards62,289 82,698 66,657 Stock-based compensation, excluding cash-settled awards65,246 45,208 64,802 
Change in fair value of future tranche rightChange in fair value of future tranche right56,146 Change in fair value of future tranche right(15,810)56,146 — 
Amortization of discount on convertible notesAmortization of discount on convertible notes12,883 12,490 11,850 Amortization of discount on convertible notes— 12,883 12,490 
(Benefit) provision from deferred income taxes(3,735)2,145 (3,017)
Benefit from deferred income taxesBenefit from deferred income taxes(11,323)(1,398)(4,284)
Non-cash losses (gains) on derivative financial instruments, netNon-cash losses (gains) on derivative financial instruments, net1,362 (599)(2,511)Non-cash losses (gains) on derivative financial instruments, net14,374 1,267 (204)
Losses on early retirements of debtLosses on early retirements of debt2,474 143 — 
Other non-cash items, netOther non-cash items, net(8,188)4,544 (2,328)Other non-cash items, net7,416 (1,804)8,307 
Changes in operating assets and liabilities, net of effects of business combinations and divestitures:Changes in operating assets and liabilities, net of effects of business combinations and divestitures:   Changes in operating assets and liabilities, net of effects of business combinations and divestitures:   
Accounts receivableAccounts receivable(2,288)(6,894)(21,520)Accounts receivable11,712 (3,896)16,284 
Contract assetsContract assets8,379 (1,470)5,751 Contract assets(6,391)(63)(19,128)
InventoriesInventories(1,508)1,752 (8,208)Inventories(713)599 (502)
Prepaid expenses and other assetsPrepaid expenses and other assets(16,736)13,523 (4,753)Prepaid expenses and other assets(33,107)(28,166)2,356 
Accounts payable and accrued expensesAccounts payable and accrued expenses49,430 (14,488)(15,648)Accounts payable and accrued expenses(1,772)33,380 (17,197)
Contract liabilitiesContract liabilities(11,332)27,575 32,919 Contract liabilities7,820 5,438 18,042 
Other liabilitiesOther liabilities902 (13,290)(7,328)Other liabilities(2,321)534 6,754 
Other, netOther, net2,164 131 1,506 Other, net4,553 644 3,730 
Net cash provided by operating activities — continuing operationsNet cash provided by operating activities — continuing operations134,654 159,653 126,998 
Net cash (used in) provided by operating activities — discontinued operationsNet cash (used in) provided by operating activities — discontinued operations(9,055)94,193 110,906 
Net cash provided by operating activitiesNet cash provided by operating activities253,846 237,904 215,251 Net cash provided by operating activities125,599 253,846 237,904 
Cash flows from investing activities:Cash flows from investing activities:  Cash flows from investing activities:  
Cash paid for business combinations, including adjustments, net of cash acquiredCash paid for business combinations, including adjustments, net of cash acquired(74,096)(90,022)Cash paid for business combinations, including adjustments, net of cash acquired(57,024)— (55,403)
Purchases of property and equipmentPurchases of property and equipment(27,880)(35,028)(31,686)Purchases of property and equipment(16,962)(14,035)(21,339)
Purchases of investmentsPurchases of investments(151,116)(47,407)(59,065)Purchases of investments(751)(102,531)(18,308)
Maturities and sales of investmentsMaturities and sales of investments120,937 59,324 33,118 Maturities and sales of investments46,299 69,763 5,797 
Settlements of derivative financial instruments not designated as hedgesSettlements of derivative financial instruments not designated as hedges159 3,093 1,335 Settlements of derivative financial instruments not designated as hedges(69)(54)2,881 
Cash paid for capitalized software development costsCash paid for capitalized software development costs(12,444)(17,222)(7,320)Cash paid for capitalized software development costs(7,560)(7,312)(9,583)
Change in restricted bank time deposits, including long-term portionChange in restricted bank time deposits, including long-term portion31,238 (14,215)(21,304)Change in restricted bank time deposits, including long-term portion107 154 (56)
Other investing activitiesOther investing activities1,863 (250)(779)Other investing activities60 — (250)
Net cash used in investing activities — continuing operationsNet cash used in investing activities — continuing operations(35,900)(54,015)(96,261)
Net cash provided by (used in) investing activities — discontinued operationsNet cash provided by (used in) investing activities — discontinued operations— 16,772 (29,540)
Net cash used in investing activitiesNet cash used in investing activities(37,243)(125,801)(175,723)Net cash used in investing activities(35,900)(37,243)(125,801)
Cash flows from financing activities:Cash flows from financing activities:  Cash flows from financing activities:  
Proceeds from issuance of preferred stock and future tranche right, net of issuance costsProceeds from issuance of preferred stock and future tranche right, net of issuance costs197,254 Proceeds from issuance of preferred stock and future tranche right, net of issuance costs198,731 197,254 — 
Proceeds from borrowingsProceeds from borrowings155,000 45,000 Proceeds from borrowings315,000 155,000 45,000 
Repayments of borrowings and other financing obligationsRepayments of borrowings and other financing obligations(207,165)(6,478)(5,983)Repayments of borrowings and other financing obligations(313,354)(207,165)(6,478)
Payments to repurchase convertible notesPayments to repurchase convertible notes(13,032)Payments to repurchase convertible notes— (13,032)— 
Settlement of 2014 NotesSettlement of 2014 Notes(386,887)— — 
Purchases of capped callsPurchases of capped calls(41,060)— — 
Payments of equity issuance, debt issuance, and other debt-related costsPayments of equity issuance, debt issuance, and other debt-related costs(2,287)(212)(206)Payments of equity issuance, debt issuance, and other debt-related costs(10,708)(2,287)(212)
Dividends or distributions paid to noncontrolling interests(5,414)(5,488)(4,409)
Purchases of treasury stock(36,836)(113,690)(173)
Distributions paid to noncontrolling interestDistributions paid to noncontrolling interest(1,110)(5,414)(5,488)
Purchases of treasury stock and common stock for retirementPurchases of treasury stock and common stock for retirement(75,955)(36,836)(113,690)
Preferred stock dividend paymentsPreferred stock dividend payments(1,589)Preferred stock dividend payments(12,856)(1,589)— 
Payments of deferred purchase price and contingent consideration for business combinations (financing portion) and other financing activities(13,998)(30,454)(11,110)
Net cash provided by (used in) financing activities71,933 (111,322)(21,881)
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents(60)(1,823)(3,158)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents288,476 (1,042)14,489 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year411,657 412,699 398,210 
Payment for termination of interest rate swapPayment for termination of interest rate swap(16,502)— — 
Net cash transferred to Cognyte Software Ltd.Net cash transferred to Cognyte Software Ltd.(114,657)— — 
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Year Ended January 31, Year Ended January 31,
(in thousands) (in thousands) 202120202019(in thousands) 202220212020
Dividend and other settlements received from Cognyte Software Ltd.Dividend and other settlements received from Cognyte Software Ltd.38,280 — — 
Payments of deferred purchase price and contingent consideration for business combinations (financing portion) and other financing activitiesPayments of deferred purchase price and contingent consideration for business combinations (financing portion) and other financing activities(9,045)(9,121)(27,035)
Net cash (used in) provided by financing activities — continuing operationsNet cash (used in) provided by financing activities — continuing operations(430,123)76,810 (107,903)
Net cash used in financing activities — discontinued operationsNet cash used in financing activities — discontinued operations— (4,877)(3,419)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(430,123)71,933 (111,322)
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalentsForeign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents(841)(60)(1,823)
Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalentsNet (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalents(341,265)288,476 (1,042)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of yearCash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year700,133 411,657 412,699 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of yearCash, cash equivalents, restricted cash, and restricted cash equivalents, end of year$700,133 $411,657 $412,699 Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year$358,868 $700,133 $411,657 
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of year to the consolidated balance sheets:Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of year to the consolidated balance sheets:Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of year to the consolidated balance sheets:
Cash and cash equivalentsCash and cash equivalents$663,843 $379,146 $369,975 Cash and cash equivalents$358,805 $663,843 $379,146 
Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time depositsRestricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits25,910 24,513 40,152 Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits6 25,910 24,513 
Restricted cash and cash equivalents included in other assetsRestricted cash and cash equivalents included in other assets10,380 7,998 2,572 Restricted cash and cash equivalents included in other assets57 10,380 7,998 
Total cash, cash equivalents, restricted cash, and restricted cash equivalentsTotal cash, cash equivalents, restricted cash, and restricted cash equivalents$700,133 $411,657 $412,699 Total cash, cash equivalents, restricted cash, and restricted cash equivalents$358,868 $700,133 $411,657 

See notes to consolidated financial statements.
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VERINT SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Description of Business
 
Unless the context otherwise requires, the terms “Verint”, “we”, “us”, and “our” in these notes to consolidated financial statements refer to Verint Systems Inc. and its consolidated subsidiaries.
 
On February 1, 2021, we completed the previously announced spin-off (the “Spin-Off”) of Cognyte Software Ltd. (“Cognyte”), a company limited by shares incorporated under the laws of the State of Israel whose business and operations consist of our former Cyber Intelligence Solutions business (the “Cognyte Business”). Cognyte is a global leader in security analytics software that empowers governments and enterprises with Actionable Intelligence® for a safer world. Please see “Recent Developments” section below for more details related to the Spin-Off.

Verint helps brands provide Boundless Customer Engagement™. For more than two decades, the world’s most iconic brands – including more than 85 of the Fortune 100 companies – have trusted Verint to provide the technology and domain expertise they require to effectively build enduring customer relationships. Through the Verint Customer Engagement Cloud Platform, we offer our customers and partners solutions that are based on artificial intelligence (AI)(“AI”) and analytics toare developed specifically for customer engagement. These solutions automate workflows across enterprise silos to optimize the workforce expense and at the same time drive an elevated consumer experience. These solutions are used by approximately 10,000 organizations in over 175 countries across a diverse set of verticals, including financial services, healthcare, utilities, technology, and government. Our customers include large enterprises with thousands of employees, as well as small to medium sized business (SMB)(“SMB”) organizations.

Verint is headquartered in Melville, New York, and has more than 4030 offices worldwide. We have approximately 4,3004,400 passionate professionals around the globe exclusively focused on helping brands provide Boundless Customer Engagement™.

Recent Developments

Spin-Off of Cognyte Software Ltd.

On February 1, 2021, we completed the previously announced spin-off (“the Spin-Off”) of Cognyte Software Ltd. (“Cognyte”), a company limited by shares incorporated by laws of the State of Israel whose business and operations consist of our former Cyber Intelligence Solutions business (the “Cognyte Business”). The Spin-Off of Cognyte was completed by way of a pro rata distribution in which each holderholders of Verint’s common stock, par value $0.001 per share, received 1 ordinary share of Cognyte, no par value, for every share of common stock of Verint held of record as of the close of business on January 25, 2021 (the “Record Date”).2021. After the distribution, we do not beneficially own any ordinary shares of Cognyte and will no longer consolidate Cognyte into our financial results for periods ending after January 31, 2021. The Spin-Off iswas intended to be generally tax-free to our stockholders for U.S. federal income tax purposes. Please refer to Note 19, “Subsequent Events,” for a more detailed discussion of the Spin-Off.

The financial results of Cognyte for the years ended January 31, 2021 and 2020 are presented as income from discontinued operations, net of taxes on the consolidated statements of operations and its assets and liabilities as of January 31, 2021 are presented as assets and liabilities of discontinued operations on the consolidated balance sheets. The historical consolidated statement of cash flows has also been revised to reflect the effect of the Spin-Off. The historical statements of comprehensive income (loss) and the balances related to stockholders’ equity have not been revised to reflect the effect of the Spin-Off. For further information on discontinued operations, see Note 2, “Discontinued Operations”. Unless noted otherwise, discussion in the notes to the consolidated financial statements pertain to continuing operations.

Apax Convertible Preferred Stock Investment

On December 4, 2019, we announced that Valor Parent LPan affiliate (the “Apax Investor”), an affiliate of Apax Partners (“Apax”) would make an investment in us in an amount of up to $400.0 million. Under the terms of the Investment Agreement, dated as of December 4, 2019 (the “Investment Agreement”), the Apax Investor initially purchased $200.0$200.0 million of our Series A convertible preferred stock (“Series A Preferred Stock”) in an issuance that closed on May 7, 2020. In connection with the completion of the Spin-Off, the Apax Investor will purchase, subject to certain conditions, $200.0purchased $200.0 million of Series B convertible preferred stock (“Series B Preferred Stock”) in Verint, as the entity holding the Customer Engagement Solutions business.Following the closing of and together with the Series A Preferred Stock, investment, and after giving effect to the Spin-Off,“Preferred Stock”) in an issuance that closed on April 6, 2021. As of January 31, 2022, Apax’s ownership in us on an as-converted basis iswas approximately 7.5%. Upon issuance of the Series B Preferred Stock, which is expected to occur during our first fiscal quarter ending April 30, 2021, Apax’s ownership in us on an as-converted basis is expected to be between 12% and 13%12.9%. Please refer to Note 9,10, “Convertible Preferred Stock” for a more detailed discussion of the Apax investment.

Impact of COVID-19 Pandemic

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On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreakpandemic has reached all of the regions in which we do business,caused significant economic disruption and uncertainty, and governmental authorities around the world have implemented numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, shutdowns, limitations or closures of non-essential businesses, and social distancing requirements. Companies around the world, including us, ourOur customers, partners, and vendors have also implemented actions in response to the pandemic, including among others, office closings, site restrictions, and employee travel restrictions. Notwithstanding the loosening of these restrictions in certain countries in certain periods since the onset of the pandemic, the global spread of
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COVID-19 and actions taken in response have negatively affected us, our customers, partners, and vendors and caused significant economic and business disruption the extent and duration of which is not currently known. In response to these challenges, we quickly adjustedestablished remote working arrangements for our operationsemployees, limited non-essential business travel, and canceled or shifted our customer, employee, and industry events to work from homea virtual-only format. As the pandemic has evolved, we have adapted our pandemic response on a localized basis based on the prevailing conditions in each country in which we and we believe our business continuity plan is working well. We are continuously monitoring and assessing the impact of the COVID-19 pandemic, including recommendations and orders issued by government and public health authorities in countries where we operate. We continue to work to help our customers, during this difficult time and are managing our operations with a view to resuming normal business activity as soon as possible.partners, or vendors operate.

Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Verint Systems Inc., and our wholly owned or otherwise controlled subsidiaries, and a joint venture in which we hold a 50% equity interest. The joint venture is a variable interest entity in which we are the primary beneficiary.subsidiaries. Noncontrolling interests in less than wholly owned subsidiaries are reflected within stockholders’ equity on our consolidated balance sheet, but separately from our stockholders’ equity. We hold anOn January 31, 2022, we exercised the option to acquire the noncontrolling interests in two2 majority owned subsidiaries andsubsidiaries. Prior to the exercise, we accountaccounted for the option as an in-substance investment in the noncontrolling common stock of each such subsidiary. We includeincluded the fair value of the option within accrued expenses and other current liabilities and dodid not recognize noncontrolling interests in these subsidiaries.

Equity investments in companies in which we have less than a 20% ownership interest and cannot exercise significant influence, and which do not have readily determinable fair values, are accounted for at cost, adjusted for changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer, less any impairment.

We include the results of operations of acquired companies from the date of acquisition. All significant intercompany transactions and balances are eliminated.

Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires our management to make estimates and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

In light of the currently unknown extent and duration of the COVID-19 pandemic, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply to certain of our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of January 31, 20212022 and through the date of this report. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Reclassifications

Following the Spin-Off, we began to operate as a pure-play customer engagement company and determined that presenting our revenue and cost of revenue as recurring and nonrecurring would be a more meaningful representation of the nature of our offerings, provide greater transparency and clarity to users of the financial statements, and is more consistent with industry practice and internal reporting. Accordingly, prior period amounts have been reclassified to conform to the current period presentation in our consolidated financial statements and the accompanying notes. For a description of the types of revenue included in each category, see Note 3, “Revenue Recognition”.

Restricted Cash and Cash Equivalents, and Restricted Bank Time Deposits

Restricted cash and cash equivalents, and restricted bank time deposits are pledged as collateral or otherwise restricted as to use for vendor payables, general liability insurance, workers’ compensation insurance, warranty programs, and other obligations.

Investments

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Our investments generally consist of bank time deposits, and marketable debt securities of corporations, the U.S. government, and agencies of the U.S. government, all with remaining maturities in excess of 90 days at the time of purchase. We held no marketable debt securities at January 31, 20212022 and 2020.2021. Investments with maturities in excess of one year are included in other assets.

Accounts Receivable, Net

Trade 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 other security to support accounts receivable.

Concentrations of Credit Risk

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Financial 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. We invest our cash in bank accounts, certificates of deposit, and money market accounts with major financial institutions, in U.S. government and agency obligations, and in debt securities of corporations. By policy, we seek to limit credit exposure on investments through diversification and by restricting our investments to highly rated securities.

We grant credit terms to our customers in the ordinary course of business. Concentrations of credit risk with respect to trade accounts receivable and contract assets are generally limited due to the large number of customers comprising our customer base and their dispersion across different industries and geographic areas. There were two customers inwas one customer, an authorized global reseller of our Cyber Intelligence segmentsolutions, that combined accounted for $72.6 million and $51.7 millionapproximately 14% of our aggregated accounts receivable and contract assets at January 31, 2022 and 2021, and 2020, respectively. These amounts result from both directapproximately 10% of our total revenue for the year ended January 31, 2021, but did not represent 10% or greater of our total revenue for the years ended January 31, 2022 or 2020. Credit losses relating to this reseller have historically been immaterial. No end-customer represented more than 10% of our revenue during the years ended January 31, 2022, 2021, and indirect contracts with governmental agencies outside of the United States., which we believe present insignificant credit risk.2020.

Allowance for Doubtful AccountsCredit Losses

We adopted Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments on February 1, 20212020. ASU No. 2016-13 requires us to make judgments as to our ability to collect outstanding receivables and provide allowances for a portion of receivables over the lifetime of the receivables. Our allowance for doubtful accounts or expected credit losses is estimated based on an analysis of the aging of our accounts receivable and contract assets, historical write-offs, customer payment patterns, individual customer creditworthiness, current economic trends, reasonable and supportable forecasts of future economic conditions, and/or establishment of specific reserves for customers in adverse financial condition. We write-off an account receivable and charge it against its recorded allowance at the point when it is considered uncollectible. We assess the adequacy of the allowance for doubtful accountscredit losses on a quarterly basis.

The following table summarizes the activity in our allowance for doubtful accountscredit losses for the years ended January 31, 2022, 2021, 2020, and 2019:2020:
Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Allowance for doubtful accounts, beginning of year$5,324 $3,777 $2,217 
Allowance for credit losses, beginning of yearAllowance for credit losses, beginning of year$1,609 $1,239 $866 
Cumulative effect of adoption of ASU No. 2016-13Cumulative effect of adoption of ASU No. 2016-131,012 Cumulative effect of adoption of ASU No. 2016-13— 577 — 
Provisions charged to expenseProvisions charged to expense3,707 2,572 2,746 Provisions charged to expense1,242 1,899 1,211 
Amounts written offAmounts written off(3,853)(1,176)(1,172)Amounts written off(1,666)(1,931)(1,024)
Other, including fluctuations in foreign exchange ratesOther, including fluctuations in foreign exchange rates(22)151 (14)Other, including fluctuations in foreign exchange rates75 (175)186 
Allowance for doubtful accounts, end of year$6,168 $5,324 $3,777 
Allowance for credit losses, end of yearAllowance for credit losses, end of year$1,260 $1,609 $1,239 

Our estimated expected credit losses associated with contract assets were not material as historical write-offs have been insignificant.

Inventories

Inventories are stated at the lower of cost or market.net realizable value. Cost is determined using the weighted-average method of inventory accounting. The valuation of our inventories requires us to make estimates regarding excess or obsolete inventories,
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including making estimates of the future demand for our products. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand, price, or technological developments could have a significant impact on the value of our inventory and reported operating results. Charges for excess and obsolete inventories are included within cost of revenue.

Property and Equipment, net

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method based over the estimated useful lives of the assets. The vast majority of equipment, furniture and other is depreciated over periods ranging from three years to seven years. Software is typically depreciated over periods ranging from three years to four years. Buildings are depreciated over periods ranging from ten years to twenty-five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term. Finance leased assets are amortized over the related lease term.

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The cost of maintenance and repairs of property and equipment is charged to operations as incurred. When assets are retired or disposed of, the cost and accumulated depreciation or amortization thereon are removed from the consolidated balance sheet and any resulting gain or loss is recognized in the consolidated statement of operations.

Business Segment ReportingInformation

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the enterprise’s chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance.

As of January 31, 2021,Prior to the Spin-Off, we conducted our business through 2 operating segments, which arewere also our 2 reportable segments—Customer Engagement (“Customer Engagement”) and Cyber Intelligence (“Cyber Intelligence”). OrganizingIntelligence. Upon completion of the Spin-Off, we are a pure-play customer engagement company that operates as a single reporting segment as our business through two operating segments allowed us to align our resources and domain expertise to effectively address the Actionable Intelligence market. We determine our reportable segments based on a number of factors our management uses to evaluate and run our business operations, including similarities of customers, products, and technology. Our Chief Executive Officer, who is our CODM, who primarily reviews segment revenue and segment operating contribution when assessing the financial performanceinformation presented on a consolidated basis for purposes of our segmentsallocating resources and allocating resources. On February 1, 2021, we completed the Spin-Off of Cognyte, whose business and operations consisted of our former Cyber Intelligence Solutions business, into an independent public company.

Segment revenue includes adjustments associated with revenue of acquired companies, which are not recognizable within GAAP revenue. These adjustments primarily relate to the acquisition-date excess of the historical carrying value over the fair value of acquired companies’ future maintenance and service performance obligations. As the obligations are satisfied, we report our segment revenue using the historical carrying values of these obligations, which we believe better reflects our ongoing maintenance and service revenue streams, whereas GAAP revenue is reported using the obligations’ acquisition-date fair values. 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 and development, selling, marketing, and certain 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 support expenses” when reconciling segment contribution to operating income, the majority of which are expenses for administrative support functions, such as information technology, human resources, finance, legal, and other general corporate support, and for occupancy expenses. These unallocated expenses also include procurement, manufacturing support, and logistics expenses. We share resources across our segments for efficiency and to avoid duplicative costs.

In addition, segment contribution does not include amortization of acquired intangible assets, stock-based compensation, and other expenses that either can vary significantly in amount and frequency, are based upon subjective assumptions, or in certain cases are unplanned for or difficult to forecast, such as restructuring expenses and business combination transaction and integration expenses, all of which are not considered when evaluating segmentfinancial performance.

Revenue from transactions between our operating segments is not material.

Please refer to Note 18, “Segment, Geographic, and Significant Customer Information” for further details regarding our operating segments.

Goodwill and Other Acquired Intangible Assets

For business combinations, the purchase prices are allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded as goodwill. Goodwill is assigned, at the acquisition date, to those reporting units expected to benefit from the synergies of the combination.

We test goodwill for impairment at the reporting unit level, which can be an operating segment or one level below an operating segment, on an annual basis as of November 1, or more frequently if changes in facts and circumstances indicate that impairment in the value of goodwill may exist. AsSubsequent to the Spin-Off of January 31,Cognyte on February 1, 2021, ourwe became a pure-play customer engagement company that operates as a single reporting units were Customer Engagement, Cyber Intelligence (excluding situational intelligence solutions), and Situational Intelligence, a component of our Cyber Intelligence operating segment.unit.

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In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we elect to bypass a qualitative assessment, or if our qualitative assessment indicates that goodwill impairment is more likely than not, we perform quantitative impairment testing. If our quantitative testing determines that the carrying value of athe reporting unit exceeds its fair value, goodwill impairment is recognized in an amount equal to that excess, limited to the total goodwill allocated to thatthe reporting unit.

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 cash flows, (b) a market-based approach, using valuation multiples of comparable companies, and (c) a transaction-based approach, using valuation multiples for recent acquisitions of similar businesses made in the marketplace. Our estimate of fair value of eachour reporting unit is based on a number of subjective factors, including: (a) appropriate consideration of valuation approaches (income approach, comparable public company approach, and comparable transaction approach), (b) estimates of future growth rates, (c) estimates of our future cost structure, (d) discount rates for our estimated cash flows, (e) selection of peer group companies for the comparable public company and the comparable market transaction approaches, (f) required levels of working capital, (g) assumed terminal value, and (h) time horizon of cash flow forecasts.

The valuation methodology to determine the fair value of the reporting units is sensitive to management's forecasts of future revenue, profitability and market conditions. In addition, the extent to which the COVID-19 pandemic may adversely impact our business depends on future developments, which are uncertain and unpredictable, depending upon the severity and duration
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of the outbreak, and the effectiveness of actions taken globally to contain or mitigate its effects. Any resulting financial impact cannot be estimated reasonably at this time but may adversely affect our business and financial results. If there were an adverse change in facts and circumstances, then an impairment charge may be necessary in the future. Should the fair value of our reporting unit fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or other conditions, charges for impairment may be necessary. We monitor our reporting unit to determine if there is an indicator of potential impairment.

Acquired identifiable intangible assets include identifiable acquired technologies, customer relationships, trade names, distribution networks, non-competition agreements, sales backlog, and in-process research and development. We amortize the cost of finite-lived identifiable intangible assets over their estimated useful lives, which are periods of 10 years or less. Amortization is based on the pattern in which the economic benefits of the intangible asset are expected to be realized, which typically is on a straight-line basis. The fair values assigned to identifiable intangible assets acquired in business combinations are determined primarily by using the income approach, which discounts expected future cash flows attributable to these assets to present value using estimates and assumptions determined by management. The acquired identifiable finite-lived intangible assets are being amortized primarily on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.

Fair Value Measurements

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This fair value hierarchy consists of three levels of inputs that may be used to measure fair value:
 
Level 1:  quoted prices in active markets for identical assets or liabilities;

Level 2:  inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3:  unobservable inputs that are supported by little or no market activity.

We review the fair value hierarchy classification of our applicable assets and liabilities at each reporting period. Changes in the observability of valuation inputs may result in transfers within the fair value measurement hierarchy. We did not identify anyPlease refer to Note 14, “Fair Value Measurements”, for further discussion regarding transfers between levels of the fair value measurement hierarchy during the years ended January 31, 2021 and 2020.hierarchy.
 
Fair Values of Financial Instruments

Our recorded amounts of cash and cash equivalents, restricted cash and cash equivalents, and restricted bank time deposits, accounts receivable, contract assets, investments, and accounts payable approximate fair value, due to the short-term nature of these instruments. We measure certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

Derivative Financial Instruments

As part of our risk management strategy, when considered appropriate, we use derivative financial instruments including foreign currency forward contracts and interest rate swap agreements to hedge against certain foreign currency and interest rate exposures. Our intent is to mitigate gains and losses caused by the underlying exposures with offsetting gains and losses on the derivative contracts. By policy, we do not enter into speculative positions with derivative instruments.
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We record all derivatives as assets or liabilities on our consolidated balance sheets at their fair values. Gains and losses from the changes in values of these derivatives are accounted for based on the use of the derivative and whether it qualifies for hedge accounting.

The counterparties to our derivative financial instruments consist of several major international financial institutions. We regularly monitor the financial strength of these institutions. While the counterparties to these contracts expose us to credit-related losses in the event of a counterparty’s non-performance, the risk would be limited to the unrealized gains on such
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affected contracts. We do not anticipate any such losses.losses and we do not have a material portfolio of derivative financial instruments.

Revenue Recognition

We 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 2,3, “Revenue Recognition.”

Cost of Revenue

Our cost of revenue includes costs of materials, compensation and benefit costs for operations and service personnel, subcontractor costs, royalties and license fees 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 (or partially satisfied) performance obligations in customer contracts (i.e. costs that relate to past performance) are expensed as incurred. Please refer to Note 2,3, “Revenue Recognition” under the heading “Costs to Obtain and Fulfill Contracts” for further details regarding customer contract costs.

Research and Development, net

With the exception of certain software development costs, all research and development costs are expensed as incurred, and consist primarily of personnel and consulting costs, travel, depreciation of research and development equipment, and related overhead and other costs associated with research and development activities.

We receive non-refundable grants from the Israeli Innovation Authority (“IIA”), formerly the Israel Office of the Chief Scientist (“OCS”), that fund a portion of our research and development expenditures. We currently only enter into non-royalty-bearing arrangements with the IIA which do not require us to pay royalties. Funds received from the IIA are recorded as a reduction to research and development expense. Royalties, to the extent paid, are recorded as part of our cost of revenue.

We also periodically derive benefits from participation in certain government-sponsored programs in othercertain jurisdictions, for the support of research and development activities conducted in those locations.

Software Development Costs

Costs incurred to acquire or develop software to be sold, leased or otherwise marketed are capitalized after technological feasibility is established, and continue to be capitalized through the general release of the related software product. Amortization of capitalized costs begins in the period in which the related product is available for general release to customers and is recorded on a straight-line basis, which approximates the pattern in which the economic benefits of the capitalized costs are expected to be realized, over the estimated economic lives of the related software products, generally fourfive years.

Internal-Use Software Development Costs and Cloud Computing Arrangements

We capitalizeexpense costs associated with the assessment stage of software that is acquired, internally developed or modified solely to meet our internal needs.development projects. Capitalization begins when the preliminary project stage has been completed and management with the relevant authority authorizes and commits to the funding of the project. These capitalized costs include external direct costs utilized in developing or obtaining the applications and expensespayroll and payroll-related costs for employees who are directly associated with the development of the applications. Capitalization of such costs continues untilWe expense the project is substantially complete and is ready for its intended purpose. Capitalizedpersonnel-related costs of computertraining and data conversion. We also expense costs associated with the post-implementation and operation stage, including maintenance and specified upgrades; however, we capitalize internal and external costs associated with significant upgrades to existing systems that result in additional functionality. Cloud computing arrangement costs follow the internal-use software developed for internal useaccounting guidance to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized internal-use software development costs are generally amortized over estimated useful lives ofperiods ranging from four years to seven years on a straight-line basis, which best represents the pattern of the software’s use. Capitalized implementation costs related to a service contract will be amortized over the term of the hosting arrangement beginning when the component of the hosting arrangement is ready for its intended use. Periodically, we reassess the useful life considering technology, obsolescence, and other factors.

Income Taxes
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We account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our
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assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.

We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our income tax provision involves the application of complex tax laws and requires significant judgment and estimates.

We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and establish valuation allowances when it is more likely than not that all or a portion of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more-likely-than-not realizable, we establish a valuation allowance.

We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more-likely-than-not sustainable, based solely on their technical merits, upon examination and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that we believe is more-likely-than-not realizable. Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets. Our policy is to include interest (expense and/or income) and penalties related to unrecognized income tax benefits as a component of the provision for income taxes.

Functional Currencies and Foreign Currency Transaction Gains and Losses

The functional currency for most of our foreign subsidiaries is the applicable local currency, although we have severalsome subsidiaries with functional currencies that differ from their local currency, of which the most notable exceptions areexception is our subsidiariessubsidiary in Israel, whose functional currencies arecurrency is the U.S. dollar.

Transactions denominated in currencies other than a functional currency are converted to the functional currency on the transaction date, and any resulting assets or liabilities are further remeasured at each reporting date and at settlement. Gains and losses recognized upon such remeasurements are included within other income (expense), net in the consolidated statements of operations. We recorded net foreign currency gains of $0.1 million, and net foreign currency losses of $0.1$1.6 million and $5.5 million for each of the years ended January 31, 2022 and 2021, 2020, and 2019, respectively.net foreign currency gains of $0.7 million for the year ended January 31, 2020.

For consolidated reporting purposes, in those instances where a foreign subsidiary has a functional currency other than the U.S. dollar, revenue and expenses are translated into U.S. dollars using average exchange rates for the reporting period, while assets and liabilities are translated into U.S. dollars using period-end rates. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets.

Stock-Based Compensation

We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of the award. We recognize the fair value of the award as compensation expense over the period during which an employee is required to provide service in exchange for the award.

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 grant using 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 over a period commensurate with the remaining award performance period. The risk-free interest rate used is equal to the implied daily yield of the zero-coupon U.S. Treasury bill that corresponds with the remaining performance period of the award as of the valuation date.
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Net Income (Loss) Income Per Common Share Attributable to Verint Systems Inc.

Basis net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders by the weighted-average common stock outstanding during the respective period. Net income (loss) attributable to common shareholders is computed by deducting both the dividends declared in the period on the Preferred Stock and the dividends
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accumulated for the period on the Preferred Stock from net income (loss). Shares used in the calculation of basic net (loss) income per common share are based on the weighted-average number of common shares outstanding during the accounting period. Shares used in the calculation of basic net (loss) income per common share include vested but unissued shares underlying awards of restricted stock units when all necessary conditions for earning those shares have been satisfied at the award’s vesting date, but exclude unvested shares of restricted stock because they are contingent upon future service conditions.

Diluted net income per common share is computed by dividing net income attributable to common and common equivalent shareholders by the total of the weighted-average common stock outstanding and common equivalent shares outstanding during the respective period. The number of common equivalent shares outstanding has been determined in accordance with the if-converted method for the Preferred Stock and the treasury stock method for employee stock options and restricted stock units to the extend they are dilutive. Under the treasury stock method, the exercise price paid by the option holder and future share-based compensation expense that we have not yet recognized are assumed to be used to repurchase shares.

Upon conversion of our 1.50%0.25% convertible senior notes due June 1, 2021April 15, 2026 (the “Notes”“2021 Notes”), further details for which appear in Note 7,8, “Long-Term Debt,” we are currently obligated to settle the principal amount of the 2021 Notes in cash upon conversion and as a result, only the amounts payable in excess of the principal amounts of the 2021 Notes, if any, are assumed to be settled with shares of common stock for purposes of computing diluted net income per share.

In periods for which we report a net loss, basic net loss per common share and diluted net loss per common share are identical since the effect of potential common shares is anti-dilutive and therefore excluded.

Leases

We determine if an arrangement is a lease at inception. Operating lease assets are presented as operating lease right-of-use (“ROU”) assets, and corresponding operating lease liabilities are presented within accrued expenses and other current liabilities (current portions), and as operating lease liabilities (long-term portions), on our consolidated balance sheets. Finance lease assets are included in property and equipment, and corresponding finance lease liabilities are included within accrued expenses and other current liabilities (current portions), and other liabilities (long-term portions), on our consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the remaining lease payments over the lease term at commencement date. Our leases do not provide an implicit interest rate. We calculate the incremental borrowing rate to reflect the interest rate that we would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term, and consider our historical borrowing activities and market data in this determination. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which we account for as a single lease component. Some of our leases contain variable lease payments, which are expensed as incurred unless those payments are based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the lease liability; thereafter, changes to lease payments due to rate or index updates are recorded as rent expense in the period incurred. We have elected not to recognize ROU assets and lease liabilities for short-term leases that have a term of twelve months or less. The effect of short-term leases on our ROU assets and lease liabilities was not material. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, we do not have anyour related party leases and our sublease transactions are de minimis.

Recent Accounting Pronouncements

New Accounting Pronouncements Recently Adopted

In June 2016,December 2019, the Financial Accounting Standards Board ("FASB"(the “FASB”) issued ASU No. 2016-13,2019-12, Financial Instruments - Credit LossesIncome Taxes (Topic 326) - Measurement740): Simplifying the Accounting for Income Taxes, which affects general principles within Topic 740, Income Taxes. The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the tax basis of Credit Losses on Financial Instruments. Thisgoodwill after a business combination, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also changes the calculation of the income tax impact of hybrid taxes and the methodology for calculating income taxes in an interim period. We adopted this standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. Our financial instruments within the scopeas of this guidance primarily includes accounts receivable and contract assets. On February 1, 2020, we adopted the new standard under the2021 on either a prospective basis, or through a modified retrospective approach, such that comparative information hasas required by the standard. There was no cumulative effect adjustment recorded to accumulated deficit as the amount was not been restated and continues to be reported under accounting standards in effect for those periods.material. The adoptioneffects of ASU No. 2016-13 resulted in a $1.1 million increase in our allowance for expected credit losses related to accounts receivable and contract assets, a $0.2 million increase to deferred tax assets, and an impact of $0.9 million to our accumulated deficit. The new accountingthis standard did not have a material impact on our consolidated financial statements, including accounting policies, given our limited historical write-off activity.position, results of operations and cash flows were not material.

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In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires customers in a hosting arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize and which costs to expense. Under the new standard, implementation costs are deferred and presented in the same financial statement caption on the consolidated balance sheet as a prepayment of related arrangement fees. The deferred costs are recognized over the term of the arrangement in the same financial statement caption in the consolidated income statement as the related fees of the arrangement. We adopted ASU No. 2018-15 prospectively to eligible costs incurred on or after February 1, 2020 and the implementation did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to The Disclosure Requirements for Fair Value Measurement, which modified the disclosure requirements on fair value measurements. Since the standard affects only disclosure requirements, the adoption of the standard did not have an impact on our consolidated financial statements.

New Accounting Pronouncements Not Yet Effective

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU No. 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. ASU No. 2020-06 also eliminates the treasury stock method to calculate diluted earnings per share and requires the if-converted method for convertible instruments. We early adopted ASU No. 2020-06 as of February 1, 2021 using the modified retrospective transition method. The provisionsPrior period financial statements have not been restated upon adoption.

Upon adoption of ASU No. 2020-06, we no longer presented the conversion feature of our 1.50% convertible senior notes due June 1, 2021 (the “2014 Notes”), in equity. Instead, we combined the previously separated equity component with the liability component, which prior to maturity of the 2014 Notes, was classified as debt, thereby eliminating the subsequent amortization of the debt discount as interest expense. Similarly, the portion of issuance costs previously allocated to equity was reclassified to debt and amortized as interest expense until the 2014 Notes matured. Accordingly, we recorded a decrease to accumulated deficit of approximately $44.9 million, a decrease to additional paid-in capital of $43.4 million, a decrease to temporary equity of $4.8 million, an increase to current maturities of long-term debt of $4.4 million, a decrease to deferred tax liabilities of $0.9 million, and an increase in debt issuance costs of $0.1 million. There was no impact to earnings per share as a result of the adoption.

New Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU No. 2020-04 provides optional expedients and exceptions for applying GAAP if certain criteria are applicablemet to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. In January 2021, the FASB issued Update 2021-01, Reference Rate Reform (Topic 848): Scope. The update provides additional optional guidance on the transition from LIBOR to include derivative instruments that use an interest rate for margining, discounting or contract price alignment. The standard will ease, if warranted, the requirements for accounting for the future effects of the rate reform. An entity may elect to apply the amendments prospectively through December 31, 2022. A portion of our indebtedness bears interest at variable interest rates, primarily based on euro-dollar LIBOR. We continue to monitor the impact of the discontinuance of LIBOR or another reference rate will have on our contracts, hedging relationships and other transactions. We are currently assessing the impact of this standard on our financial condition and results of operations.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. We do not expect the adoption of ASU No. 2021-04 to have any impact on our consolidated financial statements as the effect will largely depend on the terms of written call options or financings issued or modified in the future.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with early adoption permitted no earlier thanCustomers, which will require companies to apply the definition of a performance obligation under ASC Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2020. We are required to adopt this standard in the first quarter of the year ending January 31, 2023. The update permits the use of either the modified retrospective or fully retrospective method of transition.2022, with early adoption permitted. We are currently reviewingevaluating the impact of this standard to assess the impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which affects general principles within Topic 740, Income Taxes, and is meant to simplify and reduce the cost of accounting for income taxes. This standard is effective for interim and annual reporting periods beginning after December 15, 2020. We are currently reviewing this standard but do not expect that it will have a material impact on our consolidated financial statements.


2.DISCONTINUED OPERATIONS

On February 1, 2021 (the “Spin-Off Date”), we completed the previously announced Spin-Off of Cognyte by way of a pro rata distribution of all of the then-issued and outstanding ordinary shares of Cognyte to holders of record of our common stock as of the close of business on January 25, 2021.

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To effect the Spin-Off and provide a framework for our relationship with Cognyte post Spin-Off we entered into several agreements with Cognyte, including the following:

a Separation and Distribution Agreement;
a Tax Matters Agreement;
an Employee Matters Agreement;
a Transition Services Agreement;
an Intellectual Property Cross License Agreement; and
a Trademark Cross License Agreement.

These agreements provide for the allocation of assets, employees, liabilities, and obligations (including property, employee benefits, litigation, and tax-related assets and liabilities) between us and Cognyte attributable to periods prior to, at and after the Spin-Off.

Under the Transition Services Agreement with Cognyte, we and Cognyte agreed to provide and/or make available various administrative services and assets to each other for a given period based on each individual service, with an option to extend certain services after the first year. In no case will services be provided for more than 24 months after the Spin-Off Date. In consideration for such services, we and Cognyte each paid fees to the other for the services provided, and those fees were generally in amounts intended to allow the party providing services to recover all of its direct and indirect costs incurred in providing those services, plus a standard markup, and subject to a mutually agreed-upon increase following an extension of the initial service term. The fees charged for the first year of services were fixed. Fees for services provided by third-party suppliers were billed on a straight pass-through basis. For the year ended January 31, 2022, we invoiced Cognyte $5.9 million, and Cognyte invoiced us $1.1 million, for transition services provided under the Transition Services Agreement. As of January 31, 2022, the performance of services under the Transition Services Agreement was substantially concluded.

Under the Tax Matters Agreement with Cognyte, we and Cognyte each agreed to share the obligation to pay any taxes as shown on tax returns filed by Cognyte (or any member of its group), on one hand, and us (or any member of our group), on the other hand, such that we will be primarily responsible for any taxes related to, or arising in connection with our business and Cognyte will be responsible for any taxes related to, or arising in connection with, the Cognyte Business, regardless of which party prepares and files any such tax return and whether such taxes arise prior to or after the Spin-Off. We and Cognyte also agreed to share responsibility for preparing relevant tax returns, which responsibility will depend on the type of tax return and the period for which such tax return is being filed. We and Cognyte agreed to indemnify each other under the Tax Matters Agreement for certain actions or inactions.

The Spin-Off met the criteria for classification as “discontinued operations” in accordance with the accounting guidance upon completion of the separation, and as such, the results of our former Cognyte Business have been classified as discontinued operations in our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows for all periods presented. As of January 31, 2022, there were no assets or liabilities from discontinued operations associated with Cognyte. There was no revenue earned or costs and expenses incurred by discontinued operations during the year ended January 31, 2022.

The following table summarizes the major classes of line items included within discontinued operations in our consolidated statements of operations for the years ended January 31, 2021 and 2020:

Year ended January 31,
(in thousands)20212020
Revenue$443,458 $457,109 
Cost of revenue128,043 159,603 
Operating expenses264,132 207,677 
Other income, net6,604 3,041 
Income from discontinued operations before benefit from income taxes57,887 92,870 
Provision for income taxes9,393 10,677 
Net income from discontinued operations48,494 82,193 
Net income from discontinued operations attributable to noncontrolling interests6,107 6,420 
Net income from discontinued operations attributable to Verint Systems Inc. common shares$42,387 $75,773 

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The following table summarizes the assets and liabilities that were transferred to Cognyte on February 1, 2021 and presented as discontinued operations in our consolidated balance sheet as of January 31, 2021:

(in thousands)January 31, 2021
Assets
Current Assets:
Cash and cash equivalents$78,570 
Restricted cash and cash equivalents, and restricted bank time deposits27,042 
Short-term investments4,713 
Accounts receivable, net175,001 
Contract assets, net20,317 
Inventories14,542 
Prepaid expenses and other current assets34,741 
Total current assets of discontinued operations354,926
Property and equipment, net37,152 
Operating lease right-of-use assets31,040 
Goodwill158,183 
Intangible assets, net5,299 
Deferred income taxes7,202 
Other assets42,076 
Total long-term assets of discontinued operations280,952
Total assets of discontinued operations$635,878
Liabilities
Current Liabilities:
Accounts payable$41,512 
Accrued expenses and other current liabilities100,189 
Contract liabilities127,012 
Total current liabilities of discontinued operations268,713
Long-term contract liabilities22,037 
Operating lease liabilities23,174 
Deferred income taxes3,985 
Other liabilities8,922 
Total long-term liabilities of discontinued operations58,118
Total liabilities of discontinued operations$326,831

In connection with the Spin-Off, $17.1 million of accumulated other comprehensive income, net of income taxes, related to foreign currency translation adjustments and foreign exchange contracts designated as cash flow hedges were transferred to Cognyte on the Spin-Off Date. Additionally, Verint transferred its interests in Cognyte Technologies Israel Ltd. (formerly Verint Systems Limited) (“CTIL”) on the Spin-Off Date. Prior to the transfer, CTIL was a wholly owned subsidiary of Verint and the CTIL board of directors declared a cash dividend in the aggregate amount of $35.0 million payable to Verint, as its sole holder of record of ordinary shares, on January 29, 2021. In April 2021, we received the dividend from Cognyte less applicable withholding taxes. The $78.6 million of cash and cash equivalents shown in the table above does not reflect the payment of the dividend, which occurred after the completion of the Spin-Off.


3.REVENUE RECOGNITION

Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. When an arrangement contains multiple performance obligations, we account for individual performance obligations separately if they are distinct. We recognize revenue through the application of the following five steps:

1) Identify the contract(s) with a customer
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A contract with a customer exists when (i) we enter into an enforceable contract with the customer that defines each party’s rights regarding the goods 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’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or in the case of a new customer, published credit and financial information pertaining to the customer. Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer purchase order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Multiple contracts with a single counterparty entered into at the same time are evaluated to determine if the contracts should be combined and accounted for as a single contract.

2) Identify the performance obligations in the contract
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Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or services either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, we must apply judgment to determine whether promised goods or services are capable of being distinct and are distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation. Generally, our contracts do not include non-distinct performance obligations, but certain Cyber Intelligence customers require design, development,goods or significant customization of our products to meet their specific requirements, in which case the products and services are combined into one distinct performance obligation.services.

3) Determine the transaction price
The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer. We assess the timing of transfer of goods and services to the customer as compared to the timing of payments to determine whether a significant financing component exists. As a practical expedient, we do not assess the existence of a significant financing component when the difference between payment and transfer of deliverables is a year or less, which is the case in the majority of our customer contracts. The primary purpose of our invoicing terms is not to receive or provide financing from or to customers. Our Cyber Intelligence contracts may require an advance payment to encourage customer commitment to the project and protect us from early termination of the contract. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price, if we assessed that it is probable 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 there will not be a significant revenue reversal due to a return or refund.

4) Allocate the transaction price to the performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct goods or services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, we must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. We allocate the 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 single performance obligation, when the payment terms of the variable amount relate solely to our efforts to satisfy that distinct performance obligation and it results in an allocation that is consistent with the overall allocation objective of ASU No. 2014-09. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. We determine standalone selling price (“SSP”) based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, we estimate the SSP taking into account available information such as market conditions, including geographic or regional specific factors, competitive positioning, internal costs, profit objectives, and internally approved pricing guidelines related to the performance obligation.

5) Recognize revenue when (or as) the entity satisfies a performance obligation
We satisfy performance obligations either over time or at a point in time depending on the nature of the underlying promise. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer. In the case of contracts that include customer acceptance criteria, revenue is not
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recognized until we can objectively conclude that the product or service meets the agreed-upon specifications 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 or services we transfer to our customers. Revenue is measured based on consideration specified in a contract with a customer, and excludes taxes assessed by a governmental 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 as fulfillment costs and are included in cost of revenue. Historically, these expenses have not been material.
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Nature of Goods and Services

We derive and report our revenue in two categories: (a) productrecurring revenue, including licensing of software products,which includes bundled SaaS, unbundled SaaS and the sale of hardware products (which include software that works together with the hardware to deliver the product’s essential functionality), and (b) service and support revenue, including revenue from cloud deployments, bundled SaaS, hosting services, optional managed services, installation services, initial and renewal support project management,revenue, and product warranties, and (b) nonrecurring revenue, which primarily consists of perpetual licenses, hardware, installation services, and business advisory consulting and training services.

Our bundled SaaS contracts are typically comprised of a right to access our software, maintenance, hosting fees and standard managed services. We do not provide the customer with the contractual right 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, maintenance and standard managed services when combined with the hosting service as the hosting service is the only way for the customer to access the software and benefit from the maintenance and managed services. Accordingly, each of the license, maintenance, hosting and standard managed services is not considered a distinct performance obligation in the context of the contract, and are combined into a single performance obligation (“bundled SaaS services”) and recognized ratably over the contract period. Our bundled SaaS customer contracts can consist of fixed, variable, and usage-based fees. Typically, we invoice fees at the outset of the contract, though quarterly or monthly billing terms are included in certain contracts. Certain bundled SaaS contracts include a nonrefundable upfront fee for setup services, which are not distinct from the bundled SaaS services. Non-distinct setup services represent an advanced payment for future bundled SaaS services, and are recognized as revenue when those bundled SaaS services are satisfied, unless the nonrefundable fee is considered to be a material right, in which case the nonrefundable fee is recognized over the expected benefit period, which includes anticipated renewals. We determine SSP for our bundled SaaS services based on the price at which the performance obligation is sold separately, which is observable through past renewal transactions. We satisfy our bundled SaaS services by providing access to our software over time and processing transactions for usage-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 period during which we have an obligation to provide the service. The performance obligation is recognized on a time elapsed basis, by day for which the services are provided.

Our software licenses either provide our customers a perpetual right to use our software or, in the case of unbundled SaaS, 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 provide significant services of integration and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available 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 be estimated. We apply the adjusted market assessment approach, considering both market conditions and entity specific factors such as assessment of historical data of bundled sales of software licenses in combination with other promised goods and services in order to maximize the use of observable inputs. Software SSP is established based on an appropriate discount from our established list price, taking into consideration whether there are certain stratifications of the population with different pricing practices. Revenue for hardware is recognized at a point in time, generally upon shipment or delivery.

In our Cyber Intelligence Solutions segment certain contracts require us to significantly customize our software and these contracts are generally recognized over time as we perform because our performance does not create an asset with an alternative use and we have an enforceable right to payment plus a reasonable profit for performance completed to date. Revenue is recognized over time based on the extent of progress towards completion of the performance obligation. We use labor hours incurred to measure progress for these contracts because it best depicts the transfer of the asset to the customer. Under the labor hours incurred measure of progress, the extent of progress towards completion is measured based on the ratio of labor hours incurred to date to the total estimated labor hours at completion of the distinct performance obligation. Due to the nature of the work performed in these arrangements, the estimation of total labor hours at completion is complex, subject to many variables and requires significant judgment. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected 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 the expected 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 time as the customer simultaneously receives and consumes the benefits of the professional services as the services are performed. Professional services that are billed 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 recognized over 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 related performance obligation. We determine SSP for our professional services based on the price at which the performance obligation is sold separately, which is observable through past transactions.

Our bundled SaaS contracts are typically comprised of a right to access our software, maintenance, hosting fees and standard managed services. We do not provide the customer the contractual right to take possession of the software at any time during the hosting period under these contracts. The customer can only benefit from the SaaS license, maintenance and standard managed services when combined with the hosting service as the hosting service is the only way for the customer to access the software and benefit from the maintenance and managed services. Accordingly, each of the license, maintenance, hosting and standard managed services is not considered a distinct performance obligation in the context of the contract, and are combined into a single performance obligation (“bundled SaaS services”) and recognized ratably over the contract period. Our bundled SaaS customer contracts 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 or quarterly thereafter. Certain bundled SaaS contracts include a nonrefundable upfront fee for setup services, which are not distinct from the bundled SaaS services. Non-distinct setup services represent an advanced payment for future bundled SaaS services, and are recognized as revenue when those bundled SaaS services are satisfied, unless the nonrefundable fee is considered to be a material right, in which case the nonrefundable fee is recognized over the expected benefit period, which includes anticipated renewals. We determine SSP for our bundled SaaS services based on the price at which the performance obligation is sold separately, which is observable through past renewal transactions. We satisfy our bundled SaaS services by providing access to our software over time and processing transactions for usage based contracts. For
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non-usage based fees, the period of time over which we perform is commensurate with the contract term because that is the period during which we have an obligation to provide the service. The performance obligation is recognized on a time elapsed basis, by month for which the services are provided.

Customer support revenue is derived from providing telephoneremote technical support services, bug fixes and unspecified software updates and upgrades to customers on a when-and-if-available basis. Each of these performance obligations provide benefit to the customer on a standalone basis and are distinct in the context of the contract. Each of these distinct performance obligations represent a stand ready obligation to provide service to a customer, which is concurrently delivered and has the same pattern of transfer to the customer, which is why we account for these support services as a single performance obligation. We recognize support services ratably over the contractual term, which typically is one year for perpetual licenses and developone to three years for unbundled SaaS. SSP for support services is developed based on standalone renewal contracts.

Our Customer Engagement solutions are generally sold with a warranty of one year to three years 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 additional performance obligation as services beyond assuring that the software license and hardware complies with agreed-upon specifications are not provided.

Disaggregation of Revenue

The following table provides information about disaggregated revenue fora disaggregation of our Customer Engagementrecurring and Cyber Intelligence segments by product revenue and service and support revenue, as well as by the recurring or nonrecurring nature of revenue for each business segment.revenue. Recurring revenue is the portion of our revenue that we believe is likely to be renewed in the future. The recurrence of these revenue streams in future periods depends on a number of factors including contractual periods and customers' renewal decisions.

For our Customer Engagement segment:

Recurring revenue primarily consists of cloud revenue and initial and renewal support revenue.of:
Cloud revenue, which consists primarily of software as a service (“SaaS”) revenue with someand optional managed services revenue.
SaaS revenue consists predominately of bundled SaaS (software usage rights with standard managed services) with someand unbundled SaaS (comprised of software(software licensing rights accounted for as term-based licenses whereby customers usehave a license to our software with related support for a specific period). Unbundled SaaS can be deployed in the cloud either by us or a cloud partner.
Bundled SaaS revenue is recognized over time and unbundledtime.
Unbundled SaaS revenue is recognized at a point in time, except for the related support which is recognized over time. Unbundled SaaS contracts are eligible for renewal after the initial fixed term, which in most cases is between a one- and three-year time frame. Unbundled SaaS can be deployed in the cloud either by us or a cloud partner.
Support revenue, which consists of initial and renewal support.
Nonrecurring revenue primarily consists of our perpetual licenses, consulting, implementation andhardware, installation services, and training.business advisory consulting and training services.

For our Cyber Intelligence segment:

Recurring revenue primarily consists of initial and renewal support, subscription software licenses, and SaaS in certain limited transactions.
Nonrecurring revenue primarily consists of our perpetual licenses, long-term projects including software customizations 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.

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Year Ended January 31,
(in thousands)202120202019
Revenue by category:
Customer Engagement revenue
Product$199,426 $223,397 $221,721 
Service and support630,821 623,128 574,566 
Total Customer Engagement revenue830,247 846,525 796,287 
Cyber Intelligence revenue
Product206,828 231,478 232,929 
Service and support236,630 225,631 200,531 
Total Cyber Intelligence revenue443,458 457,109 433,460 
Total
Product406,254 454,875 454,650 
Service and support867,451 848,759 775,097 
Total revenue$1,273,705 $1,303,634 $1,229,747 
Revenue by recurrence:
Customer Engagement revenue
Recurring revenue$575,624 $534,378 $465,671 
Nonrecurring revenue254,623 312,147 330,616 
Total Customer Engagement revenue830,247 846,525 796,287 
Cyber Intelligence revenue
Recurring revenue223,405 192,578 165,265 
Nonrecurring revenue220,053 264,531 268,195 
Total Cyber Intelligence revenue443,458 457,109 433,460 
Total
Recurring revenue799,029 726,956 630,936 
Nonrecurring revenue474,676 576,678 598,811 
Total revenue$1,273,705 $1,303,634 $1,229,747 

The following table provides a further disaggregation of revenue for our Customer Engagement segment. In order to conform with the presentation described above, unbundled SaaS revenue for the years ended January 31, 2020 and 2019 has been updated to reflect $4.7 million and $1.8 million, respectively, of unbundled SaaS support revenue which had previously been presented within support revenue.
Year Ended January 31,
(in thousands)202120202019
Customer Engagement revenue:
Recurring revenue
Bundled SaaS revenue$145,962 $115,925 $84,715 
Unbundled SaaS revenue71,990 48,018 26,732 
Optional managed services revenue59,459 56,534 41,103 
Total cloud revenue277,411 220,477 152,550 
Support revenue298,213 313,901 313,121 
Total recurring revenue575,624 534,378 465,671 
Nonrecurring revenue
Perpetual revenue141,840 179,882 196,125 
Professional services revenue112,783 132,265 134,491 
Total nonrecurring revenue254,623 312,147 330,616 
Total Customer Engagement revenue$830,247 $846,525 $796,287 
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Year Ended January 31,
(in thousands)202220212020
Recurring revenue
Bundled SaaS revenue$183,035 $145,962 $115,925 
Unbundled SaaS revenue139,729 71,990 48,018 
Optional managed services revenue65,648 59,459 56,534 
Total cloud revenue388,412 277,411 220,477 
Support revenue244,717 298,213 313,901 
Total recurring revenue633,129 575,624 534,378 
Nonrecurring revenue
Perpetual revenue138,078 141,840 179,882 
Professional services revenue103,302 112,783 132,265 
Total nonrecurring revenue241,380 254,623 312,147 
Total revenue$874,509 $830,247 $846,525 

Contract Balances

The following table provides information about accounts receivable, contract assets, and contract liabilities from contracts with customers:
January 31,
(in thousands)20212020
Accounts receivable, net$381,158 $382,435 
Contract assets, net$57,033 $64,961 
Long-term contract assets, net (included in other assets)$18,429 $1,358 
Contract liabilities$388,045 $397,350 
Long-term contract liabilities$38,539 $40,565 
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January 31,
(in thousands)20222021
Accounts receivable, net$193,831 $206,157 
Contract assets, net$42,688 $36,716 
Long-term contract assets, net (included in other assets)$30,510 $17,210 
Contract liabilities$271,271 $261,033 
Long-term contract liabilities$15,872 $16,502 

We receive payments from customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to multi-year unbundled SaaS contracts and arrangements where our right to consideration is subject to the contractually agreed upon billing schedule. We expect billing and collection of a majority of our contract assets to occur within the next twelve months and asset impairment charges related to contract assets were immaterial for each of the years ended January 31, 2022, 2021, 2020, and 2019.2020. There were two customers inwas one customer, an authorized global reseller of our Cyber Intelligence segmentsolutions, that accounted for a combined $72.6 million and $51.7 millionapproximately 14% of our aggregated accounts receivable and contract assets at January 31, 20212022 and 2020, respectively. These amounts result from both direct and indirect contracts with governmental agencies outside of the United States. which we believe present insignificant credit risk.2021. Credit losses relating to this reseller have historically been immaterial. During the years ended January 31, 20212022 and 2020,2021, we transferred $45.6$37.7 million and $49.1$26.6 million, respectively, to accounts receivable from contract assets recognized at the beginning of each period, as a result of the right to the transaction consideration becoming unconditional. We recognized $55.1$57.4 million and $48.8$43.7 million of contract assets during the years ended January 31, 20212022 and 2020,2021, respectively. Contract assets recognized during each year primarily related to multi-year unbundled SaaS contracts in our Customer Engagement segment that are invoiced annually with license revenue recognized upfront.

Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract. Revenue recognized during the years ended January 31, 20212022 and 20202021 from amounts included in contract liabilities at the beginning of each period was $368.8$247.9 million and $331.6$239.2 million, respectively.

Remaining Performance Obligations

Transaction price allocated to remaining performance obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes contract liabilities and non-cancelable amounts that will be invoiced and recognized as revenue in future periods. The majority of our arrangements are for periods of up to three years, with a significant portion being one year or less.

We elected to exclude amounts of variable consideration attributable to sales- or usage-based royalties in exchange for a license of our IP from the remaining performance obligations. The timing and amount of revenue recognition for our remaining
performance obligations is influenced by several factors, including seasonality, the timing of support renewals, the timing of
delivery of software licenses, the average length of the contract terms, and the revenue recognition for certain projects, particularly in our Cyber Intelligence 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.foreign currency exchange rates.

The following table provides information about when we expect to recognize our remaining performance obligations for each of our operating segments:obligations:

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January 31, 2021January 31, 2020January 31,
(in thousands)(in thousands)Customer EngagementCyber IntelligenceTotalCustomer EngagementCyber IntelligenceTotal(in thousands)20222021
RPO:RPO:RPO:
Expected to be recognized within 1 yearExpected to be recognized within 1 year$405,714 $353,166 $758,880 $374,982 $356,677 $731,659 Expected to be recognized within 1 year$447,428 $405,714 
Expected to be recognized in more than 1 yearExpected to be recognized in more than 1 year229,951 198,572 428,523 117,497 225,056 342,553 Expected to be recognized in more than 1 year274,404 229,951 
Total RPOTotal RPO$635,665 $551,738 $1,187,403 $492,479 $581,733 $1,074,212 Total RPO$721,832 $635,665 

Costs to Obtain and Fulfill Contracts

We capitalize commissions paid to internal sales personnel and agent commissions that are incremental to obtaining customer contracts. We have determined that these commissions are in fact incremental and would not have occurred absent the customer contract. Capitalized sales and agent commissions are amortized 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 immediate to 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 initial commission
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payable on the majority of Customer Engagementour contracts is amortized over the anticipated support renewal period, which is generally four to six years, due to commissions paid on support renewal contracts not being commensurate with amounts paid on the initial contract.

Total capitalized costs to obtain contracts were $58.2$55.8 million as of January 31, 2021,2022, of which $7.3$3.9 million is included in prepaid expenses and other current assets and $50.9$51.9 million is included in other assets on our consolidated balance sheet. Total capitalized costs to obtain contracts were $45.0$48.4 million as of January 31, 2020,2021, of which $7.7$2.0 million is included in prepaid expenses and other current assets and $37.3$46.4 million is included in other assets on our consolidated balance sheet. During the years ended January 31, 2022, 2021, 2020, and 2019,2020, we expensed $49.9$33.1 million, $54.4$26.1 million and $45.7$26.2 million, respectively, of sales and agent commissions, which are included in selling, general and administrative expenses and there were no impairment losses recognized for these capitalized 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 to satisfy the performance obligation under the contract and are expected to be recovered through revenue generated under the contract. Costs to fulfill contracts are expensed to cost of revenue as we satisfy the related performance obligations. Total capitalized costs to fulfill contracts were $13.1$6.1 million as of January 31, 2021,2022, of which $4.8$0.2 million is included in prepaid expenses and other current assets and $8.3$5.9 million is included in other assets on our consolidated balance sheet. Total capitalized costs to fulfill contracts were $14.7$6.5 million as of January 31, 2020,2021, of which $8.4$0.2 million is included in prepaid expenses and other current assets and $6.3 million is included in other assets on our consolidated balance sheet. Deferred cost of revenue is classified in its entirety as current or long-term based on whether the related revenue will be recognized within twelve months of the origination date of the arrangement. The amounts capitalized primarily relate to nonrecurringone-time costs incurred in the initial phase of our bundled SaaS arrangements (i.e., setup costs), which consist of costs related to the installation of systems and processes and prepaid third-party cloud infrastructure costs.processes. Capitalized setup costs are amortized on a straight-line basis over the expected period of benefit, which includes anticipated contract renewals or extensions, consistent with the transfer to the customer of the services to which the asset relates. During the years ended January 31, 2022, 2021, 2020, and 2019,2020, we amortized $16.6$3.2 million, $13.1$2.7 million, and $18.3$1.7 million, respectively, of contract fulfillment costs.


3.4.NET (LOSS) INCOME PER COMMON SHARE ATTRIBUTABLE TO VERINT SYSTEMS INC.

The following table summarizes the calculation of basic and diluted net (loss) income per common share attributable to Verint Systems Inc. for the years ended January 31, 2022, 2021, 2020, and 2019:2020:

Year Ended January 31,
(in thousands, except per share amounts) 202220212020
Net income (loss) from continuing operations$15,651 $(48,601)$(46,510)
Net income from discontinued operations— 48,494 82,193 
Net income (loss)15,651 (107)35,683 
Net income attributable to noncontrolling interests from continuing operations1,238 1,053 579 
Net income attributable to noncontrolling interests from discontinued operations— 6,107 6,420 
Net income (loss) attributable to Verint Systems Inc.14,413 (7,267)28,684 
Dividends on preferred stock(18,922)(7,656)— 
Net (loss) income attributable to Verint Systems Inc. for basic net (loss) income per common share(4,509)(14,923)28,684 
Dilutive effect of dividends on preferred stock— — — 
Net (loss) income attributable to Verint Systems Inc. for diluted net (loss) income per common share$(4,509)$(14,923)$28,684 
Net (loss) income attributable to Verint Systems Inc. common shares
Net loss from continuing operations attributable to Verint Systems Inc. common shares(4,509)(57,310)(47,089)
Net income from discontinued operations attributable to Verint Systems Inc. common shares— 42,387 75,773 
Weighted-average shares outstanding:   
Basic65,591 65,173 66,129 
Dilutive effect of employee equity award plans— — — 
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Year Ended January 31,
(in thousands, except per share amounts) 202120202019
Net (loss) income$(107)$35,683 $70,220 
Net income attributable to noncontrolling interests7,160 6,999 4,229 
Net (loss) income attributable to Verint Systems Inc.(7,267)28,684 65,991 
Dividends on preferred stock(7,656)
Net (loss) income attributable to Verint Systems Inc. for basic net (loss) income per common share(14,923)28,684 65,991 
Dilutive effect of dividends on preferred stock
Net (loss) income attributable to Verint Systems Inc. for diluted net (loss) income per common share$(14,923)$28,684 $65,991 
Weighted-average shares outstanding:   
Basic65,173 66,129 64,913 
Dilutive effect of employee equity award plans1,226 1,332 
Dilutive effect of 1.50% convertible senior notes
Dilutive effect of warrants
Dilutive effect of assumed conversion of preferred stock
Diluted65,173 67,355 66,245 
Net (loss) income per common share attributable to Verint Systems Inc.:   
Basic$(0.23)$0.43 $1.02 
Diluted$(0.23)$0.43 $1.00 
Year Ended January 31,
(in thousands, except per share amounts) 202220212020
Dilutive effect of 2021 Notes— — — 
Dilutive effect of 2014 Notes— — — 
Dilutive effect of warrants— — — 
Dilutive effect of assumed conversion of preferred stock— — — 
Diluted65,591 65,173 66,129 
Basic net (loss) income per common share attributable to Verint Systems Inc.:   
Continuing Operations$(0.07)$(0.88)$(0.71)
Discontinued Operations— 0.65 1.14 
Total basic net (loss) income per common share attributable to Verint Systems Inc.$(0.07)$(0.23)$0.43 
Diluted net (loss) income per common share attributable to Verint Systems Inc.:
Continuing operations$(0.07)$(0.88)$(0.71)
Discontinued operations— 0.65 1.14 
Total diluted net (loss) income per common share attributable to Verint Systems Inc.$(0.07)$(0.23)$0.43 

We excluded the following weighted-average potential common shares from the calculations of diluted net (loss) income per common share during the applicable periods because their inclusion would have been anti-dilutive: 
Year Ended January 31,Year Ended January 31,
(in thousands) (in thousands) 202120202019(in thousands) 202220212020
Common shares excluded from calculation:Common shares excluded from calculation:
Stock options and restricted stock-based awardsStock options and restricted stock-based awards1,337 900 276 Stock options and restricted stock-based awards1,580 1,337 2,126 
1.50% convertible senior notes6,002 6,205 6,205 
2014 Notes2014 Notes481 6,002 6,205 
WarrantsWarrants6,205 6,205 6,205 Warrants117 6,205 6,205 
Preferred Stock2,743 
Series A Preferred StockSeries A Preferred Stock5,498 2,743 — 
Series B Preferred StockSeries B Preferred Stock3,282 — — 

In periods for which we report a net loss attributable to Verint Systems Inc., basic net loss per common share and diluted net loss per common share are identical since the effect of all potential common shares is anti-dilutive and therefore excluded.

WeUpon our adoption of ASU No. 2020-06 on February 1, 2021, use of the treasury stockif-converted method is required for calculating any potential dilutive effect of the conversion spread on our 1.50% convertible senior notes on diluted net income per common share because upon conversion, we are currently obligated to settle the principal amount of our Notes in cash and intend to settle any excess in shares of our common stock.instruments. For the yearsyear ended January 31, 2021, 2020, and 2019, the Notes did not impact the calculation of diluted net income per share as2022, the average price of our common stock as calculated in accordance with the terms of the indenture governing the Notes, did not exceed the $62.08 per share conversion price of $64.46 per share. Likewise, diluted net income per share did not include any effect from the Warrants (as defined in Note 7, “Long-Term Debt”) as the average price of our common stock, as calculated under the terms of the Warrants, did not exceed the exercise price of $75.00 per share2021 Notes, and other requirements for the years ended January 31, 2021 2020, and 2019.

Upon completion of the previously mentioned Spin-Off on February 1,Notes to be convertible were not met. The 2021 the strike prices of the conversion features of our Notes and Warrants were reduced to $40.55 per share and $47.18 per share, respectively. The Notes and Warrants will have a dilutive impact on net income per common share at any time when the average market price of our common stock for a quarterly reporting period exceeds these adjustedthe conversion prices.price.

The Capped Calls (as defined in Note 8, “Long-Term Debt”) do not impact our diluted earnings per common share calculations as their effect would be anti-dilutive. The Capped Calls are generally intended to reduce the potential dilution to our common stock upon any conversion of the 2021 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2021 Notes, in the event that at the time of conversion our common stock price exceeds the $62.08 conversion price, with such reduction and/or offset subject to a cap of $100.00.

There is no impact on our calculation of the dilutive effect of our 2014 Notes upon adoption of ASU No. 2020-06 as we were obligated to settle the principal amount of our 2014 Notes in cash and settled the conversion spread with shares of our common stock in connection with the maturity of the 2014 Notes. Following the completion of the Spin-Off on February 1, 2021, the strike prices of the conversion features of our 2014 Notes and Warrants (as defined in Note 8, “Long-Term Debt”) were reduced to $40.55 per share and $47.18 per share, respectively, which increased the equivalent number of underlying common shares to 9,541,000 and 9,865,000, respectively.

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Our Note Hedges (as defined in Note 7,8, “Long-Term Debt”) dodid not impact the calculation ofour diluted net income (loss)earnings per common share under the treasury stock method,calculations because their effect would be anti-dilutive. However, in connection with the event of an actual conversion of any or allmaturity of the 2014 Notes, the common stock that would beshares delivered to us under the Note Hedges would neutralizeneutralized the dilutive effect of the common stockshares that we would issueissued under the Notes.2014 Notes to settle the conversion premium. As a result, actual conversion of any or allthe settlement of the outstanding 2014 Notes woulddid not increase our outstanding common stock. As

Our Warrants (as defined in Note 8, “Long-Term Debt”) had a dilutive impact on net income per common share to the extent that we reported net income for the applicable period and the average market value of our common stock exceeded the strike price of the Warrants. The Warrants expired incrementally on a series of expirations dates between August 30, 2021 and January 21, 2022. At each expiration date the Warrants were exercised where the market price per share of our common stock exceeded the strike price of the Warrants, and we issued an aggregate of 293,143 shares of our common stock as part of the cashless exercise of approximately 5,031,000 Warrants. There are no Warrants outstanding as of January 31, 2021, up to 6,205,000 shares of common stock could be issued upon exercise of the Warrants. 2022.

Further details regarding the 2021 Notes, Capped Calls, 2014 Notes, Note Hedges, and the Warrants including the impact of the Spin-Off on these instruments, appear in Note 7,8, “Long-Term Debt”.
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On December 4, 2019, we announced that Valor Parent LP, an affiliate ofthe Apax Partners,Investor would invest up to $400.0 million in us, in the form of convertible preferred stock. On May 7, 2020, the initial purchase of $200.0 million of our Series A Preferred Stock closed. On April 6, 2021, in connection with the completion of the Spin-Off, the Apax Investor purchased $200.0 million of our Series B Preferred Stock. The weighted-average common shares underlying the assumed conversion of the Series A Preferred Stock, on an as-converted basis, were excluded from the calculation of diluted net (loss) income per common share for the yearyears ended January 31, 2022 and 2021, as their effect would have been anti-dilutive. Further details regarding the convertible preferred stockPreferred Stock investment appear in Note 9,10, “Convertible Preferred Stock”.


4. 5.CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

The following tables summarize our cash, cash equivalents, and short-term investments as of January 31, 20212022 and 2020:2021:

January 31, 2021January 31, 2022
(in thousands) (in thousands) Cost BasisGross Unrealized GainsGross Unrealized LossesEstimated Fair Value(in thousands) Cost BasisGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
Cash and bank time depositsCash and bank time deposits$321,753 $— $— $321,753 Cash and bank time deposits$201,769 $— $— $201,769 
Money market fundsMoney market funds342,090 — — 342,090 Money market funds127,041 — — 127,041 
Commercial paperCommercial paper29,995 — — 29,995 
Total cash and cash equivalentsTotal cash and cash equivalents$663,843 $ $ $663,843 Total cash and cash equivalents$358,805 $ $ $358,805 
Short-term investments:Short-term investments:Short-term investments:
Bank time depositsBank time deposits$51,013 $$$51,013 Bank time deposits$765 $— $— $765 
Total short-term investmentsTotal short-term investments$51,013 $0 $0 $51,013 Total short-term investments$765 $ $ $765 

January 31, 2020January 31, 2021
(in thousands)(in thousands)Cost BasisGross Unrealized GainsGross Unrealized LossesEstimated Fair Value(in thousands)Cost BasisGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
Cash and bank time depositsCash and bank time deposits$379,057 $— $— $379,057 Cash and bank time deposits$243,183 $— $— $243,183 
Money market fundsMoney market funds89 — — 89 Money market funds342,090 — — 342,090 
Total cash and cash equivalentsTotal cash and cash equivalents$379,146 $ $ $379,146 Total cash and cash equivalents$585,273 $ $ $585,273 
Short-term investments:Short-term investments:Short-term investments:
Bank time depositsBank time deposits$20,215 $$$20,215 Bank time deposits$46,300 $— $— $46,300 
Total short-term investmentsTotal short-term investments$20,215 $0 $0 $20,215 Total short-term investments$46,300 $ $ $46,300 

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Bank time deposits which are reported within short-term investments consist of deposits held outside of the United States with maturities of greater than 90 days, or without specified maturity dates which we intend to hold for periods in excess of 90 days. All other bank deposits are included within cash and cash equivalents.

During the years ended January 31, 2022, 2021, 2020, and 2019,2020, proceeds from maturities and sales of available-for-sale securitiesshort-term investments were $120.9$46.3 million, $59.3$69.8 million, and $33.1$5.8 million, respectively.

The decrease in cash and cash equivalents primarily related to refinancing of our outstanding borrowings, further details of which appear in Note 8, “Long-term Debt”.


5.6.BUSINESS COMBINATIONS AND DIVESTITURES

Year Ended January 31, 20212022

We did not complete any business combinations during the year ended January 31, 2021.

Year Ended January 31, 2020

During the year ended January 31, 2020, we completed 4 business combinations:
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On February 1, 2019, we completed the acquisition of a SaaS workforce optimization company focused on the small and medium-sized business (“SMB”) market as part of our strategy to expand our SMB portfolio. This company has been integrated into our Customer Engagement segment.
On July 25, 2019, we completed the acquisition of a SaaS company focused on cloud-based knowledge management solutions as part of our strategy to add additional artificial intelligence and machine learning capabilities into our portfolio. This company has been integrated into our Customer Engagement segment.
On December 18, 2019, we completed the acquisition of 2 software companies under common control focused on multi source intelligence and fusion analytics. These companies have been integrated into our Cyber Intelligence segment.
On January 13, 2020, we completed the acquisition of a SaaS based company providing web and mobile session replay solutions. This company has been integrated into our Customer Engagement segment.

These business combinations were not individually material to our consolidated financial statements.

The combined consideration for these business combinations was approximately $90.0 million, and consisted of (i) $76.2 million of combined cash paid at closings or shortly thereafter, partially offset by $2.4 million of cash acquired, resulting in net cash consideration at closing of $73.8 million; and (ii) the fair value of the contingent consideration arrangements described below of $15.3 million; offset by (iii) $1.5 million of other purchase price adjustments. For 3 of the business combinations, we agreed to make potential additional cash payments to the respective former shareholders aggregating up to approximately $23.5 million, contingent upon the achievement of certain performance targets over periods extending through January 2022, the fair values of which were estimated to be $15.3 million at the acquisition dates. Cash paid 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 their estimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded as goodwill. The fair value assigned to identifiable intangible assets acquired were determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management.

Included among the factors contributing to the recognition of goodwill in these transactions were synergies in products and technologies, and the addition of skilled, assembled workforces. Of the $51.0 million of goodwill associated with these business combinations, $39.1 million and $11.9 million was assigned to our Customer Engagement and Cyber Intelligence segments, respectively, and $15.7 million of which is deductible for income tax purposes.

Revenue and net income (loss) attributable to these business acquisitions for the year ended January 31, 2020 were not material.

Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these business combinations, totaled $1.7 million and $5.7 million for the years ended January 31, 2021 and 2020, respectively. All transaction and related costs were expensed as incurred and are included in selling, general and administrative expenses.

The purchase price allocations for the business combinations completed during the year ended January 31, 2020 are final.

The following table sets forth the components and the allocations of the combined purchase prices for the business combinations completed during the year ended January 31, 2020, including adjustments identified subsequent to the valuation date, none of which were material:

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(in thousands)Amount
Components of Purchase Prices:
Cash$76,198 
Fair value of contingent consideration15,253 
Other purchase price adjustments(1,480)
Total purchase prices$89,971
Allocation of Purchase Prices:
Net tangible assets (liabilities):
Accounts receivable$3,950 
Other current assets, including cash acquired14,511 
Other assets6,556 
Current and other liabilities(8,648)
Contract liabilities - current and long-term(3,794)
Deferred income taxes(4,061)
Net tangible assets8,514
Identifiable intangible assets:
Customer relationships13,299 
Developed technology14,443 
Trademarks and trade names1,367 
Non-compete agreements1,307 
Total identifiable intangible assets30,416
Goodwill51,041
Total purchase prices allocation$89,971

For these business acquisitions, customer relationships, developed technology, trademarks and trade names, and non-compete agreements were assigned estimated useful lives of from five years to nine years, four years to five years, three years to five years, and three years, respectively, the weighted average of which is approximately 6.1 years.

Year Ended January 31, 2019

ForeSee Results, Inc.Conversocial Limited

On December 19, 2018,August 23, 2021, we completed the acquisition of all of the outstanding shares of ForeSee Results, Inc. and all of the outstanding membership interests of RSR Acquisition LLCConversocial Limited (together “ForeSee”with its subsidiaries, “Conversocial”), a leading cloud Voice of the Customer (“VOC”) vendor with software solutions designedmessaging platform that enables brands to measuredeliver superior customer experiences. Conversocial has offices in London, United Kingdom and benchmark a 360-degree view of the customer across every touch point. ForeSee is based in Ann Arbor, Michigan.New York, New York.

The purchase price of $65.2 million consisted of (i) $58.9$53.4 million of cash paid at closing, funded from cash on hand, partially offset by $0.4$3.2 million of ForeSee’sConversocial’s cash received in the acquisition, resulting in net cash consideration at closing of $58.5$50.2 million; and (ii) a post-closing deferred purchase price adjustment of $6.0 million which was paid in April 2019; and (iii) $0.3$0.2 million of other purchase price adjustments. The acquired business has been integrated into our Customer Engagement operating segment.
The purchase price for ForeSeeConversocial was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair valuevalues assigned to identifiable intangible assets acquired were determined primarily by using the income approach, which discounts the expected future cash flows to present value using estimates and assumptions determined by management.

Among the factors contributing to the recognition of goodwill as a component of the ForeSeeConversocial purchase price allocation were synergies in products and technologies, and the addition of a skilled, assembled workforce. The $34.3acquisition resulted in the recognition of $31.6 million of goodwill, has been assigned to our Customer Engagement segment. Forof which $0.5 million is deductible for income tax purposes $1.1 million of this goodwill is deductible and $33.2$31.1 million is not deductible.

In connection with the purchase price allocation for ForeSee,Conversocial, the estimated fair value of undelivered performance obligations under customer contracts assumed in the acquisition was determined utilizing a cost build-up approach. The cost build-up approach calculated fair value by estimating the costs required to fulfill the obligations plus a reasonable profit margin, which
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approximates the amount that we believe would be required to pay a third party to assume the performance obligations. The estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similar services. As a result, in allocating the purchase price, we recorded $9.8$3.4 million of current and long-term contract liabilities, representing the estimated fair value of undelivered performance obligations for which payment had been received, which will be recognized as revenue as the underlying performance obligations are delivered. For undelivered performance obligations for which payment had not been received, we recorded a $10.2$1.2 million asset as a component of the purchase price allocation, representing the estimated fair value of these obligations, $5.5$0.7 million of which is included within prepaid expenses and other current assets and $4.7$0.5 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,Conversocial, consisting primarily of professional fees and integration expenses, were $2.1 million, $3.5 million, and $3.3$3.4 million for the yearsyear ended January 31, 2021, 2020, and 2019, respectively,2022, and were expensed as incurred and are included in selling, general and administrative expenses.

Revenue and net income (loss) attributable to ForeSeeConversocial included in our consolidated statement of operations for the year ended January 31, 2019 was2022 were not material. A loss before provision (benefit) for income taxes of $6.0 million attributable to ForeSee is included in our consolidated statement of operations for the year ended January 31, 2019.

The purchase price allocation for Conversocial has been prepared on a preliminary basis and changes to the allocation may occur as additional information becomes available during the measurement period (up to one year from the acquisition date). Fair values still under review include values assigned to identifiable intangible assets, deferred income taxes, and reserves for uncertain income tax positions.

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The following table sets forth the components and the allocation of the purchase price for our acquisition of ForeSee, including adjustments identified subsequent to the valuation date, none of which were material:Conversocial:

(in thousands)Amount
Components of Purchase Price:
Cash$58,901 
Deferred purchase price consideration6,00053,409 
Other purchase price adjustments262 (190)
Total purchase price$65,16353,219 
Allocation of Purchase Price:
Net tangible assets (liabilities):
Accounts receivable$7,2451,694 
Other current assets, including cash acquired8,1015,302 
Other assets6,075511 
Current and other liabilities(12,710)(1,945)
Contract liabilities - current and long-term(9,821)(3,410)
Deferred income taxes(10,687)(407)
Net tangible liabilitiesassets(11,797)1,745
Identifiable intangible assets:
Customer relationships19,4009,800 
Developed technology20,0009,900 
Trademarks and trade names3,300200 
Total identifiable intangible assets42,70019,900 
Goodwill34,26031,574 
Total purchase price allocation$65,16353,219 

The acquired customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of seven years, five years, and nine years, four years, and four years,one year, respectively, the weighted average of which is approximately 6.15.9 years. The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.

Other Business Combinations

During the three months ended July 31, 2021, we completed the acquisition of certain assets from a leader in contact center hiring automation that qualified as a business combination. This transaction resulted in increases to goodwill, customer relationships, and acquired technology intangible assets, but was not material to our consolidated financial statements, and as a result, additional business combination disclosures for this acquisition have been omitted. There were no other business combinations during the year ended January 31, 2022.

Year Ended January 31, 2021

We did not complete any business combinations during the year ended January 31, 2021.

Year Ended January 31, 2020

During the year ended January 31, 2019,2020, we completed 3 other business combinations:

On July 18, 2018,February 1, 2019, we completed the acquisition of a SaaS workforce optimization company focused on the small and medium-sized business that has been integrated into(“SMB”) market as part of our Customer Engagement operating segment.strategy to expand our SMB portfolio.
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On November 8, 2018,July 25, 2019, we completed the acquisition of a business that has been integratedSaaS company focused on cloud-based knowledge management solutions as part of our strategy to add additional artificial intelligence and machine learning capabilities into our Cyber Intelligence operating segment, in which we had a $2.2 million, or approximately 19%, noncontrolling equity investment prior to the acquisition.portfolio.
On November 9, 2018,January 13, 2020, we acquired certain technologycompleted the acquisition of a SaaS based company providing web and other assets for use in our Customer Engagement operating segment in a transaction that qualified as a business combination.mobile session replay solutions.

These business combinations were not individually material to our consolidated financial statements.

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The combined consideration for these business combinations was approximately $51.3$65.9 million, including $33.1and consisted of (i) $57.4 million of combined cash paid at closings or shortly thereafter, partially offset by $2.2 million of cash acquired, resulting in net cash consideration at closing of $55.2 million; (ii) the closings.fair value of the contingent consideration arrangements described below of $8.2 million; and (iii) $0.3 million of other purchase price adjustments. For two2 of thesethe business combinations, we also agreed to make potential additional cash payments to the respective former stockholdersshareholders aggregating up to approximately $35.5$14.3 million, contingent upon the achievement of certain performance targets over periods extendingthat extended through January 2021. The2022, the fair values of these contingent consideration obligations waswhich were estimated to be $15.9$8.2 million at the applicable acquisition dates. The acquisition date fair value of our previously held equity interest was approximately $2.2 million and was included in the measurement of the consideration transferred. Cash paid 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 their estimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded as goodwill. The fair value assigned to identifiable intangible assets acquired were determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management.

Included among the factors contributing to the recognition of goodwill in these transactions were synergies in products and technologies, and the addition of skilled, assembled workforces. OfThese acquisitions resulted in the $25.1recognition of a combined $39.1 million of goodwill, associated with these business combinations, $14.3$15.7 million and $10.8 million was assigned to our Customer Engagement and Cyber Intelligence segments, respectively, andof which is deductible for income tax purposes is not deductible.purposes.

Revenue and net income (loss) attributable to these business combinationsacquisitions for the year ended January 31, 20192020 were not material.

Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these business combinations, totaled $0.9$1.3 million and $5.4 million for each of the years ended January 31, 20202021 and 2019,2020, respectively. All transaction and related costs were expensed as incurred and are included in selling, general and administrative expenses.

The purchase price allocations for the business combinations completed during the year ended January 31, 20192020 are final.

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, 2019,2020, including adjustments identified subsequent to the respective valuation dates,date, none of which were material:

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(in thousands)Amount
Components of Purchase Prices: 
Cash$33,13857,355 
Fair value of contingent consideration15,8758,230 
Fair value of previously held equity interestOther purchase price adjustments2,239281 
Total purchase prices$51,25265,866 
Allocation of Purchase Prices:
Net tangible assets (liabilities):
Accounts receivable$1,8971,790 
Other current assets, including cash acquired6,9016,590 
Other assets9,4323,799 
Current and other liabilities(2,151)(5,428)
Contract liabilities - current and long-term(771)(3,240)
Deferred income taxes(7,914)(2,719)
Net tangible assets7,394792 
Identifiable intangible assets:
Customer relationships7,52111,847 
Developed technology10,69213,083 
Trademarks and trade names5001,000 
Total identifiable intangible assets18,71325,930 
Goodwill25,14539,144 
Total purchase prices allocation$51,25265,866 

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For these business combinations,acquisitions, customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of from seven years to tennine years, threefour years to five years, and four years to five years, respectively, the weighted average of which is approximately 6.66.4 years.

Other Business Combination Information

The pro forma impact of all business combinations completed during the three years ended January 31, 20212022 was not material to our historical consolidated operating results and is therefore not presented.

The acquisition date fair values of contingent consideration obligations associated with business combinations are estimated based on probability adjusted present values of the consideration expected to be transferred using significant inputs that are not observable in the market. Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving the performance targets and discount rates consistent with the level of risk of achievement. At each reporting date, we revalue the contingent consideration obligations to their fair values and record increases and decreases in fair value within selling, general and administrative expenses in our consolidated statements of operations. Changes in the fair value of the contingent consideration obligations result from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets.

For the years ended January 31, 2021,2022 and 2020, and 2019, we recorded benefitscharges of $4.5 million, $0.5$0.9 million and $3.6$4.9 million, respectively, and we recorded a benefit of $0.8 million in the year ended January 31, 2021, within selling, general and administrative expenses for changes in the fair values of contingent consideration obligations associated with business combinations. The aggregate fair value of the remaining contingent consideration obligations associated with business combinations was $18.6$7.8 million at January 31, 2021,2022, all of which $12.5 million was recorded within accrued expenses and other current liabilities, and $6.1 million was recorded within other liabilities.

Payments of contingent consideration earned under these agreements were $20.1$9.6 million, $33.1$15.2 million, and $13.6$29.7 million for the years ended January 31, 2022, 2021, 2020, and 2019,2020, respectively.

Divestiture

In January 2020, we completed the sale of an insignificant subsidiary in our Customer Engagement segment, which qualified as a separate business, as it no longer fit with our strategic direction or growth targets. In accordance with the terms of the sale agreement, the aggregate purchase price is equal to a percentage of net sales of the former subsidiary’s products during the thirty-six month period following the transaction closing date. We determined the estimated fair value of the contingent
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consideration with the assistance of a third-party valuation specialist and estimates made by management. The transaction reduced goodwill by $1.1 million and intangible assets by $1.9 million. The transaction resulted in a loss of approximately $2.2 million, which was recorded as part of selling, general, and administrative expenses in our consolidated statement of operations for the year ended January 31, 2020. Please refer to Note 13,14, “Fair Value Measurements” for a more detailed discussion of changes in the estimated fair value of the contingent consideration.

Spin-Off

As more fully described in Note 19, “Subsequent Events”, on December 4, 2019, we announced our intent to spin off our Cyber Intelligence Solutions business into an independent publicly traded company through a pro rata distribution to our common stockholders. The Spin-Off was completed on February 1, 2021.

The results of operations for our Cyber Intelligence Solutions business have been included within continuing operations for all historical periods presented herein, as the held-for-sale criterion was not met until the Spin-Off occurred on February 1, 2021. Effective in the first quarter of the fiscal year ending January 31, 2022, the historical results of our Cyber Intelligence Solutions business will be presented as discontinued operations for all historical periods presented.


6.7.INTANGIBLE ASSETS AND GOODWILL

Acquisition-related intangible assets, excluding certain intangible assets previously acquired that were fully amortized and removed from our consolidated balance sheets, consisted of the following as of January 31, 20212022 and 2020:2021:

January 31, 2021 January 31, 2022
(in thousands)(in thousands)CostAccumulated
Amortization
Net(in thousands)CostAccumulated
Amortization
Net
Intangible assets with finite lives:Intangible assets with finite lives:   Intangible assets with finite lives:   
Customer relationshipsCustomer relationships$469,423 $(358,824)$110,599 Customer relationships$467,408 $(375,827)$91,581 
Acquired technologyAcquired technology296,311 (262,035)34,276 Acquired technology229,501 (203,895)25,606 
Trade namesTrade names10,575 (7,230)3,345 Trade names5,677 (4,610)1,067 
Distribution networkDistribution network4,440 (4,440)Distribution network2,440 (2,440)— 
Non-competition agreements1,307 (484)823 
Total intangible assetsTotal intangible assets$782,056 $(633,013)$149,043 Total intangible assets$705,026 $(586,772)$118,254 

 January 31, 2020
(in thousands)CostAccumulated
Amortization
Net
Intangible assets with finite lives:   
Customer relationships$465,130 $(328,069)$137,061 
Acquired technology294,841 (241,585)53,256 
Trade names12,957 (6,783)6,174 
Distribution network4,440 (4,440)
Non-competition agreements1,307 (34)1,273 
Total intangible assets$778,675 $(580,911)$197,764 
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The following table presents net acquisition-related intangible assets by reportable segment as of January 31, 2021 and 2020: 
January 31,
(in thousands)20212020
Customer Engagement$143,744 $189,896 
Cyber Intelligence5,299 7,868 
Total$149,043 $197,764 
 January 31, 2021
(in thousands)CostAccumulated
Amortization
Net
Intangible assets with finite lives:   
Customer relationships$464,586 $(356,064)$108,522 
Acquired technology222,040 (189,687)32,353 
Trade names9,424 (6,555)2,869 
Distribution network2,440 (2,440)— 
Total intangible assets$698,490 $(554,746)$143,744 

Total amortization expense recorded for acquisition-related intangible assets was $49.9$46.8 million, $55.4$47.7 million, and $56.4$52.4 million for the years ended January 31, 2022, 2021, 2020, and 2019,2020, respectively. The reported amount of net acquisition-related intangible assets can fluctuate from the impact of changes in foreign currency exchange rates on intangible assets not denominated in U.S. dollars.
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Estimated future amortization expense on finite-lived acquisition-related intangible assets is as follows:

(in thousands)(in thousands) (in thousands) 
Years Ending January 31,Years Ending January 31,AmountYears Ending January 31,Amount
2022$46,846 
2023202338,806 2023$40,479 
2024202428,728 202431,359 
2025202511,987 202514,978 
2026202610,111 202613,681 
202720279,733 
ThereafterThereafter12,565 Thereafter8,024 
TotalTotal$149,043 Total$118,254 

We recorded $0.5$0.4 million of impairments for certain acquired technology assets, which is included within product cost of revenue, and $0.1 million of impairments for certain trade names, which is included within selling, general and administrative expenses for the year ended January 31, 2022. There were no material impairments for the years ended January 31, 2021 and 2020, respectively. NaN impairments of acquired intangible assets were recorded during the year ended January 31, 2019.2020.

Goodwill activity for the years ended January 31, 2021,2022, and 2020, in total and by reportable segment,2021 was as follows:
  Reportable Segment
(in thousands)TotalCustomer EngagementCyber Intelligence
Year Ended January 31, 2020:
Goodwill, gross, at January 31, 2019$1,484,346 $1,326,370 $157,976 
Accumulated impairment losses through January 31, 2019(66,865)(56,043)(10,822)
Goodwill, net, at January 31, 20191,417,481 1,270,327 147,154 
Business combinations, including adjustments to prior period acquisitions51,301 39,704 11,597 
Foreign currency translation and other429 1,037 (608)
Goodwill, net, at January 31, 2020$1,469,211 $1,311,068 $158,143 
Year Ended January 31, 2021:
Goodwill, gross, at January 31, 2020$1,536,076 $1,367,111 $168,965 
Accumulated impairment losses through January 31, 2020(66,865)(56,043)(10,822)
Goodwill, net, at January 31, 20201,469,211 1,311,068 158,143 
Adjustments to prior period business combinations300 300 
Foreign currency translation and other16,079 16,339 (260)
Goodwill, net, at January 31, 2021$1,485,590 $1,327,407 $158,183 
Balance at January 31, 2021  
Goodwill, gross, at January 31, 2021$1,552,455 $1,383,450 $169,005 
Accumulated impairment losses through January 31, 2021(66,865)(56,043)(10,822)
Goodwill, net, at January 31, 2021$1,485,590 $1,327,407 $158,183 
(in thousands)Total
Year Ended January 31, 2021:
Goodwill, gross, at January 31, 2020$1,367,111 
Accumulated impairment losses through January 31, 2020(56,043)
Goodwill, net, at January 31, 20201,311,068 
Foreign currency translation and other16,339 
Goodwill, net, at January 31, 2021$1,327,407
Year Ended January 31, 2022:
Goodwill, gross, at January 31, 2021$1,383,450 
Accumulated impairment losses through January 31, 2021(56,043)
Goodwill, net, at January 31, 20211,327,407 
Business combinations36,006 
Foreign currency translation and other(9,992)
Goodwill, net, at January 31, 2022$1,353,421
Balance at January 31, 2022
Goodwill, gross, at January 31, 2022$1,409,464 
Accumulated impairment losses through January 31, 2022(56,043)
Goodwill, net, at January 31, 2022$1,353,421

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For purposes of reviewing for potential goodwill impairment, as of January 31, 2021,2022, we had 31 reporting units, consisting of Customer Engagement, Cyber Intelligence (excluding situational intelligence solutions), and Situational Intelligence, a component of our Cyber Intelligence operating segment.unit. Based on our November 1, 20202021 and 20192020 quantitative goodwill impairment reviews, we concluded that the estimated fair values of all of our reporting unitsunit significantly exceeded theirits carrying values, respectively.value.

We evaluated whether there has been a change in circumstances or indicators of potential impairment between November 1, 2020 and January 31, 2021 and as of the date of this filing in response to the economic impacts seen globally from COVID-19. The valuation methodology to determine the fair value of the reporting units is sensitive to management's forecasts of future revenue, profitability and market conditions. At this time, the impact of COVID-19 on our forecasts is uncertain and increases the subjectivity that is involved in evaluating goodwill for potential impairment. Our reporting unit fair values may decline as a result of delayed or reduced demand for our products and services, driving lower revenue and operating income across our
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businesses. However, given the significant difference between the reporting unit fair values and their carrying values in the most recent quantitative analyses completed as of November 1, 2020, as well as expected long-term recovery within all reporting units, management does not believe that these events were sufficiently severe to result in an impairment trigger. We will continue to monitor conditions to determine whether any events or changes in circumstances may trigger a need to assess for impairment. No changes in circumstances or indicators of potential impairment were identified between November 1 and January 31 in each of the years ended January 31, 20202022 and 2019.2021.
 
NaNNo goodwill impairment was identified for the years ended January 31, 2022, 2021, 2020, and 2019.2020.


7.8.LONG-TERM DEBT

The following table summarizes our long-term debt at January 31, 20212022 and 2020:2021: 
January 31,January 31,
(in thousands)(in thousands)20212020(in thousands)20222021
1.50% Convertible Senior Notes$386,887 $400,000 
June 2017 Term Loan410,125 414,375 
Borrowings under 2017 Revolving Credit Facility45,000 
2021 Notes2021 Notes$315,000 $— 
2014 Notes2014 Notes— 386,887 
2017 Term Loan2017 Term Loan100,000 410,125 
Less: Unamortized debt discounts and issuance costsLess: Unamortized debt discounts and issuance costs(7,518)(22,327)Less: Unamortized debt discounts and issuance costs(8,046)(7,518)
Total debtTotal debt789,494 837,048 Total debt406,954 789,494 
Less: current maturitiesLess: current maturities386,713 4,250 Less: current maturities— 386,713 
Long-term debtLong-term debt$402,781 $832,798 Long-term debt$406,954 $402,781 

1.50% Convertible Senior2021 Notes

On April 9, 2021, we issued $315.0 million in aggregate principal amount of 0.25% convertible senior notes due April 15, 2026, unless earlier converted by the holders pursuant to their terms. The 2021 Notes are unsecured and pay interest in cash semiannually in arrears at a rate of 0.25% per annum.

We used a portion of the net proceeds from the issuance of the 2021 Notes to pay the costs of the capped call transactions described below. We also used a portion of the net proceeds from the issuance of the 2021 Notes, together with the net proceeds from the April 6, 2021 issuance of $200.0 million of Series B Preferred Stock, to repay a portion of the outstanding indebtedness under our 2017 Credit Agreement described below, to terminate an interest rate swap agreement, and to repurchase shares of our common stock. The remainder is being used for working capital and other general corporate purposes.

The 2021 Notes are convertible into shares of our common stock at an initial conversion rate of 16.1092 shares per $1,000 principal amount of 2021 Notes, which represents an initial conversion price of approximately $62.08 per share, subject to adjustment upon the occurrence of certain events, and subject to customary anti-dilution adjustments. Prior to January 15, 2026, the 2021 Notes will be convertible only upon the occurrence of certain events and during certain periods, and will be convertible thereafter at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2021 Notes. Upon conversion of the 2021 Notes, holders will receive cash up to the aggregate principal amount, with any remainder to be settled with cash or common stock, or a combination thereof, at our election. As of January 31, 2022, the 2021 Notes were not convertible.

We incurred approximately $8.9 million of issuance costs in connection with the 2021 Notes, which have been deferred and are presented as a reduction of long-term debt, and which are being amortized as interest expense over the term of the 2021 Notes. Including the impact of the deferred debt issuance costs, the effective interest rate on the 2021 Notes was approximately 0.83% at January 31, 2022.

Based on the closing market price of our common stock on January 31, 2022, the if-converted value of the 2021 Notes was less than their aggregate principal amount.

2014 Notes

On June 18, 2014, we issued $400.0 million in aggregate principal amount of 1.50% convertible senior notes, duewith a maturity date of June 1, 2021. Net proceeds from the 2014 Notes after underwriting discounts were $391.9 million. The 2014 Notes paywere unsecured and paid interest in cash semiannually in arrears at a rate of 1.50% per annum.
The
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Effective December 1, 2020 until the close of business on the second scheduled trading day immediately preceding the June 1, 2021 maturity date, holders could have surrendered their 2014 Notes were issued concurrently with our public issuancefor conversion regardless of 5,750,000 shares of common stock, the majoritywhether any of the combined net proceeds of which were used to partially repay certain indebtedness under a prior credit agreement.
The Notes are unsecured, and are convertible into cashother specified conditions for the principal amount outstanding, with the incremental conversion value settled in shares.had been satisfied. On February 26, 2021, we deposited approximately $390.0 million of cash, representing the full principal amount of the 2014 Notes then outstanding as well as the final interest payment on the 2014 Notes due at maturity, into an escrow account to cash collateralize the 2014 Notes.
In connection with the maturity of the 2014 Notes on June 1, 2021, we paid an aggregate of $389.8 million in cash for the settlement of the 2014 Notes, which included $386.9 million in satisfaction of the outstanding principal of the 2014 Notes and $2.9 million related to the final interest payment on the 2014 Notes. We currently expectfunded the repayment of the outstanding principal amount of the 2014 Notes and accrued interest thereon using the cash we had placed in escrow. Additionally, the 2014 Notes had an incremental conversion value of $57.7 million as the market value per share of our common stock, as measured under the terms of the 2014 Notes, was greater than the conversion price of the 2014 Notes. We issued approximately 1,250,000 shares of common stock to retire the holders of the 2014 Notes at or prior to maturity using our existing cash (includingas payment of the amounts in escrow) and/or with proceedsconversion premium, which we issued from the issuance of new equity or debt.

treasury stock.
As of January 31, 2021, the 2014 Notes had a conversion rate of 15.5129 shares of common stock per $1,000 principal amount of 2014 Notes, which represented an effective conversion price of approximately $64.46 per share of common stock and would have resulted in the issuance of approximately 6,002,000 shares if all of the 2014 Notes had been converted and the conversions were converted. Based on the closing market price of oursettled entirely in common stock on January 31, 2021, the if-converted value of the Notes was approximately $56.2 million greater than the aggregate principal amount of the Notes.stock. As a result of the Spin-Off, the conversion rate was adjusted to 24.6622 shares of common stock per $1,000 principal amount of 2014 Notes, which representsrepresented an effective conversion price of $40.55 per share of common stock and would resulthave resulted in the issuance of approximately 9,541,000 shares if all of the 2014 Notes had been converted prior to maturity and the conversions were converted. Upon adjustment of the conversion ratio on the date of Spin-Off, the if-converted value of the Notes continued to be greater than the aggregate principal amount of the Notes.settled entirely in common stock.

InAt issuance, in accordance with then-applicable accounting guidance for convertible debt with a cash conversion option, we separately accounted for the debt and equity components of the 2014 Notes in a manner that reflected our estimated nonconvertible debt borrowing rate. We estimated the debt and equity components of the 2014 Notes to be $319.9 million and $80.1 million, respectively, at the issuance date, assuming a 5.00% non-convertible borrowing rate. The equity component was recorded as an increase to additional paid-in capital. TheThrough January 31, 2021, the excess of the principal amount of the debt component over its carrying amount (the “debt discount”) iswas being amortized as interest expense over the term of the 2014 Notes using the effective interest method. The equity component iswas not remeasured as long as it continuescontinued to meet the conditions for equity classification.

We allocated transaction costs related to the issuance of the 2014 Notes, including underwriting discounts, of $7.6 million and $1.9 million to the debt and equity components, respectively. Issuance costs attributable to the debt component of the 2014 Notes are
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presented as a reduction of long-term debt and are beingwere amortized as interest expense over the term of the 2014 Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital, a component of stockholders’ equity.capital.

During the three months ended July 31, 2020, we repurchased $13.1 million principal amount of ourthe 2014 Notes (the “Repurchased 2014 Notes”) in open market transactions for an aggregate of $13.0 million in cash. As a result, we recordedcash, resulting in a debt extinguishment loss of $0.1 million, and a $0.2 million charge to additional paid-in-capital.

At January 31, 2021, because the 2014 Notes were convertible, $4.8 million of the 2014 Notes’ equity component was classified as temporary equity on our consolidated balance sheet, representing the difference between the fair value ofprincipal amount and the liability component and carrying value of the Repurchased Notes at the repurchase dates. The remaining cash payments were allocated to the reacquisition of the equity component of the Repurchased Notes and were recorded as a charge to additional paid-in capital. Thenet carrying amount of the equity component, net of issuance costs, was $78.0 million at January 31, 2021, inclusive of a $0.2 million reduction resulting from the repurchases during this period.

As of January 31, 2021, the carrying value of the debt component was $382.0 million, which is net of unamortized debt discount and issuance costs of $4.4 million and $0.4 million, respectively. Including the impact of the debt discount and related deferred debt issuance costs, the effective interest rate on the Notes was approximately 5.31% for the year ended January 31, 2021, and 5.29% for each of the years ended January 31, 2020, and 2019, respectively.

Effective December 1, 2020 until the close of business on the second scheduled trading day immediately preceding the June 1, 2021 maturity date, holders may surrender their Notes for conversion regardless of whether any of the other specified conditions for conversion have been satisfied. To the extent that we could receive note conversion requests prior to the maturity of the Notes, a portion of the equity component is classified as temporary equity, which is measured as the difference between the principal and net carrying amount of the2014 Notes that could be requested for conversion. We reclassified $4.8 million

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU No. 2020-06 eliminates the liability and equity component into temporaryseparation model for convertible instruments with a cash conversion feature, such as the 2014 Notes.

As permitted, on February 1, 2021, we early adopted ASU No. 2020-06, which otherwise would have been effective for us on February 1, 2022. As a result, effective February 1, 2021, we no longer presented separate liability and equity components for the 2014 Notes on our consolidated balance sheet assheet. We implemented the provisions of ASU No. 2020-06 using the modified retrospective approach, such that comparative information has not been restated and continues to be reported under accounting standards in effect for those periods.

The adoption of ASU No. 2020-06 resulted in the $78.0 million carrying value of the 2014 Notes’ equity component at January 31, 2021.2021, which included applicable issuance costs and the portion classified within temporary equity, being reclassified and combined with the liability component of the 2014 Notes. This resulted in a $43.4 million decrease to additional paid-in capital,
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a $4.8 million decrease to temporary equity, a $4.4 million increase to current maturities of long-term debt, a $0.9 million decrease to deferred tax liabilities, a $0.1 million increase in unamortized debt issuance costs (a component of long-term debt), and a $44.9 million decrease to our accumulated deficit.

As the 2014 Notes arewere due June 1, 2021, they are classified within current maturities of long-term debt on our consolidated balance sheetsheets as of January 31, 2021.

Capped Calls, Note Hedges and Warrants

Capped Calls

In connection with the issuance of the 2021 Notes, on April 6, 2021 and April 8, 2021, we entered into capped call transactions (the “Capped Calls”) with certain counterparties. The Capped Calls are generally intended to reduce the potential dilution to our common stock upon any conversion of the 2021 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2021 Notes, in the event that at the time of conversion our common stock price exceeds the conversion price, with such reduction and/or offset subject to a cap.

The Capped Calls exercise price is equal to the $62.08 initial conversion price of each of the 2021 Notes, and the cap price is $100.00, each subject to certain adjustments under the terms of the Capped Calls. Our exercise rights under the Capped Calls generally trigger upon conversion of the 2021 Notes, and the Capped Calls terminate upon maturity of the 2021 Notes, or the first day the 2021 Notes are no longer outstanding. As of January 31, 2022, no Capped Calls have been exercised.

Pursuant to their terms, the Capped Calls qualify for classification within stockholders’ equity, and their fair value is not remeasured and adjusted as long as they continue to qualify for stockholders’ equity classification. We paid approximately $41.1 million for the Capped Calls, including applicable transaction costs, which was recorded as a reduction to additional paid-in capital.

Note Hedges and Warrants

Concurrently with the issuance of the 2014 Notes, we entered into convertible note hedge transactions (the “Note Hedges”) and sold warrants (the “Warrants”). The combination of the Note Hedges and the Warrants served to increase the effective initial conversion price for the 2014 Notes to $75.00 per share. Subsequent to the Spin-Off, as a result of conversion rate adjustments, the Note Hedges and the Warrants will serveserved to increase the effective conversion price for the 2014 Notes to $47.18 per share. The Note Hedges and Warrants arewere each separate instruments from the 2014 Notes.
Note Hedges
Pursuant to the Note Hedges, we purchased call options on our common stock, under which we had the right to acquire from the counterparties up to approximately 6,205,000 shares of our common stock, subject to customary anti-dilution adjustments, at a price of $64.46, which equaled the initial conversion price of the 2014 Notes. As a result of the Spin-Off, on February 1, 2021, the call options on our stock were adjusted to allow us to purchase up to 9,541,0009,865,000 shares of our common stock at a price of $40.55, which is equal to the adjusted conversion price of the 2014 Notes. Our exercise rights underWe were permitted to settle the Note Hedges generally trigger upon conversion of the Notes and the Note Hedges terminate upon maturity of the Notes, or the first day the Notes are no longer outstanding. The Note Hedges may be settled in cash, shares of our common stock, or a combination thereof, at our option, and arethe Note Hedges were intended to reduce our exposure to potential dilution upon conversion of the 2014 Notes. As we intend to settle the principal amount of the Notes in cash,We paid $60.8 million for the Note Hedges, will be usedwhich was recorded as a charge to additional paid-in capital. Our exercise rights under the Note Hedges were automatically triggered upon conversion of any 2014 Notes and the Note Hedges otherwise terminated upon maturity of the 2014 Notes on June 1, 2021. In connection with the maturity of the 2014 Notes on June 1, 2021, we received approximately 1,250,000 shares of our common stock from the counterparties under the Note Hedges, which offset any potentialthe dilution resulting from the stock settlement of the conversion ifpremium on the 2014 Notes as the market value per share of our common stock, as measured under the terms of the Note Hedges, iswas greater than the strike price of the Note Hedges. We paid $60.8 million for the Note Hedges, which was recorded as a reduction to additional paid-in capital. As of January 31, 2021, we had not purchased any shares of our common stock under the Note Hedges.
The Note repurchases executedRepurchased 2014 Notes acquired during the three months ended July 31, 2020 as described above did not change the number of common shares subject to the Note Hedges. However, since a Note conversion is a prerequisite to exercisingHedges as the call rightcounterparties agreed that the options under the Note Hedges remained outstanding notwithstanding such repurchase. Upon maturity of the number2014 Notes, we received approximately 42,000 shares of our common shares subjectstock from the counterparties to call under the Note Hedges was effectively reduced sinceas reimbursement for the repurchased Notes can no longer be converted.in-the-money portion of the Repurchased 2014 Notes.
Warrants
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We sold the Warrants to several counterparties. The Warrants initially provided the counterparties rights to acquire from us up to approximately 6,205,000 shares of our common stock at a price of $75.00 per share. As a result of the Spin-Off, the Warrants
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nowthe Warrants were adjusted to provide the counterparties the rights to acquire from us up to approximately 9,541,0009,865,000 shares of our common stock at a price of $47.18 per share. Proceeds from the sale of the Warrants were $45.2 million and were recorded as additional paid-in capital. The Warrants expireexpired incrementally on a series of expiration dates beginning inbetween August 2021.30, 2021 and January 21, 2022. At each expiration ifdate the Warrants were exercised where the market price per share of our common stock exceedsexceeded the strike price of the Warrants, and we will be obligated to issueissued an aggregate of 293,143 shares of our common stock having a value equal to such excess.as part of the cashless exercise of approximately 5,031,000 Warrants. The Warrants could havehad a dilutive effect on net income per share to the extent that the average market value of our common stock, exceedsas measured under the terms of the Warrants, exceeded the strike price of the Warrants. Proceeds from the sale of theThere are no Warrants were $45.2 million and were recordedoutstanding as additional paid-in capital. As of January 31, 2021, no Warrants had been exercised and all Warrants remained outstanding.2022.
The Note Hedges and Warrants both meet the requirementsqualified for classification within stockholders’ equity and therefore no changes to their respective fair values are not remeasured and adjusted as long as these instruments continue to qualifywere recorded in our consolidated statements of operations for stockholders’ equity classification.any period.
Credit Agreements
2017 Credit Agreement

On June 29, 2017, we entered into a credit agreement (the “2017 Credit Agreement”) with certain lenders and terminated a prior credit agreement. The credit agreement was amended in 2018, 2020, and 2021, as further described below (as amended, the “2017 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”), of which $100.0 million and $410.1 million was outstanding at January 31, 2022 and 2021, respectively, and a $300.0 million revolving credit facility maturing on June 29, 2022April 9, 2026 (the “2021 Revolving Credit Facility”), which refinanced our prior $300.0 million revolving credit facility (the “2017 Revolving Credit Facility”), subject to increase 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 were used to repay all outstanding terms loans under our prior credit agreement.
The 2017 Term Loan was subject to an original issuance discount of approximately $0.5 million. This discountmillion, which is being amortized as interest expense over the 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 the 2017 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 reduction of 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 of the impact of the 2018 Amendment was accounted for as a debt modification. For the portion of the 2017 Term Loan which was considered extinguished and replaced by new loans, we wrote off $0.2 million of unamortized deferred debt issuance costs as a loss on early retirement of debt during

During the three months ended January 31, 2018. The remaining unamortizedApril 30, 2021, in addition to our regular quarterly $1.1 million principal payment, we repaid $309.0 million of our 2017 Term Loan, reducing the outstanding balance to $100.0 million. As a result, $1.8 million of deferred debt issuance costs and $0.2 million of unamortized discount are being amortized over the remaining term ofassociated with the 2017 Term Loan.Loan were written off, and are included within losses on early retirements of debt on our consolidated statement of operations for the year ended January 31, 2022. Optional prepayments of loans under the 2017 Credit Agreement are generally permitted without premium or penalty.
On April 9, 2021, we amended the 2017 Credit Agreement (the “2021 Amendment”), pursuant to which we refinanced the 2017 Revolving Credit Facility, which would otherwise have matured on June 29, 2022, with the $300.0 million 2021 Revolving Credit Facility maturing on April 9, 2026.
The maturity dates of the 2017 Term Loan and 2017 Revolving Credit Facility would have been accelerated to March 1, 2021 if on such date any 2014 Notes remained outstanding, unless such outstanding 2014 Notes arewere cash collateralized pursuant to a second amendment to the 2017 Credit Agreement (the “2020 Amendment”), entered into on June 8, 2020. Pursuant to the 2020 Amendment, we were permitted to effect the previously announced Spin-Off of our Cyber Intelligence Solutions business within the parameters set forth in the 2017 Credit Agreement, as amended, and our 2014 Notes would not be deemed to be outstanding if such Notes are cash collateralized in accordance with the 2017 Credit Agreement, as amended, for purposes of the determination of the maturity dates of the 2017 Term Loan and the 2017 Revolving Credit Facility discussed above.above if such 2014 Notes were cash collateralized in accordance with the 2017 Credit Agreement. On February 26, 2021, as noted above, we deposited approximately $390.0 million of cash representingcollateralized the full principal amount of the2014 Notes then outstanding as well as the final interest payment on the Notes due at maturity on June 1, 2021, into an escrow account in satisfaction of the cash collateralization provisions of the 2020 Amendment. Accordingly, the maturity dates of the 2017 Term Loan and 2017 Revolving Credit Facility waswere not accelerated to March 1, 2021.
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We currently expect to retire the Notes at or prior to maturity using our existing cash (including the amounts in escrow) and/or with proceeds from the issuanceTable of new equity or debt.Contents

As of January 31, 2021,2022, the interest rate on the 2017 Term Loan was 2.14%2.10%. Taking into account the impact of the original issuance discount and related deferred debt issuance costs, the effective interest rate on the 2017 Term Loan was approximately 2.34%2.30% at January 31, 2021.2022. As of January 31, 2020,2021, the interest rate on the 2017 Term Loan was 3.85%2.14%.
For borrowings under the 2021 Revolving Credit Facility, and previously under the 2017 Revolving Credit Facility, the margin is determined by reference to our Consolidated Total Debt to Consolidated EBITDA (each as defined in the 2017 Credit Agreement) leverage ratio (the "Leverage Ratio"). In addition, under the 2021 Revolving Credit Facility, and previously under the 2017 Revolving Credit Facility, we are required to pay a commitment fee with respect to unused availability at rates per annum determined by reference to our Leverage Ratio. During the three months ended October 31, 2020, we repaid in full $200.0 million of borrowings then outstanding under the 2017 Revolving Credit Facility using available cash on hand. For borrowings under the 2017 Revolving Credit Facility, the
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margin is determined by reference to our Consolidated Total Debt to Consolidated EBITDA (each as defined in the 2017 Credit Agreement) leverage ratio (the "Leverage Ratio"). As of January 31, 2020, the interest rate on our revolving credit facility borrowings was 3.41%. In addition, we are required to pay a commitment fee with respect to unused availability under the 2017 Revolving Credit Facility at rates per annum determined by reference 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 balance due 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 owned restricted subsidiaries, and are secured by a security interest in substantially all of our assets and the assets of the guarantor subsidiaries, subject to certain exceptions.

The 2017 Credit Agreement contains certain customary affirmative and negative covenants for credit facilities of this type. The 2017 Credit Agreement also contains a financial covenant that, solely with respect to the 2017 Revolving Credit Facility, requires us to maintain a Leverage Ratio of no greater than 4.50 to 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.

2017 Credit Agreement Issuance and Amendment Costs

We incurred debt issuance costs of approximately $6.8 million in connection with the 2017 Credit Agreement, of which $4.1 million were associated with the 2017 Term Loan and $2.7 million were associated with the 2017 Revolving Credit Facility, which were deferred and are being amortized as interest expense over the terms of the facilities underfacilities. During the 2017 Credit Agreement. As noted previously, during the three monthsyear ended January 31, 2018, we wrote off $0.2 million of deferred debt issuance costs associated with the 2017 Term Loan as a result of the 2018 Amendment. WeDuring the year ended January 31, 2021, we incurred $2.1 million of debt modification costs related to the 2020 Amendment, $1.2 million of which were expensed, and $0.9 million of which were deferred (comprised of $0.5 million associated with the 2017 Term Loan, and $0.4 million associated with the 2017 Revolving Credit Facility), and which are being amortized along with the existing unamortized debt issuance costs.

At the time of the 2021 Amendment, there were $1.3 million of unamortized deferred debt issuance costs associated with the 2017 Revolving Credit Facility, of which $0.8 million were associated with commitments under the 2017 Revolving Credit Facility provided by lenders that are continuing to provide commitments under the 2021 Revolving Credit Facility and therefore continued to be deferred, and which are now being amortized over the term of the 2021 Revolving Credit Facility. The remaining $0.5 million of unamortized deferred debt issuance costs associated with the 2017 Revolving Credit Facility were written off and are included within losses on early retirements of debt on our consolidated statement of operations for the year ended January 31, 2022. We incurred $1.5 million of debt modification costs related to the 2021 Amendment, all of which are associated with the 2021 Revolving Credit Facility, which have been deferred and are being amortized along with the previously deferred debt issuance costs over the term of the 2021 Revolving Credit Facility.

Deferred debt issuance costs associated with the 2017 Term Loan are being amortized using the effective interest rate method, and deferred debt issuance costs associated with the 2017 Revolving Credit Facility are being amortized on a straight-line basis.

Future Principal Payments on the Term Loan

As a result of January 31, 2021, future scheduledthe significant 2017 Term Loan principal payments onmade during the three months ended April 30, 2021, no further principal payments are required prior to the maturity of the 2017 Term Loan were as follows:
(in thousands)
Years Ending January 31,Amount
2022$4,250 
20234,250 
20244,250 
2025397,375 
Total$410,125 
on June 29, 2024.

Interest Expense

The following table presents the components of interest expense incurred on the 2021 Notes, 2014 Notes, and on borrowings under our credit agreements2017 Credit Agreement for the years ended January 31, 2022, 2021, 2020, and 2019:2020:
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Year Ended January 31, Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
1.50% Convertible Senior Notes:
2021 Notes:2021 Notes:
Interest expense at 0.25% coupon rateInterest expense at 0.25% coupon rate$639 $— $— 
Amortization of deferred debt issuance costsAmortization of deferred debt issuance costs1,416 — — 
Total Interest Expense - 2021 NotesTotal Interest Expense - 2021 Notes$2,055 $ $ 
2014 Notes:2014 Notes:
Interest expense at 1.50% coupon rateInterest expense at 1.50% coupon rate$5,887 $6,000 $6,000 Interest expense at 1.50% coupon rate$1,933 $5,887 $6,000 
Amortization of debt discountAmortization of debt discount12,884 12,490 11,850 Amortization of debt discount— 12,884 12,490 
Amortization of deferred debt issuance costsAmortization of deferred debt issuance costs1,215 1,177 1,118 Amortization of deferred debt issuance costs522 1,215 1,177 
Total Interest Expense - 1.50% Convertible Senior Notes$19,986 $19,667 $18,968 
Total Interest Expense - 2014 NotesTotal Interest Expense - 2014 Notes$2,455 $19,986 $19,667 
Borrowings under Credit Agreements:
Borrowings under 2017 Credit Agreement:Borrowings under 2017 Credit Agreement:
Interest expense at contractual ratesInterest expense at contractual rates$13,018 $18,021 $17,741 Interest expense at contractual rates$3,366 $13,018 $18,021 
Impact of interest rate swap agreementImpact of interest rate swap agreement4,368 792 Impact of interest rate swap agreement1,014 4,368 792 
Amortization of debt discountsAmortization of debt discounts74 68 67 Amortization of debt discounts18 74 68 
Amortization of deferred debt issuance costsAmortization of deferred debt issuance costs1,811 1,569 1,554 Amortization of deferred debt issuance costs930 1,811 1,569 
Total Interest Expense - Borrowings under Credit Agreements$19,271 $20,450 $19,362 
Total Interest Expense - Borrowings under 2017 Credit AgreementTotal Interest Expense - Borrowings under 2017 Credit Agreement$5,328 $19,271 $20,450 

On May 1, 2020, our interest rate swap agreement no longer qualified as a cash flow hedge for accounting purposes and as such, accumulated deferred losses on our interest rate swap that were previously recorded as a component of accumulated other comprehensive loss will be amortizedwere being reclassified to interest expense in the consolidated statement of operations as interest expense over the remaining term of the interest rate swap, as the previously hedged interest payments occur. occurred. On April 13, 2021, we paid $16.5 million to the counterparty to settle the 2018 Swap (as defined in Note 15, “Derivative Financial Instruments”) prior to its June 2024 maturity, and reclassified the remaining $15.7 million of pretax accumulated deferred losses from accumulated other comprehensive loss within stockholders’ equity to other income (expense) on our consolidated statement of operations for the year ended January 31, 2022. The associated $3.7 million deferred tax asset was reclassified from accumulated other comprehensive loss and netted against income taxes receivable, which are included within prepaid expenses and other current assets on our consolidated balance sheet as of January 31, 2022.

Please refer to Note 14,15, “Derivative Financial Instruments” for a more detailed discussion of our interest rate swap agreement.


8.9.SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION

Consolidated Balance Sheets

Inventories consisted of the following as of January 31, 20212022 and 2020:2021:

January 31,January 31,
(in thousands)(in thousands)20212020(in thousands)20222021
Raw materialsRaw materials$10,289 $9,628 Raw materials$3,001 $2,768 
Work-in-processWork-in-process5,186 4,749 Work-in-process150 26 
Finished goodsFinished goods4,608 6,118 Finished goods2,186 2,747 
Total inventoriesTotal inventories$20,083 $20,495 Total inventories$5,337 $5,541 

Property and equipment, net consisted of the following as of January 31, 2022 and 2021:
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January 31,
(in thousands)20222021
Land and buildings$7,994 $8,124 
Leasehold improvements18,155 23,153 
Software76,152 61,871 
Equipment, furniture, and other64,363 66,444 
Total cost166,664 159,592 
Less: accumulated depreciation and amortization(102,574)(90,502)
Total property and equipment, net$64,090 $69,090 

The amounts in the table above as of January 31, 2021 have been revised to decrease previously presented equipment, furniture and 2020:
January 31,
(in thousands)20212020
Land and buildings$10,978 $10,754 
Leasehold improvements35,907 35,463 
Software40,152 53,606 
Equipment, furniture, and other190,573 199,268 
Total cost277,610 299,091 
Less: accumulated depreciation and amortization(171,368)(182,980)
Total property and equipment, net$106,242 $116,111 
other, and increase previously presented software by $44.5 million, respectively. This reclassification did not affect total property and equipment, net on our consolidated balance sheet as of January 31, 2021.

Depreciation expense on property and equipment was $39.9$20.7 million, $28.5$30.6 million, and $25.5$23.5 million in the years ended January 31, 2022, 2021, and 2020, respectively.

Prepaid and 2019, respectively.other current assets consisted of the following as of January 31, 2022 and 2021:

January 31,
(in thousands)20222021
Prepaid expenses$22,639 $23,125 
Other current assets31,107 19,689 
Total prepaid expenses and other current assets$53,746 $42,814 

Other assets consisted of the following as of January 31, 20212022 and 2020:2021:
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January 31,January 31,
(in thousands)(in thousands)20212020(in thousands)20222021
Deferred commissionsDeferred commissions$50,838 $37,263 Deferred commissions$51,714 $46,379 
Long-term contract assets, netLong-term contract assets, net30,510 17,210 
Capitalized software development costs, netCapitalized software development costs, net30,564 27,030 Capitalized software development costs, net22,483 19,250 
Long-term contract assets, net18,429 1,358 
Long-term restricted cash and time deposits15,712 26,362 
Long-term deferred cost of revenueLong-term deferred cost of revenue8,276 6,345 Long-term deferred cost of revenue5,907 6,316 
Noncontrolling equity investmentsNoncontrolling equity investments5,146 2,034 
Deferred debt issuance costs, netDeferred debt issuance costs, net1,449 2,005 Deferred debt issuance costs, net1,950 1,449 
Long-term security depositsLong-term security deposits1,960 1,920 Long-term security deposits702 567 
Long-term restricted cash and time depositsLong-term restricted cash and time deposits409 651 
OtherOther12,072 15,680 Other7,817 3,368 
Total other assetsTotal other assets$139,300 $117,963 Total other assets$126,638 $97,224 

Accrued expenses and other current liabilities consisted of the following as of January 31, 20212022 and 2020:
January 31,
(in thousands)20212020
Compensation and benefits$122,722 $100,225 
Fair value of future tranche right52,772 
Taxes other than income taxes24,323 18,642 
Operating lease obligations - current portion20,936 22,656 
Contingent consideration - current portion12,518 22,859 
Income taxes5,789 15,084 
Distributor and agent commissions12,422 10,097 
Professional and consulting fees6,161 4,367 
Other54,063 35,768 
Total accrued expenses and other current liabilities$311,706 $229,698 
2021:

January 31,
(in thousands)20222021
Compensation and benefits$86,777 $77,942 
Operating lease obligations - current portion24,551 14,230 
Taxes other than income taxes16,313 21,764 
Preferred Stock dividends payable10,400 5,200 
Contingent consideration - current portion7,776 9,595 
Professional and consulting fees3,771 4,996 
Income taxes602 1,514 
Fair value of future tranche right— 52,772 
Other18,504 23,504 
Total accrued expenses and other current liabilities$168,694 $211,517 

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Other liabilities consisted of the following as of January 31, 20212022 and 2020:2021:
January 31,January 31,
(in thousands)(in thousands)20212020(in thousands)20222021
Unrecognized tax benefits, including interest and penaltiesUnrecognized tax benefits, including interest and penalties$21,284 $22,355 Unrecognized tax benefits, including interest and penalties$16,345 $14,441 
Finance lease obligations - long-term portionFinance lease obligations - long-term portion3,831 2,969 
Derivative financial instruments - long-term portionDerivative financial instruments - long-term portion13,565 11,441 Derivative financial instruments - long-term portion— 13,565 
Contingent consideration - long-term portionContingent consideration - long-term portion6,109 20,017 Contingent consideration - long-term portion— 6,109 
Finance lease obligations - long-term portion2,969 7,210 
Obligations for severance compensation2,273 2,627 
OtherOther5,441 3,505 Other1,820 5,635 
Total other liabilitiesTotal other liabilities$51,641 $67,155 Total other liabilities$21,996 $42,719 

Consolidated Statements of Operations
 
Other income (expense) income,, net consisted of the following for the years ended January 31, 2022, 2021, 2020, and 2019:2020: 
Year Ended January 31, Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Foreign currency gains (losses), net$98 $(56)$(5,519)
Foreign currency (losses) gains, netForeign currency (losses) gains, net$(1,644)$(1,584)$672 
(Losses) gains on derivative financial instruments, net(Losses) gains on derivative financial instruments, net(1,362)599 2,511 (Losses) gains on derivative financial instruments, net(14,374)(1,267)204 
Change in fair value of future tranche rightChange in fair value of future tranche right(56,146)Change in fair value of future tranche right15,810 (56,146)— 
Other, netOther, net2,095 (338)(898)Other, net5,435 (1,604)(267)
Total other (expense) income, net$(55,315)$205 $(3,906)
Total other income (expense), netTotal other income (expense), net$5,227 $(60,601)$609 

Consolidated Statements of Cash Flows
 
The following table provides supplemental information regarding our consolidated cash flows for the years ended January 31, 2022, 2021, 2020, and 2019:2020:
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Year Ended January 31, Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Cash paid for interestCash paid for interest$24,650 $23,232 $22,258 Cash paid for interest$9,716 $24,612 $23,209 
Cash payments of income taxes, netCash payments of income taxes, net$22,842 $15,391 $26,887 Cash payments of income taxes, net$42,917 $21,476 $14,859 
Non-cash investing and financing transactions:Non-cash investing and financing transactions: Non-cash investing and financing transactions: 
Liabilities for contingent consideration in business combinationsLiabilities for contingent consideration in business combinations$$15,253 $15,944 Liabilities for contingent consideration in business combinations$900 $— $8,230 
Series A Preferred Stock dividends declared$5,200 $$
Preferred Stock dividends declaredPreferred Stock dividends declared$10,400 $5,200 $— 
Finance leases of property and equipmentFinance leases of property and equipment$903 $6,404 $1,137 Finance leases of property and equipment$4,041 $903 $3,287 
Settlement of Future Tranche Right upon issuance of Series B Preferred StockSettlement of Future Tranche Right upon issuance of Series B Preferred Stock$36,962 $— $— 
Retirement of treasury stockRetirement of treasury stock$234,999 $— $— 
Settlement of convertible note premium with common stockSettlement of convertible note premium with common stock$59,131 $— $— 
Receipt of common stock from the counterparties under the Note HedgesReceipt of common stock from the counterparties under the Note Hedges$59,651 $— $— 
Accrued but unpaid purchases of property and equipmentAccrued but unpaid purchases of property and equipment$5,651 $4,362 $3,376 Accrued but unpaid purchases of property and equipment$750 $2,731 $962 
Accrued but unpaid purchases of treasury stockAccrued but unpaid purchases of treasury stock$$2,846 $Accrued but unpaid purchases of treasury stock$— $— $2,846 
Leasehold improvements funded by lease incentivesLeasehold improvements funded by lease incentives$119 $2,604 $1,397 Leasehold improvements funded by lease incentives$— $119 $2,604 
Inventory transfers to property and equipment$894 $825 $1,699 
Contingent receivable in exchange for sale of subsidiaryContingent receivable in exchange for sale of subsidiary$$738 $Contingent receivable in exchange for sale of subsidiary$— $— $738 


9. 10.CONVERTIBLE PREFERRED STOCK

On December 4, 2019, we entered into an Investment Agreement with the Apax Investor, whereby, subject to certain closing conditions, the Apax Investor has agreed to make an investment in us in an amount up to $400.0 million as follows:

On May 7, 2020 (the “Series A Closing Date”), we issued a total of 200,000 shares of our Series A Preferred Stock pursuant to a certificate of designation of preferences, rights, and limitations (the “Series A Certificate of Designation”) filed with the Delaware Secretary of State, for an aggregate purchase price of $200.0 million, or $1,000 per share(the “Series A Private Placement”) to the Apax Investor. In connection therewith, we incurred direct and incremental costs of $2.7 million, including financial advisory fees, closing costs, legal fees, and other offering-related costs. These direct and incremental costs reduced the carrying amount of the Series A Preferred Stock.
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In connection with the completion of the Spin-Off, on February 1,April 6, 2021 (the “Series B Closing Date” and together with the Series A Closing Date, as applicable, the “Applicable Closing Date”), we expect to issueissued a total of 200,000 shares of our Series B Preferred Stock at afor an aggregate purchase price of $200.0 million, or $1,000 per share (the “Series B Private Placement”) to the Apax Investor, subject to certain conditions. TheInvestor. In connection therewith, we incurred direct and incremental costs of $1.3 million, including financial advisory fees, closing costs, legal fees, and other offering-related costs. These direct and incremental costs reduced the carrying amount of the Series B Private Placement is contingent on the satisfaction or waiver of certain customary closing conditions and is expected to occur during our first fiscal quarter ending April 30, 2021.Preferred Stock.

Each of the rights, preferences, and privileges of the Series A Preferred Stock and Series B Preferred Stock are set forth in separate certificates of designation filed with the Secretary of State of the State of Delaware on the Applicable Closing Date.

Voting Rights

Holders of the Series A Preferred Stock have the right to vote on matters submitted to a vote of the holders of our common stock, on an as-converted basis; however, in no event will the holders of Preferred Stock have the right to vote shares of the Preferred Stock on an as-converted basis in excess of 19.9% of the voting power of the Common Stock outstanding immediately prior to December 4, 2019.

Dividends and Liquidation Rights

The Series A Preferred Stock ranks senior to the shares of our common stock, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of our affairs. Shares of Series A Preferred Stock have a liquidation preference of the greater of $1,000 per share or the amount that would be received if the shares are converted at the then applicable conversion price at the time of such liquidation.

HoldersEach series of the Series A Preferred Stock are entitled to a cumulative dividendpays dividends at aan annual rate of 5.2% per annum until the 48-month anniversary of the Series A Closing Date, and thereafter at a rate of 4.0% per annum., subject to adjustment under certain circumstances. Dividends on the Series A Preferred Stock are cumulative and payable semi-annually in arrears in cash. All dividends that are not paid in cash will remain accumulated dividends with respect to each share of Series A Preferred Stock. The dividend rate is subject to increase (i) to 6.0% per annum in the event the number of shares of Common Stockcommon stock into which the Preferred Stock could be converted exceeds 19.9% of the voting power of outstanding Common Stockcommon stock on the Series A Closing Date (unless we obtain shareholder approval of the issuance of Common Stockcommon stock upon conversion of the Preferred Stock) and (ii) by 1.0% each year, up to a maximum dividend rate of 10.0% per annum, in the event we fail to satisfy our obligations to redeem the Series A Preferred Stock in specified circumstances.

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For the year ended January 31, 2021,2022, we had cumulative declared dividends on our Series A Preferred Stock of $6.8paid $12.9 million of preferred stock dividends, of which $1.6 million was paid and $5.2 million was accrued as of January 31, 2021, and we had $0.9there were $12.1 million of cumulative undeclared and unpaid preferred stock dividends.dividends at January 31, 2022, of which $10.4 million was declared and recorded within accrued expenses and other liabilities on our consolidated balance sheet as of January 31, 2022. We reflected $18.9 million and $7.7 million of preferred stock dividends in our consolidated results of operations, for purposes of computing net (loss) income attributable to Verint Systems Inc. commonscommon shares, for the yearyears ended January 31, 2022 and 2021.

Conversion

As of January 31, 2021, theThe Series A Preferred Stock was convertible into common stock at the election of the holder, subject to certain conditions, including conditions associated with the Spin-Off, at an initial conversion price of $53.50 per share. The initial conversion price represented a conversion premium of 17.1% over the volume-weighted average price per share of our common stock over the 45 consecutive trading days immediately prior to the signing date.date of the Investment Agreement. In accordance with the Investment Agreement, the Series A Preferred Stock did not participate in the Spin-Off distribution of the Cognyte shares, which occurred on February 1, 2021, and the Series A conversion price was instead adjusted to $36.38 per share based on the ratio of the relative trading prices of Verint and Cognyte following the Spin-Off. Based on the adjusted conversion price, Apax’s ownership in us on an as-converted basis is currently approximately 7.5%. In connection with the completion of the Spin-Off, the Apax Investor will purchase, subject to certain conditions, $200.0 million of Series B Preferred Stock in Verint, which is expected to occur during the first fiscal quarter ending April 30, 2021. The Series B Preferred Stock will beis convertible at a conversion price of $50.25, based in part on our trading price over the 20 day trading period following the Spin-Off. Following the issuance of the Series B Preferred Stock, Apax’s ownership in us on an as-converted basis is expected to be between 12% and 13%.

As of January 31, 2021,2022, the maximum number of shares of common stock that could be required to be issued upon conversion of the outstanding shares of Series A Preferred Stock was 3.7approximately 9.8 million shares. Upon adjustment of the Series A Preferred Stock conversion price shortly after the Spin-Off, the maximum number of shares of Common Stock that could be required to be issued upon conversion is 5.5 million shares.and Apax’s ownership in us on an as-converted basis was approximately 12.9%.

At any time after 36 months following the Series AApplicable Closing Date, we will have the option to require that all (but not less than all) of the then-outstanding shares of Series A Preferred Stock of the series convert into common stock if the volume-weighted average price per share of the common stock for at least 30 trading days in any 45 consecutive trading day period exceeds 175% of the then-applicable conversion price of the Series A Preferred Stocksuch series (a “Mandatory Conversion”).

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We may redeem any or all of the Series A Preferred Stock of a series for cash at any time after the 72-month anniversary of the Series AApplicable Closing Date at a redemption price equal to 100% of the liquidation preference of the shares of the Series A Preferred Stock, plus any accrued and unpaid dividends to, but excluding, the redemption date, plus a make-whole amount designed to allow the Apax Investor to earn a total 8.0% internal rate of return on such shares.

The Apax Investor has agreed to restrictions on its ability to dispose of shares of the Series A Preferred Stock until the earlier of (1) the 36-month anniversary of the Series A Closing Date or (2) the 24-month anniversary of the consummation of the Spin-Off (the “Preferred Stock Restricted Period”). Following the Preferred Stock Restricted Period, the Series A Preferred Stock may not be sold or transferred without the prior written consent of the Company. The Apax Investor has also agreed to restrictions on its ability to dispose of the common stock issued upon conversion of the Series A Preferred Stock. The common stock may not be disposed of until the earlier of (1) the 12-month anniversary of consummation of the Spin-Off or (2) the 24-month anniversary of the Series A Closing Date. These restrictions do not apply to certain transfers to one or more permitted co-investors or transfers or pledges of the Series A Preferred Stock or common stock pursuant to the terms of specified margin loans to be entered into by the Apax Investor as well as transfers effected pursuant to a merger, consolidation, or similar transaction consummated by us and transfers that are approved by our board of directors.

At any time after the 102-month anniversary of the Series AApplicable Closing Date or upon the occurrence of a change of control triggering event (as set forthdefined in the Series A CertificateCertificates of Designation), the holders of the Series Aapplicable series of Preferred Stock will have the right to cause us to redeem all of the outstanding shares of Series A Preferred Stock for cash at a redemption price equal to 100% of the liquidation preference of the shares of Series A Preferred Stock,such series, plus any accrued and unpaid dividends to, but excluding, the redemption date. Therefore, the Series A Preferred Stock has been classified as mezzaninetemporary equity on our consolidated balance sheetsheets as of January 31, 2022 and 2021, separate from permanent equity, as the potential required repurchase of the Series A Preferred Stock, however remote in likelihood, is not solely under our control.

As of January 31, 2021,2022, the Series A Preferred Stock iswas not redeemable, and we have concluded that it is currently not probable of becoming redeemable, including from the occurrence of a change in control triggering event. The holders’ redemption rights which occur at the 102-month anniversary of the Series AApplicable Closing Date are not considered probable because there is a more than remote likelihood that the Mandatory Conversion may occur prior to such redemption rights. We therefore did not adjust the carrying amount of the Series A Preferred Stock to its current redemption amount, which was its liquidation preference, at
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January 31, 20212022 plus accrued and unpaid dividends. As of January 31, 2021,2022, the stated value of the Series Aliquidation preference for each series of Preferred Stock liquidation preference was $200.0 million and cumulative, unpaid dividends on the Series A Preferred Stock and the Series B Preferred Stock were $6.1 million.million and $6.1 million, respectively.

Future Tranche Right

We have determined that our obligation to issue and the Apax Investor’s obligation to purchase 200,000 shares of the Series B Preferred Stock in connection with the completion of the Spin-Off and the satisfaction of other customary closing conditions (the “Future Tranche Right”) meetsmet the definition of a freestanding financial instrument as the Future Tranche Right is legally detachable and separately exercisable from the Series A Preferred Stock. At issuance, we allocated a portion of the proceeds from the issuance of the Series A Preferred Stock to the Future Tranche Right based upon its fair value at such time, with the remaining proceeds being allocated to the Series A Preferred Stock. The Future Tranche Right iswas remeasured at fair value each reporting period until the settlement of the right (at the time of the issuance of the Series B Preferred Stock), and changes in its fair value arehave been recognized as a non-cash charge or benefit within other income (expense), net on the consolidated statement of operations.

At the Series A Closing Date, the Future Tranche Right was recorded as an asset of $3.4 million, as the purchase price of the Series B Preferred Stock was greater than its estimated fair value at the expected settlement date. This resulted in a $203.4 million carrying value, before direct and incremental issuance costs, for the Series A Preferred Stock.

At January 31, 2021,Immediately prior to the fair valueissuance of the Series B Preferred Stock, the Future Tranche Right was remeasured to fair value and as a liabilityresult we recorded a non-cash benefit of $52.8 million, driven primarily by a significant increase in our stock price during the period. We recorded non-cash charges of $56.1$15.8 million related to the change in fair value of the Future Tranche Right for the yearthree months ended January 31,April 30, 2021, within other (expense) income (expense), net. The Future Tranche Right will be remeasured at each reporting period untilUpon the redemption feature is exercised in connection with the sale and issuance of the Series B Preferred Stock. The $52.8Stock in April 2021, the Future Tranche Right was settled, resulting in a reclassification of the $37.0 million fair value of the Future Tranche Right is included within accrued expensesliability at that time to the carrying value of the Series B Preferred Stock. This resulted in a $237.0 million carrying value, before direct and other current liabilities onincremental issuance costs, for the Series B Preferred Stock. As a result of the issuance of the Series B Preferred Stock, we no longer recognize changes in the fair value of the Future Tranche Right in our consolidated balance sheet atstatement of operations. For the year ended January 31, 2021. 2021, we recognized non-cash charges of $56.1 million within other income (expense), net in the consolidated statement of operations for the change in the fair value of the Future Tranche Right.
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Please refer to Note 13,14, “Fair Value Measurements” for additional information regarding valuations of the Future Tranche Right.


10. 11.STOCKHOLDERS’ EQUITY

Common Stock Dividends

We did 0tnot declare or pay any cash dividends on our common stock during the years ended January 31, 2022, 2021, 2020, and 2019.2020. Under the terms of our 2017 Credit Agreement, we are subject to certain restrictions on declaring and paying cash dividends on our common stock.

In connection with the Spin-Off, each holder of Verint’s common stock par value $0.001 per share, received 1 ordinary share of Cognyte no par value, for every share of common stock of Verint held of record as of the close of business on the Record Date. Please refer to Note 19, “Subsequent Events,” for a more detailed discussion of the Spin-Off.January 25, 2021.

Stock Repurchase Programs

On December 4, 2019, we announced that our board of directors had authorized a stock repurchase program whereby we were authorized to repurchase up to $300.0 million of common stock over the period ending on February 1, 2021. We made $34.0 million and $116.1 million in repurchases under the program during the years ended January 31, 2021 and January 31, 2020, respectively. This program expired on February 1, 2021.

On March 31, 2021, we announced that our board of directors had authorized a new stock repurchase program whereby we maywere authorized to repurchase up to a number of shares of common stock approximately equal to the number of shares to be issued as equity compensation during the fiscal year ending January 31, 2022. During the three months ended April 30, 2021, we repurchased 1,600,000 shares of our common stock at a cost of $75.4 million under this program. There were no repurchases under this program subsequent to April 30, 2021, and this program expired on January 31, 2022.

On December 2, 2021, we announced that our board of directors had authorized a new stock repurchase program for the fiscal year ending January 31, 2023 whereby we may repurchase up to 1.5 million shares of common stock to offset dilution from our equity compensation program for such fiscal year. Subsequent to January 31, 2022, through the date of filing this report, we repurchased 1,500,000 shares of our common stock for $78.2 million under this program. Repurchases are expected to bewere financed with available cash in the United States. On March 22, 2022, our board of updirectors authorized an additional 500,000 shares of common stock to 60% of our free cash flow during such period (as determined by management), subject to compliance with applicable laws, rules and regulations.be repurchased under this program. Please refer to Note 19,21, “Subsequent Events”Event”, for more information regarding this stock repurchase program.

Treasury Stock

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Repurchased shares of common stock are recorded as treasury stock, at cost, but may from time to time be retired. At January 31, 2021, we held approximately 4,404,000 shares of treasury stock with a cost of $208.1 million. At January 31, 2020, we held approximately 3,791,000 and shares of treasury stock with a cost of $174.1 million.

During the year ended January 31, 2021, we acquired approximately 613,000 shares of our common stock for a cost of $34.0 million under the December 2019 stock repurchase program described above. During the year ended January 31, 2020 we acquired approximately 2,126,000 shares of our common stock for a cost of $116.5 million, which includes $116.1 million of share repurchases under the December 2019 stock repurchase program described above and other purchases to facilitate income tax withholding upon vesting of equity awards. During the year ended January 31, 2019, we acquired approximately 4,000 shares of our common stock for a cost of $0.2 million.

From time to time, our board of directors has approved limited programs to repurchase shares of our common stock from directors or officers in connection with the vesting of restricted stock or restricted stock units to facilitate required income tax withholding by us or the payment of required income taxes by such holders. In addition, the terms of some of our equity award agreements with all grantees provide for automatic repurchases by us for the same purpose if a vesting-related or delivery-related tax event occurs at a time when the holder is not permitted to sell shares in the market. Our stock bonus program contains similar terms. Any such repurchases of common stock occur at prevailing market prices and are recorded as treasury stock.

Repurchased shares of common stock are typically recorded as treasury stock, at cost, but may from time to time be retired. We periodically purchase common stock from our directors, officers, and other employees to facilitate income tax withholding by us or the payment of required income taxes by such holders in connection with the vesting of equity awards. When treasury shares are reissued, they are recorded at the average cost of the treasury shares acquired.

During the three months ended July 31, 2021, in connection with the maturity of our 2014 Notes, we issued approximately 1,250,000 treasury shares with an average cost of $47.30 per share to the holders of the 2014 Notes in satisfaction of the conversion premium, which was recorded as a $59.1 million reduction of treasury stock and additional paid-in capital. Additionally, we received approximately 1,250,000 shares of our common stock having a value of $57.7 million from the counterparties under the Note Hedges, as well as approximately 42,000 shares of our common stock having a value of $2.0 million from the counterparties related to the reimbursement for the in-the-money portion of the Repurchased 2014 Notes under the Note Hedge agreements, which was recorded as increase to treasury stock and additional paid-in capital.
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During the year ended January 31, 2022, we repurchased approximately 1,613,000 shares of our common stock for a cost of $76.0 million, which includes $75.4 million of share repurchased under the 2021 share repurchase program described above, and other repurchases to facilitate income tax withholding upon vesting of equity awards. On March 30, 2021, our board of directors approved the retirement of such repurchased shares of common stock and any other shares held as treasury stock, at management’s discretion. During the year ended January 31, 2022, we retired 1,058,300 shares of our common stock with a cost of $49.6 million that had been repurchased under the 2021 share repurchase program described above, as well as all of our common stock held as treasury stock, which totaled 5,000,786 shares, and restored them to the status of authorized and unissued shares. The aggregate cost of the treasury stock retired was $235.0 million, which was recorded as a reduction of common stock and additional paid-in capital.

During the year ended January 31, 2021 we repurchased 613,000 shares of our common stock for a cost of $34.0 million under the 2019 share repurchase program described above. During the year ended January 31, 2020, we repurchased approximately 2,126,000 shares of our common stock for a cost of $116.5 million, which included $116.1 million of share repurchases under the December 2019 stock repurchase program described above and other purchases to facilitate income tax withholding upon vesting of equity awards.

At January 31, 2021, we held approximately 4,404,000 shares of treasury stock with a cost of $208.1 million.

Issuance of Convertible Preferred Stock

On December 4, 2019, in conjunction with the planned separation of our businesses into two independent publicly traded companies, we announced that an affiliate of Apax Partners would invest up to $400.0 million in us, in the form of convertible preferred stock. Under the terms of the Investment Agreement, the Apax Investor initially purchased $200.0 million of our Series A Preferred Stock, which closed on May 7, 2020. Please refer to Note 9, “Convertible Preferred Stock” for additional information regarding the closing of the initial tranche. In connection with the completion of the Spin-Off, on February 1, 2021, we expect to complete the second tranche of the investment through the issuance ofApax Investor purchased $200.0 million of our Series B Preferred Stock, during our first fiscal quarter endingwhich closed on April 30,6, 2021. As of January 31, 2022, Apax’s ownership in us on an as-converted basis was approximately 12.9%. Please refer to Note 10, “Convertible Preferred Stock” for a more detailed discussion of the Apax investment.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities and derivative financial instruments designated as hedges. Accumulated other comprehensive income (loss) is presented as a separate line item in the stockholders’ equity section of our consolidated balance sheets. Accumulated other comprehensive income (loss) items have no impact on our net income (loss) income as presented in our consolidated statements of operations.

The following table summarizes changes in the components of our accumulated other comprehensive income (loss) by component for the years ended January 31, 20212022 and 2020:2021:

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(in thousands)(in thousands)Unrealized Gains (Losses) on Derivative Financial Instruments Designated as HedgesUnrealized Gain on Interest Rate Swap Designated as HedgeForeign Currency Translation AdjustmentsTotal(in thousands)Unrealized Gains (Losses) on Foreign Exchange Contracts Designated as HedgesUnrealized Losses on Interest Rate Swap Designated as HedgeForeign Currency Translation AdjustmentsTotal
Accumulated other comprehensive loss at January 31, 2019$(981)$(3,043)$(141,201)$(145,225)
Other comprehensive income (loss) before reclassifications2,015 (8,102)(762)(6,849)
Amounts reclassified out of accumulated other comprehensive loss408 (617)(209)
Net other comprehensive income (loss)1,607 (7,485)(762)(6,640)
Accumulated other comprehensive income (loss) at January 31, 2020Accumulated other comprehensive income (loss) at January 31, 2020626 (10,528)(141,963)(151,865)Accumulated other comprehensive income (loss) at January 31, 2020$626 $(10,528)$(141,963)$(151,865)
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications1,869 (5,916)17,482 13,435 Other comprehensive income (loss) before reclassifications1,869 (5,916)17,482 13,435 
Amounts reclassified out of accumulated other comprehensive income (loss)1,861 (3,413)(1,552)
Amounts reclassified out of accumulated other comprehensive income (loss) from continuing operationsAmounts reclassified out of accumulated other comprehensive income (loss) from continuing operations225 (3,413)— (3,188)
Amounts reclassified out of accumulated other comprehensive income (loss) from discontinued operationsAmounts reclassified out of accumulated other comprehensive income (loss) from discontinued operations1,636 — — 1,636 
Net other comprehensive income (loss)Net other comprehensive income (loss)(2,503)17,482 14,987 Net other comprehensive income (loss)(2,503)17,482 14,987 
Accumulated other comprehensive income (loss) at January 31, 2021Accumulated other comprehensive income (loss) at January 31, 2021$634 $(13,031)$(124,481)$(136,878)Accumulated other comprehensive income (loss) at January 31, 2021634 (13,031)(124,481)(136,878)
Distribution of Cognyte Software Ltd.Distribution of Cognyte Software Ltd.(559)— 17,682 17,123 
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications70 — (11,668)(11,598)
Amounts reclassified out of accumulated other comprehensive income (loss)Amounts reclassified out of accumulated other comprehensive income (loss)193 (1,014)— (821)
Amounts reclassified upon partial early retirement of the 2017 Term LoanAmounts reclassified upon partial early retirement of the 2017 Term Loan— (12,017)— (12,017)
Net other comprehensive (loss) incomeNet other comprehensive (loss) income(682)13,031 6,014 18,363 
Accumulated other comprehensive loss at January 31, 2022Accumulated other comprehensive loss at January 31, 2022$(48)$ $(118,467)$(118,515)

All amounts presented in the table above are net of income taxes, if applicable. The accumulated net losses in foreign currency translation adjustments primarily reflect the strengthening of the U.S. dollar against the British pound sterling, which has resulted in lower U.S. dollar-translated balances of British pound sterling-denominated goodwill and intangible assets.

On May 1, 2020, our interest rate swap agreement no longer qualified as a cash flow hedge for accounting purposes and as such, accumulated deferred losses on our interest rate swap that were previously recorded as a component of accumulated other comprehensive loss were being reclassified to the consolidated statement of operations as interest expense over the remaining term of the interest rate swap, as the previously hedged interest payments occurred. On April 13, 2021, we paid $16.5 million to the counterparty to settle the interest rate swap agreement prior to its June 2024 maturity, and reclassified the remaining $15.7 million of pretax accumulated deferred losses from accumulated other comprehensive loss within stockholders’ equity to other income (expense) on our consolidated statement of operations for the year ended January 31, 2022. The associated $3.7 million deferred tax asset was reclassified from accumulated other comprehensive loss and netted against income taxes receivable, which are included within prepaid expenses and other current assets on our consolidated balance sheet as of January 31, 2022. Please refer to Note 15, “Derivative Financial Instruments” for further information regarding our interest rate swap agreement.

The amounts reclassified out of accumulated other comprehensive income (loss) into the consolidated statement of operations, with presentation location, for the years ended January 31, 2022, 2021, 2020, and 20192020 were as follows:
Year Ended January 31,Financial Statement Location
(in thousands)202120202019
Unrealized gains (losses) on derivative financial instruments:
Foreign currency forward contracts$109 $11 $(350)Cost of product revenue
298 64 (388)Cost of service and support revenue
1,009 250 (2,138)Research and development, net
733 128 (1,343)Selling, general and administrative
2,149 453 (4,219)Total, before income taxes
(288)(45)429 (Provision) benefit for income taxes
$1,861 $408 $(3,790)Total, net of income taxes
Interest rate swap agreement$(4,367)$(792)$Interest expense
(4,367)(792)Total, before income taxes
954 175 Benefit from income taxes
$(3,413)$(617)$0 Total, net of income taxes
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Year Ended January 31,Financial Statement Location
(in thousands)202220212020
Unrealized gains (losses) on derivative financial instruments:
Foreign currency forward contracts$$$(3)Cost of recurring revenue
24 28 Cost of nonrecurring revenue
142 182 42 Research and development, net
65 56 20 Selling, general and administrative
232 267 64 Total, before income taxes
(39)(42)(6)Provision for income taxes
$193 $225 $58 Total, net of income taxes
Interest rate swap agreement$(1,014)$(4,367)$(792)Interest expense
(15,655)— — Other income (expense), net
(16,669)(4,367)(792)Total, before income taxes
3,638 954 175 Benefit from income taxes
$(13,031)$(3,413)$(617)Total, net of income taxes


11. 12.RESEARCH AND DEVELOPMENT, NET

Our gross research and development expenses for the years ended January 31, 2022, 2021, and 2020, and 2019, were $240.7$123.3 million, $233.1$128.2 million, and $211.0$134.2 million, respectively. Reimbursements from the IIA and other government grant programs amounted to $0.5 million, $1.4 million, and $1.9 million for the years ended January 31, 2021, 2020, and 2019, respectively, which were recorded as reductions of gross research and development expenses.

We capitalize certain costs incurred to develop our commercial software products, and we then recognize those costs within cost of product revenue as the products are sold. Activity for our capitalized software development costs for the years ended January 31, 2022, 2021, 2020, and 20192020 was as follows:
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Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Capitalized software development costs, net, beginning of yearCapitalized software development costs, net, beginning of year$27,030 $13,342 $9,228 Capitalized software development costs, net, beginning of year$19,250 $15,351 $7,266 
Software development costs capitalized during the yearSoftware development costs capitalized during the year12,444 17,222 7,320 Software development costs capitalized during the year7,560 7,312 9,584 
Amortization of capitalized software development costsAmortization of capitalized software development costs(6,375)(3,561)(3,101)Amortization of capitalized software development costs(4,247)(3,304)(1,538)
Write-offs of capitalized software development costsWrite-offs of capitalized software development costs(2,373)Write-offs of capitalized software development costs— (129)— 
Foreign currency translation and otherForeign currency translation and other(162)27 (105)Foreign currency translation and other(80)20 39 
Capitalized software development costs, net, end of yearCapitalized software development costs, net, end of year$30,564 $27,030 $13,342 Capitalized software development costs, net, end of year$22,483 $19,250 $15,351 

During the year ended January 31, 2021, we recorded an impairment charge of $2.4$0.1 million in productnonrecurring cost of revenue, reflecting the write-off of previously capitalized software development costs that were deemed non-recoverable based on our expectations of future market conditions. There were 0 materialno impairments of such capitalized costs during the years ended January 31, 20202022 and 2019.2020.


12. 13.INCOME TAXES

The components of income (loss) before provision for income taxes for the years ended January 31, 2022, 2021, 2020, and 20192020 were as follows:
Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
DomesticDomestic$(73,452)$(49,703)$(12,927)Domestic$(12,492)$127,909 $(46,896)
ForeignForeign89,675 103,006 90,689 Foreign51,996 (169,573)7,329 
Total income before provision for income taxes$16,223 $53,303 $77,762 
Total income (loss) before provision for income taxesTotal income (loss) before provision for income taxes$39,504 $(41,664)$(39,567)

The provision for income taxes from continuing operations for the years ended January 31, 2022, 2021, 2020, and 20192020 consisted of the following:

Year Ended January 31,
(in thousands)202120202019
Current provision (benefit) for income taxes:
Federal$(2,006)$8,683 $(1,582)
State980 1,033 2,299 
Foreign21,091 5,759 9,842 
Total current provision for income taxes20,065 15,475 10,559 
Deferred (benefit) provision for income taxes:
Federal384 (4,096)(4,099)
State(417)948 (2,687)
Foreign(3,702)5,293 3,769 
 Total deferred (benefit) provision for income taxes(3,735)2,145 (3,017)
Total provision for income taxes$16,330 $17,620 $7,542 
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Year Ended January 31,
(in thousands)202220212020
Current provision for income taxes:
Federal$3,215 $373 $7,204 
State1,121 1,663 974 
Foreign30,840 6,299 3,049 
Total current provision for income taxes35,176 8,335 11,227 
Deferred provision for (benefit from) income taxes:
Federal6,714 1,366 (4,430)
State255 (188)862 
Foreign(18,292)(2,576)(716)
 Total deferred benefit from income taxes(11,323)(1,398)(4,284)
Total provision for income taxes from continuing operations$23,853 $6,937 $6,943 

Intra-period allocation rules require us to allocate our provision for income taxes between continuing operations and other categories such as discontinued operations or comprehensive income (loss). As described in Note 2, “Discontinued Operations”, the results of Cognyte have been reported as discontinued operations for all periods presented.

The reconciliation of the U.S. federal statutory rate to our effective tax rate on income (loss) before provision for income taxes from continuing operations for the years ended January 31, 2022, 2021, 2020, and 20192020 was as follows:
99
Year Ended January 31,
(in thousands)202220212020
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Income tax provision (benefit) at the U.S. federal statutory rate$8,296 $(8,733)$(8,307)
State income tax (benefit) provision(1,238)2,017106
Foreign tax rate differential6,262 5,99210,134
Tax incentives(6,378)(2,681)(6,224)
Valuation allowances2,616 (3,269)2,311
Stock-based and other compensation897 2,958(926)
Non-deductible expenses(238)(1,007)1,127
Tax credits117 875266
Tax contingencies2,108 (5,652)161
Change in fair value of future tranche right(3,320)11,791
Changes in tax laws1,552 
U.S. tax effects of foreign operations13,480 3,8288,299
Other, net(301)818(4)
Total provision for income taxes$23,853 $6,937$6,943
Effective income tax rate60.4 %(16.6)%(17.5)%

Table
Change in the effective tax rate from the prior year to the current year presentation are due to the allocation of Contents
Year Ended January 31,
(in thousands)202120202019
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Income tax provision at the U.S. federal statutory rate$3,407 $11,193$16,330
State income tax provision1,258 2303,968
Foreign tax rate differential(625)11,7009,516
Tax incentives(1,514)(8,395)(7,377)
Valuation allowances(3,807)1,607(24,099)
Stock-based and other compensation2,474 (2,143)678
Non-deductible expenses(322)2,752(412)
Tax credits875 260(265)
Tax contingencies(2,539)(11,550)(3,035)
Change in fair value of future tranche right11,791 00
U.S. tax effects of foreign operations4,536 11,96311,559
Other, net796 3679
Total provision for income taxes$16,330 $17,620$7,542
Effective income tax rate100.7 %33.1 %9.7 %
tax expense between continuing operations and discontinued operations when applying intra-period allocation rules.

Our operations in Israel have been granted “Approved Enterprise” (“AE”) status by the Investment Center of the Israeli Ministry of Industry, Trade and Labor, which makes us eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the program, income attributable to an approved enterprise is exempt from income tax for a period of two years and is subject to a reduced income tax rate for the subsequent five years to eight years (generally 10% - 23%, depending on the percentage of foreign investment in the company). Our AE status expired betweenremained in effect through January 31, 2020 and2020. Beginning January 31, 2021. Based2021, based on the current law, the company qualifies for an alternative tax incentive program as a Preferred Technological Enterprise (“PTE”). Pursuant to Amendment 73 to the Investment Law adopted in 2017, a company located in the Center of Israel that meets the conditions for PTE is subject to a 12% tax rate on eligible income. Income not eligible for PTE benefits is taxed at the regular corporate rate of 23%, excluding income derived from manufacturing activity which is entitled to tax benefits according to the “Preferred Enterprise” regime. Income eligible for tax benefits under the Preferred Enterprise regime is taxed at 16%.

In addition, certain operations in Cyprus qualify for favorable tax treatment under the Cypriot Intellectual Property Regime (“IP Regime”). This legislation exempts 80% of income and gains derived from patents, copyrights, and trademarks from taxation. In total, the Israel and Cyprus tax incentives increased our effective tax rate by 2.8% for the year ended January 31, 2021, and decreased our effective tax rate by 10.1%, and 9.0% for the years ended January 31, 2020, and 2019, respectively. The negative benefit is a result of a current year taxable loss in Israel, generating a net operating loss carryforward DTA at a lower effective tax rate.

Deferred tax assets and liabilities consisted of the following at January 31, 2021 and 2020:
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January 31,
(in thousands)20212020
Deferred tax assets:
Accrued expenses$5,772 $3,979 
Operating lease liabilities11,402 15,716 
Fair value of derivatives4,149 3,332 
Loss carryforwards24,575 30,063 
Tax credits5,946 7,021 
Stock-based and other compensation14,171 14,087 
Other, net18 
Total deferred tax assets66,015 74,216 
Deferred tax liabilities:
Deferred cost of revenue(8,931)(7,588)
Goodwill and other intangible assets(30,751)(36,989)
Unremitted earnings of foreign subsidiaries(14,882)(12,257)
Operating lease right-of-use assets(8,864)(12,401)
Other, net(2,093)(4,674)
Total deferred tax liabilities(65,521)(73,909)
Valuation allowance(22,981)(26,334)
Net deferred tax liabilities$(22,487)$(26,027)
Recorded as:
Deferred tax assets$14,489 $13,802 
Deferred tax liabilities(36,976)(39,829)
Net deferred tax liabilities$(22,487)$(26,027)
In total, tax incentives decreased our effective tax rate by 16.1% for the year ended January 31, 2022, and increased our effective tax rate by 6.4%, and 15.8% for the years ended January 31, 2021, and 2020, respectively. The negative benefits are a result of taxable losses in Israel on a continuing operations basis in prior years.

Deferred tax assets and liabilities from continuing operations consisted of the following at January 31, 2022 and 2021:
January 31,
(in thousands)20222021
Deferred tax assets:
Accrued expenses$4,464 $5,383 
Operating lease liabilities9,275 11,040 
Fair value of derivatives— 4,149 
Loss carryforwards21,764 17,672 
Tax credits5,780 5,946 
Stock-based and other compensation6,802 7,434 
Total deferred tax assets48,085 51,624 
Deferred tax liabilities:
Deferred cost of revenue(8,457)(5,100)
Goodwill and other intangible assets(20,810)(29,876)
Unremitted earnings of foreign subsidiaries(970)(14,882)
Operating lease right-of-use assets(4,959)(8,569)
Other, net(1,547)(2,140)
Total deferred tax liabilities(36,743)(60,567)
Valuation allowance(20,711)(16,761)
Net deferred tax liabilities$(9,369)$(25,704)
Recorded as:
Deferred tax assets$8,091 $7,287 
Deferred tax liabilities(17,460)(32,991)
Net deferred tax liabilities$(9,369)$(25,704)

At January 31, 2021,2022, we had U.S. federal NOL carryforwards of approximately $312.1$309.1 million. TheseExcept for $13.1 million of NOLs that can be carried forward indefinitely, these loss carryforwards expire in various years ending from January 31, 20222023 to January 31, 2039.2037. We had state NOL carryforwards of approximately $175.1$206.7 million. Except for $2.4 million expiringof NOLs that can be carried forward indefinitely, those loss carryforwards expire in various years ending from January 31, 20222023 to January 31, 2039.2040. We had foreign NOL carryforwards of approximately $84.9$33.1 million. At January 31, 2021,2022, all but $8.6$2.9 million of these foreign loss carryforwards had indefinite carryforward periods. Certain of these federal, state, and foreign loss carryforwards and credits are subject to Internal Revenue Code Section 382 or similar provisions, which impose limitations on their utilization following certain changes in ownership of the entity generating the loss carryforward. We had U.S. federal, state, and foreign tax credit carryforwards of approximately $10.0$8.9 million at January 31, 2021,2022, the utilization of which is subject to limitation. At January 31, 2021,2022, approximately $3.6$2.7 million of these tax credit carryforwards may be carried forward indefinitely. The balance of $6.4$6.2 million expires in various years ending from January 31, 20222023 to January 31, 2037.

We currently intend to continue 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 onthat earnings of our foreign subsidiaries have been subject to U.S. taxation as of January 31, 20212022 and withholding taxes of $16.2$1.0 million accrued as of January 31, 20212022 with respect to certain identified cash that may be repatriated to the United States, we have not provided tax on the outside basis difference of foreign subsidiaries nor have we provided for any additional withholding or other tax that may be applicable should a future distribution be made from any unremitted earnings of foreign subsidiaries. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the total amount of income 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 income tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes guidance requires that a valuation allowance be established when it is more likely than notmore-likely-than-not that all or a portion of the deferred income tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred income tax assets are not more likely thanmore-likely-than- not realizable, we establish a valuation allowance. We determined that there is sufficient negative evidence to maintain
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the valuation allowances against certain state and foreign deferred income tax assets as a result of historical losses in the most recent three-year period in certain state and foreign jurisdictions. We intend to maintain valuation allowances until sufficient positive evidence exists to support a reversal. We have recorded valuation allowances in the amounts of $23.0$20.7 million and $26.3$16.8 million at January 31, 20212022 and 2020,2021, respectively.

Activity in the recorded valuation allowance consisted of the following for the years ended January 31, 20212022 and 2020:2021:
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Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)20212020(in thousands)20222021
Valuation allowance, beginning of yearValuation allowance, beginning of year$(26,334)$(24,526)Valuation allowance, beginning of year$(16,761)$(19,512)
Income tax benefit (provision)3,807 (1,607)
Income tax (provision) benefitIncome tax (provision) benefit(2,616)3,269 
Fair value of derivatives and convertible debt instrumentsFair value of derivatives and convertible debt instruments(1,139)— 
Currency translation adjustment and otherCurrency translation adjustment and other(454)(201)Currency translation adjustment and other(195)(518)
Valuation allowance, end of yearValuation allowance, end of year$(22,981)$(26,334)Valuation allowance, end of year$(20,711)$(16,761)

In accordance with the authoritative guidance on accounting for uncertainty in income taxes, differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements, determined by applying the prescribed methodologies of accounting for uncertainty in income taxes, represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets.

For the years ended January 31, 2022, 2021, 2020, and 2019,2020, the aggregate changes in the balance of gross unrecognized tax benefits were as follows:
Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Gross unrecognized tax benefits, beginning of yearGross unrecognized tax benefits, beginning of year$91,279 $109,066 $115,709 Gross unrecognized tax benefits, beginning of year$84,847 $85,327 $86,312 
Increases related to tax positions taken during the current yearIncreases related to tax positions taken during the current year3,445 2,464 8,843 Increases related to tax positions taken during the current year672 706 575 
Increases as a result of business combinations286 1,032 
Increases related to tax positions taken during prior yearsIncreases related to tax positions taken during prior years19 147 10,305 Increases related to tax positions taken during prior years430 — 147 
Increases (decreases) related to foreign currency exchange rates395 1,373 (2,253)
Increases related to foreign currency exchange ratesIncreases related to foreign currency exchange rates45 136 146 
Reductions for tax positions of prior yearsReductions for tax positions of prior years(445)(17,388)(23,415)Reductions for tax positions of prior years(152)(193)(1,555)
Reductions for settlements with tax authorities(4,370)(1,054)
Lapses of statutes of limitationsLapses of statutes of limitations(1,414)(299)(101)Lapses of statutes of limitations(1,613)(1,129)(298)
Gross unrecognized tax benefits, end of yearGross unrecognized tax benefits, end of year$93,279 $91,279 $109,066 Gross unrecognized tax benefits, end of year$84,229 $84,847 $85,327 

AsWe had unrecognized income tax benefits of $84.2 million (excluding interest and penalties) as of January 31, 2021, we had $93.3 million of unrecognized tax benefits, all of which,2022, that, if recognized, would impact the effective income tax rate in future periods.rate. We recorded $0.6$0.5 million, $1.9$0.4 million, and $0.7$0.2 million of tax expense for interest and penalties related to uncertain tax positions in our provision for income taxes for the years ended January 31, 2022, 2021, and 2020, and 2019, respectively. Accrued liabilitiesThe accrued liability for interest and penalties werewas $3.4 million and $2.9$3.0 million at January 31, 20212022 and 2020,2021, respectively. Interest and penalties (expense and/or benefit) are recorded as a component of the provision for income taxes in the consolidated financial statements.statements of operations.

Our income tax returns are subject to ongoing tax examinations in several jurisdictions in which we operate. In Israel, we are no longer subject to income tax examination for years prior to January 31, 2018. In the United Kingdom, with the exception of years which are currently under examination, we are no longer subject to income tax examination for years prior to January 31, 2018.2019. In the United States, our federal returns are no longer subject to income tax examination for years prior to January 31, 2018.2019. However, to the extent we generated NOLs or tax credits in closed tax years, future use of the NOL or tax credit carry forward balance would be subject to examination within the relevant statute of limitations for the year in which utilized.

As of January 31, 2021,2022, income tax returns are under examination in the following significant tax jurisdictions:
JurisdictionTax Years
United KingdomDecember 31, 2006, January 31, 2008 January 31, 2018, January 31, 2019
IndiaMarch 31, 2007, March 31, 2008, March 31, 2010 - March 31, 2013, March 31, 2017, March 31, 2020
IsraelJanuary 31, 2018 - January 31, 2020

We regularly assess the adequacy of our provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, we may adjust the reserves for unrecognized income tax benefits for the impact of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitation. Further, we believe that it is reasonably
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possible that the total amount of unrecognized income tax benefits at January 31, 20212022 could decrease by approximately $1.7$0.3 million in the next twelve months as a result of settlement of certain tax audits or lapses of statutes of limitation. Such decreases may involve the payment of additional income taxes, the adjustment of deferred income taxes including the need for additional valuation allowances, and the recognition of income tax benefits. Our income tax returns are subject to ongoing tax examinations in several jurisdictions in which we operate. We also believe that it is reasonably possible that new issues may be
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raised by tax authorities or developments in tax audits may occur, which would require increases or decreases to the balance of reserves for unrecognized income tax benefits; however, an estimate of such changes cannot reasonably be made. See Note 2, “Discontinued Operations” for discussion related to the Tax Matters Agreement entered into between us and Cognyte as a result of the Spin-Off.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES)(“CARES”) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The income tax provisions of the CARES Act do not have a significant impact on our current taxes, deferred taxes, or uncertain tax positions. However, we deferred the timing of employer payroll taxes and accelerated the refund of AMT credits as permitted by the CARES Act.


13. 14.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, 20212022 and 2020:2021: 
January 31, 2021 January 31, 2022
Fair Value Hierarchy Category Fair Value Hierarchy Category
(in thousands)(in thousands)Level 1Level 2Level 3(in thousands)Level 1Level 2Level 3
Assets:Assets:   Assets:   
Money market fundsMoney market funds$342,090 $$Money market funds$127,041 $— $— 
Commercial paper, classified as cash and cash equivalentsCommercial paper, classified as cash and cash equivalents— 29,995 — 
Foreign currency forward contractsForeign currency forward contracts1,134 Foreign currency forward contracts— 33 — 
Contingent consideration receivableContingent consideration receivable565 Contingent consideration receivable— — 271 
Total assetsTotal assets$342,090 $1,134 $565 Total assets$127,041 $30,028 $271 
Liabilities:Liabilities:   Liabilities:   
Foreign currency forward contractsForeign currency forward contracts$$726 $Foreign currency forward contracts$— $91 $— 
Interest rate swap agreement17,881 
Future tranche right52,772 
Contingent consideration - business combinations18,627 
Option to acquire noncontrolling interests of consolidated subsidiaries3,250 
Contingent consideration — business combinationsContingent consideration — business combinations— 7,776 — 
Total liabilitiesTotal liabilities$0 $18,607 $74,649 Total liabilities$ $7,867 $ 
 
January 31, 2020 January 31, 2021
Fair Value Hierarchy Category Fair Value Hierarchy Category
(in thousands)(in thousands)Level 1Level 2Level 3(in thousands)Level 1Level 2Level 3
Assets:Assets:   Assets:   
Money market fundsMoney market funds$89 $$Money market funds$342,090 $— $— 
Foreign currency forward contractsForeign currency forward contracts812 Foreign currency forward contracts— 136 — 
Contingent consideration receivableContingent consideration receivable738 Contingent consideration receivable— — 565 
Total assetsTotal assets$89 $812 $738 Total assets$342,090 $136 $565 
Liabilities:Liabilities:   Liabilities:   
Foreign currency forward contractsForeign currency forward contracts$$132 $Foreign currency forward contracts$— $48 $— 
Interest rate swap agreementsInterest rate swap agreements13,501 Interest rate swap agreements— 17,881 — 
Contingent consideration - business combinations42,875 
Future tranche rightFuture tranche right— — 52,772 
Contingent consideration — business combinationsContingent consideration — business combinations— — 15,704 
Option to acquire noncontrolling interests of consolidated subsidiariesOption to acquire noncontrolling interests of consolidated subsidiaries2,900 Option to acquire noncontrolling interests of consolidated subsidiaries— — 3,250 
Total liabilitiesTotal liabilities$0 $13,633 $45,775 Total liabilities$ $17,929 $71,726 

On May 7, 2020, we issued a total of 200,000 shares of our Series A Preferred Stock, and in connection with We evaluated the completion of the Spin-Off, we will issue 200,000shares of Series B Preferred Stock, subject to certain conditions. Please refer to Note 9, “Convertible Preferred Stock” for additional information regarding the preferred stock investment. The Future Tranche Right associated with the Series A Preferred Stock issued on May 7, 2020 and determined that the Future Tranche Right was a freestanding financial instrument. The Future Tranche Right was initially recorded as an asset, as the purchase price of the Series B Preferred Stock was greater than its estimated value at the expected settlement date. As of January 31, 2021, the Future Tranche Right was recorded as a liability as the purchase price of the Series B Preferred Stock was less than its estimated value at the expected settlement date and is included in accrued expenses and other current liabilities on our consolidated balance sheet. Due to the nature of and inputs in the model used to assess the fair value of the Future Tranche Right as described further below, we may
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experience significant fluctuationsasset and was re-measured at each reporting period until the redemption feature was exercised in its fair value during each remeasurement period. Followingconnection with the closingsale and issuance of the Series B Preferred Stock on April 6, 2021. Immediately prior to the issuance which is expected to occur during our first fiscal quarter ending April 30, 2021,of the Series B Preferred Stock, the Future Tranche Right will ceasewas remeasured to exist,fair value with the change in fair value recognized as a component of other income (expense). Upon the issuance of the Series B Preferred Stock, the Future Tranche Right liability was settled, resulting in a reclassification of the $37.0 million fair value of the Future Tranche Right liability at that time to the carrying value of the Series B Preferred Stock. Please refer to Note 10, “Convertible Preferred Stock” for additional information regarding the Future Tranche Right and no further charges (or benefits) will be recorded.preferred stock investment.

The following table presents the changes in the estimated fair value of the Future Tranche Right measured using significant unobservable inputs (Level 3) for the yearyears ended January 31, 2022 and 2021.

Year Ended
January 31,
(in thousands)2021
Fair value measurement, beginning of year$
Fair value of future tranche right upon issuance of the Series A Preferred Stock3,374 
Change in fair values, recorded in other (expense) income, net(56,146)
Fair value measurement, end of year$(52,772)
Year Ended January 31,
(in thousands)20222021
Fair value measurement, beginning of year$(52,772)$— 
Fair value of future tranche right upon issuance of the Series A Preferred Stock— 3,374 
Change in fair value, recorded in other income (expense), net15,810 (56,146)
Reclassification of future tranche right liability upon settlement36,962 — 
Fair value measurement, end of year$ $(52,772)

In January 2020, we completed the sale of an insignificant subsidiary in our Customer Engagement segment.subsidiary. In accordance with the terms of the sale agreement, 100% of the aggregate purchase price is contingent in nature based on a percentage of net sales of the former subsidiary’s products during the thirty-six month period following the transaction closing. We include the fair value of the contingent consideration receivable within prepaid expenses and other current assets and other assets on our consolidated balance sheet.sheets. The estimated fair value of this asset as of January 31, 2022, which is measured using Level 3 inputs, was $0.3 million. We received payments of $0.3 million, and the change in the estimated fair value of this contingent receivable was not material, during the year ended January 31, 2022. The estimated fair value of this asset as of January 31, 2021 and 2020 was $0.6 million and $0.7 million, respectively.million. We received payments of $0.1 million, and the change in the estimated fair value of this contingent receivable was not material, during the year ended January 31, 2021. Due to the timing of this transaction, there was no change to the estimated fair value of this receivable recorded in operating expenses for the year ended January 31, 2020.

The following table presents the changes in the estimated fair values of our liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for the years ended January 31, 20212022 and 2020:2021: 
Year Ended January 31, Year Ended January 31,
(in thousands)(in thousands)20212020(in thousands)20222021
Fair value measurement, beginning of yearFair value measurement, beginning of year$42,875 $61,340 Fair value measurement, beginning of year$15,704 $31,367 
Contingent consideration liabilities recorded for business combinations, including measurement period adjustments15,253 
Contingent consideration liabilities recorded for business combinationsContingent consideration liabilities recorded for business combinations900 — 
Changes in fair values, recorded in operating expensesChanges in fair values, recorded in operating expenses(4,471)(531)Changes in fair values, recorded in operating expenses883 (806)
Payments of contingent considerationPayments of contingent consideration(20,103)(33,088)Payments of contingent consideration(9,560)(15,183)
Foreign currency translation and otherForeign currency translation and other326 (99)Foreign currency translation and other(151)326 
Transfer of contingent consideration liability to Level 2 of the fair value hierarchyTransfer of contingent consideration liability to Level 2 of the fair value hierarchy(7,776)— 
Fair value measurement, end of yearFair value measurement, end of year$18,627 $42,875 Fair value measurement, end of year$ $15,704 
 
Our estimated liability for contingent consideration represents potential payments of additional consideration for business combinations, payable if certain defined performance goals are achieved. Changes in fair value of contingent consideration are recorded in the consolidated statements of operations within selling, general and administrative expenses.

During the year endedOn January 31, 2017,2022, we acquired 2 majority owned subsidiaries for which we holdexercised an option to acquire the noncontrolling interests. We accountinterests in 2 majority owned subsidiaries. Prior to the exercise, we accounted for the option as an in-substance investment in the noncontrolling common stock of each such subsidiary. We includeincluded the fair value of the option within accrued expenses and other current liabilities and dodid not recognize noncontrolling interests in these subsidiaries.

The following table presents the change in the estimated fair value of this liability, which is measured using Level 3 inputs, for the years ended January 31, 20212022 and 2020:
Year Ended January 31,
(in thousands)20212020
Fair value measurement, beginning of year$2,900 $3,000 
Change in fair value, recorded in operating expenses350 (100)
Fair value measurement, end of year$3,250 $2,900 

There were no transfers between levels of the fair value measurement hierarchy during the years ended January 31, 2021 and 2020.
Fair Value Measurements2021:
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Year Ended January 31,
(in thousands)20222021
Fair value measurement, beginning of year$3,250 $2,900 
Change in fair value, recorded in operating expenses1,245 350 
Amount paid upon exercise of option to acquire noncontrolling interests of consolidated subsidiaries(4,495)— 
Fair value measurement, end of year$ $3,250 

On April 13, 2021, we paid $16.5 million to the counterparty to settle the interest rate swap agreement prior to its June 2024 maturity, and reclassified the remaining $15.7 million of pretax accumulated deferred losses from accumulated other comprehensive loss within stockholders’ equity to other income (expense), net on our consolidated statement of operations for the year ended January 31, 2022. The associated $3.7 million deferred tax asset was reclassified from accumulated other comprehensive loss and netted against income taxes receivable, which are included within prepaid expenses and other current assets on our consolidated balance sheet as of January 31, 2022. Please refer to Note 15, “Derivative Financial Instruments” for further information regarding our interest rate agreement.

Fair Value Measurements
 
Money Market Funds - We value our money market funds using quoted active market prices for such funds.

Short-term Investments, Corporate Debt Securities, and Commercial Paper - The fair values of short-term investments, as well as corporate debt securities and commercial paper classified as cash equivalents, are estimated using observable market prices for identical securities that are traded in less-active markets, if available. When observable market prices for identical securities are not available, we value these short-term investments using non-binding market price quotes from brokers which we review for reasonableness using observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model.

Foreign Currency Forward Contracts - The estimated fair value of foreign currency forward contracts is based on quotes received from the counterparties thereto. These quotes are reviewed for reasonableness by discounting the future estimated cash flows under the contracts, considering the terms and maturities of the contracts and market foreign currency exchange rates using readily observable market prices for similar contracts.

Future Tranche Right - The fair value of the Future Tranche Right iswas classified within Level 3 of the fair value hierarchy because it iswas valued using pricing models that incorporate management assumptions that cannot be corroborated with observable market data. The fair value of the Future Tranche Right was estimated using a binomial tree model to estimate the value of the Series B Preferred Stock and a Monte Carlo simulation to estimate theour stock price of our Customer Engagement Solutions business post-Spin-Off, which we believe iswas reflective of all significant assumptions that market participants would likely consider in negotiating the transfer of the Future Tranche Right. The fair value of the Future Tranche Right also reflectsreflected the likelihood of the Series B Preferred Stock being issued, which management currently considersconsidered to be highly probable.probable for all periods the Future Tranche Right was outstanding.

Significant inputs and assumptions used in the valuation model immediately prior to the settlement date, April 6, 2021, and as of the issuance date, May 7, 2020, and January 31, 2021, are as follows:

January 31,May 7,April 6,January 31,
2021202020212021
Risk-free interest rate for preferred stockRisk-free interest rate for preferred stock1.86 %1.31 %Risk-free interest rate for preferred stock2.35 %1.86 %
Implied credit spreadImplied credit spread6.78 %10.78 %Implied credit spread6.78 %6.78 %
Expected volatilityExpected volatility30.00 %30.00 %Expected volatility30.00 %30.00 %
Verint common stock priceVerint common stock price$73.83$45.44Verint common stock price$45.91$73.83

Interest Rate Swap AgreementsAgreement - The fair value of our interest rate swap agreements areagreement was based in part on data received from the counterparty, and representsrepresented the estimated amount we would receive or pay to settle the agreements,agreement, taking into consideration current and projected future interest rates as well as the creditworthiness of the parties, all of which can be validated through readily observable data from external sources.
 
Contingent Consideration Asset or LiabilityAssets and Liabilities - Business Combinations and Divestitures - The fair value of the contingent consideration related to business combinations and divestitures is estimated using a probability-adjusted discounted cash flow
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model. These fair value measurements are based on significant inputs not observable in the market. The key internally developed assumptions used in these models are discount rates and the probabilities assigned to the milestones to be achieved. We remeasure the fair value of the contingent consideration at each reporting period, and any changes in fair value resulting from either the passage of time or events occurring after the acquisition date, such as changes in discount rates, or in the expectations of achieving the performance targets, are recorded within selling, general, and administrative expenses. Increases or decreases in discount rates would have inverse impacts on the related fair value measurements, while favorable or unfavorable changes in expectations of achieving performance targets would result in corresponding increases or decreases in the related fair value measurements. We utilized discount rates ranging from 0.4%3.3% to 3.8%, with a weighted average discount rate of 3.0%,3.5% in our calculations of the estimated fair values of our contingent consideration liabilities as of January 31, 2021. We utilized discount rates ranging from 2.1%3.5% to 4.9% in our calculations of the estimated fair values of our contingent consideration liabilities as of January 31, 2020. We utilized discount rates ranging from 3.3% to 4.0%3.9%, with a weighted average discount rate of 3.7%, in our calculation of the estimated fair value of our contingent consideration assets as of January 31, 2021.2022. We utilized discount rates ranging from 4.3%3.3% to 4.9%4.0%, with a weighted average discount rate of 3.7% in our calculation of the estimated fair value of our contingent consideration assetassets as of January 31, 2020.2021.

As of January 31, 2022, the $7.8 million fair value of the contingent consideration liability was based on actual achievement through the performance periods ended January 31, 2022, and was transferred to Level 2 of the fair value hierarchy as the fair value was determined based on other significant observable inputs.

Option to Acquire Noncontrolling Interests of Consolidated Subsidiaries - The fair value of the option iswas determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management. This fair value measurement is based upon significant inputs not observable in the market. We
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remeasure remeasured the fair value of the option at each reporting period, and any changes in fair value arewere recorded within selling, general, and administrative expenses. We utilized a discount ratesrate of 8.5% and 9.0% in our calculationscalculation of the estimated fair value of the option as of January 31, 2021 and 2020, respectively.2021.

Other Financial Instruments

The carrying amounts of accounts receivable, contract assets, accounts payable, and accrued liabilities and other current liabilities approximate fair value due to their short maturities.
 
The estimated fair values of our term loan borrowings were $409approximately $100 million and $417$409 million at January 31, 2022 and 2021, and 2020, respectively. The estimated fair value of our revolving credit borrowings at January 31, 2020 was $45 million. The estimated fair values of the term loans are based upon indicative bid and ask prices as determined by the agent responsible for the syndication of our term loans. We consider these inputs to be within Level 3 of the fair value hierarchy because we cannot reasonably observe activity in the limited market in which participation in our term loans are traded. The indicative prices provided to us as at each of January 31, 20212022 and 20202021 did not significantly differ from par value. The estimated fair value of our revolving credit borrowings, if any, is based upon indicative market values provided by one of our lenders.

The estimated fair valuesvalue of our 2014 Notes, werewhich matured in June 2021, was approximately $440 million and $438 million at January 31, 2021 and 2020, respectively.2021. The estimated fair value of our 2021 Notes was approximately $330 million at January 31, 2022. The estimated fair values of the 2014 Notes isand 2021 Notes were determined based on quoted bid and ask prices in the over-the-counter market in which the 2014 Notes trade.and 2021 Notes traded. We consider these inputs to be within Level 2 of the fair value hierarchy.
 
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
 
In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets, operating lease right-of-use assets, and property, plant and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is recognized. Further details regarding our regular impairment reviews appear in Note 1, “Summary of Significant Accounting Policies”.

As of January 31, 2021,2022, the carrying amount of our noncontrolling equity investments in privately-held companies without readily determinable fair values was $6.7$5.1 million, of which $4.0$4.4 million was remeasured to fair value based on an observable transaction during the year ended January 31, 2021.2022. These investments are included within other assets on the consolidated balance sheets. An unrealized gain of $3.2$3.1 million, which adjusted the carrying value of a noncontrolling equity investment and a realized gain of $0.6 million upon the receipt of proceeds related to the partial sale of the same equity investment during the periodbased on an observable transaction was recorded in other income (expense), net on the consolidated statement of operations for the year ended January 31, 2021.2022. As of January 31, 2020,2021, the carrying amount of our noncontrolling equity investments in privately-held companies without readily determinable fair values was $3.8$2.0 million. There were no observable price changes in
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our investments in privately-held companies during the year ended January 31, 2020.2021. We did not recognize any impairments during the years ended January 31, 20212022 and 2020.2021.


14. 15.DERIVATIVE FINANCIAL INSTRUMENTS
 
Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemed appropriate. We enter into these contracts in the normal course of business to mitigate risks and not for speculative purposes.
 
Foreign Currency Forward Contracts

Under our risk management strategy, we periodically use foreign currency forward contracts to manage our short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates. These cash flow exposures result from portions of our forecasted operating expenses, primarily compensation and related expenses, which are transacted in currencies other than the U.S. dollar, most notably the Israeli shekel. We also periodically utilize foreign currency forward contracts to manage exposures resulting from forecasted customer collections to be remitted in currencies other than the applicable functional currency, and exposures from cash, cash equivalents and short-term investments denominated in currencies other than the applicable functional currency. These foreign currency forward contracts generally have maturities of no longer than twelve months, although occasionally we will execute a contract that extends beyond twelve months, depending upon the nature of the underlying risk.
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We held outstanding foreign currency forward contracts with notional amounts of $61.4$7.4 million and $89.0$6.6 million as of January 31, 20212022 and 2020,2021, respectively.

Interest Rate Swap Agreements

To partially mitigate risks associated with the variable interest rates on the term loan borrowings under the prior credit agreement, in February 2016, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution under which we paid interest at a fixed rate of 4.143% and received 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 “2016 Swap”). Although the prior credit agreement was terminated on June 29, 2017, the 2016 Swap agreement remained in effect until September 6, 2019, and served as an economic hedge to partially mitigate the risk of higher borrowing costs under our 2017 Credit Agreement resulting from increases in market interest rates. Settlements with the counterparty under the 2016 Swap occurred quarterly and the 2016 Swap matured on 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 in accumulated other comprehensive income (loss) in the consolidated balance sheet and were reclassified into the statement of operations within interest expense in the period in which the hedged transaction affected earnings. Hedge ineffectiveness, if any, was recognized currently in the consolidated statement 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 longer designated as a cash flow hedge for accounting purposes and because occurrence of the specific forecasted variable cash flows which had been hedged by the 2016 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 were 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 risks associated with the variable interest rate on our 2017 Term Loan for periods following the termination of the 2016 Swap in September 2019, under which we paypaid interest at a fixed rate of 2.949% and receivereceived 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 was September 6, 2019, and settlements with the counterparty began on November 1, 2019 and occuroccurred on a quarterly basis. The 2018 Swap will terminate onhad a termination date of June 29, 2024.

Prior to May 1, 2020, the 2018 Swap was designated as a cash flow hedge for accounting purposes and as such, changes in its fair value were recognized in accumulated other comprehensive income (loss) in the consolidated balance sheet and were reclassified into the consolidated statement of operations within interest expense in the periods in which the hedged transactions affected earnings.
On May 1, 2020, which was an interest rate reset date on our 2017 Term Loan, we selected an interest rate other than three-month LIBOR. As a result, the 2018 Swap, which was designated specifically to hedge three-month LIBOR interest payments, no longer qualified as a cash flow hedge. Subsequent to May 1, 2020, changes in the fair value of the 2018 Swap are beingwere accounted for as a component of other income (expense), net. Accumulated deferred losses on the 2018 Swap of $20.4 million,
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or $16.0 million after tax,taxes, at May 1, 2020 that were previously recorded as a component of accumulated other comprehensive loss, will be amortizedwere being reclassified to interest expense in the consolidated statement of operations as interest expense over the remaining term of the 2018 Swap, as the previously hedged interest payments occur.occurred.

On April 13, 2021, we paid $16.5 million to the counterparty to settle the 2018 Swap agreement prior to its June 2024 maturity. Upon settlement, we recorded an unrealized gain of $1.3 million in other income (expense) to adjust the 2018 Swap to its fair value at settlement date and reclassified the remaining $15.7 million of pretax accumulated deferred losses from accumulated other comprehensive loss within stockholders’ equity to other income (expense), net on our consolidated statement of operations for the year ended January 31, 2022. The associated $3.7 million deferred tax asset was reclassified from accumulated other comprehensive loss and netted against income taxes receivable, which are included within prepaid expenses and other current assets on our consolidated balance sheet as of January 31, 2022.

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, 20212022 and 20202021 were as follows:
 
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January 31,January 31,
(in thousands) (in thousands) Balance Sheet Classification20212020(in thousands) Balance Sheet Classification20222021
Derivative assets:Derivative assets:Derivative assets:
Foreign currency forward contracts:Foreign currency forward contracts:Foreign currency forward contracts:
Designated as cash flow hedgesDesignated as cash flow hedgesPrepaid expenses and other current assets$1,134 $710 Designated as cash flow hedgesPrepaid expenses and other current assets$33 $136 
Not designated as hedging instrumentsPrepaid expenses and other current assets102 
Total derivative assetsTotal derivative assets$1,134 $812 Total derivative assets$33 $136 
Derivative liabilities:Derivative liabilities:Derivative liabilities:
Foreign currency forward contracts:Foreign currency forward contracts:Foreign currency forward contracts:
Designated as cash flow hedgesDesignated as cash flow hedgesAccrued expenses and other current liabilities$403 $16 Designated as cash flow hedgesAccrued expenses and other current liabilities$91 $47 
Not designated as hedging instrumentsNot designated as hedging instrumentsAccrued expenses and other current liabilities323 116 Not designated as hedging instrumentsAccrued expenses and other current liabilities— 
Interest rate swap agreements:Interest rate swap agreements:Interest rate swap agreements:
Designated as a cash flow hedgeAccrued expenses and other current liabilities2,060 
Designated as a cash flow hedgeOther liabilities11,441 
Not designated as a hedging instrumentNot designated as a hedging instrumentAccrued expenses and other current liabilities4,316 Not designated as a hedging instrumentAccrued expenses and other current liabilities— 4,316 
Not designated as a hedging instrumentNot designated as a hedging instrumentOther liabilities13,565 Not designated as a hedging instrumentOther liabilities— 13,565 
Total derivative liabilitiesTotal derivative liabilities$18,607 $13,633 Total derivative liabilities$91 $17,929 

Derivative Financial Instruments in Cash Flow Hedging Relationships
 
The effects of derivative financial instruments designated as cash flow hedges on accumulated other comprehensive loss (“AOCL”) and on the consolidated statement of operations for the years ended January 31, 2022, 2021, 2020, and 20192020 were as follows:

Year Ended January 31,Year Ended January 31,
(in thousands) (in thousands) 202120202019(in thousands) 202220212020
Net (losses) gains recognized in AOCL:
Net gains (losses) recognized in AOCL:Net gains (losses) recognized in AOCL:
Foreign currency forward contractsForeign currency forward contracts$2,186 $2,239 $(981)Foreign currency forward contracts$85 $323 $289 
Interest rate swap agreementInterest rate swap agreement(7,535)(10,265)(3,043)Interest rate swap agreement— (7,535)(10,265)
$(5,349)$(8,026)$(4,024)$85 $(7,212)$(9,976)
Net (losses) gains reclassified from AOCL to the consolidated statements of operations:Net (losses) gains reclassified from AOCL to the consolidated statements of operations:Net (losses) gains reclassified from AOCL to the consolidated statements of operations:
Foreign currency forward contractsForeign currency forward contracts$2,149 $453 $(4,219)Foreign currency forward contracts$232 $267 $64 
Interest rate swap agreementInterest rate swap agreement(4,367)(792)Interest rate swap agreement(16,669)(4,367)(792)
$(2,218)$(339)$(4,219)$(16,437)$(4,100)$(728)

For information regarding the line item locations of the net (losses) gains on derivative financial instruments reclassified out of AOCL into the consolidated statements of operations, see Note 10,11, “Stockholders’ Equity”.

Effective with our February 1, 2018 adoption
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All of the foreign currency forward contracts underlying the $0.6 million of net unrealized gains recorded in our accumulated other comprehensive loss at January 31, 20212022 mature within twelve months, and therefore we expect all such gains to be reclassified into earnings within the next twelve months. Approximately $3.4 million of the $13.0 million of net unrealized losses related to our interest rate swap agreement recorded in our accumulated other comprehensive loss at January 31, 2021 settle within twelve months, and therefore we expect those losses to be reclassified into earnings within the next twelve months.

Derivative Financial Instruments Not Designated as Hedging Instruments
 
(Losses) gains recognized on derivative financial instruments not designated as hedging instruments in our consolidated statements of operations for the years ended January 31, 2022, 2021, 2020, and 20192020 were as follows: 
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Classification in Consolidated Statements of OperationsYear Ended January 31,Classification in Consolidated Statements of OperationsYear Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Foreign currency forward contractsForeign currency forward contractsOther (expense) income, net$(95)$647 $1,891 Foreign currency forward contractsOther income (expense), net$— $— $251 
Interest rate swap agreementsInterest rate swap agreementsOther (expense) income, net(1,267)(48)620 Interest rate swap agreementsOther income (expense), net(14,374)(1,267)(48)
$(1,362)$599 $2,511 $(14,374)$(1,267)$203 


15. 16.STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS
 
Stock-Based Compensation Plans

Plan Summaries

We issue stock-based incentive awards to eligible employees, directors and consultants, including restricted stock units (“RSUs”), 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 “Stock Plans”) and forms of equity award agreements approved by our board of directors.

Awards are generally subject to multi-year vesting periods. We recognize compensation expense for awards on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods, reduced by estimated forfeitures. Upon issuance of restricted stock, exercise of stock options, or issuance of shares under the Plans, we generally issue new shares of common stock, but may issue treasury shares.

Stock-Based Compensation PlanPlans

On June 20, 2019, our stockholders approved the Verint Systems Inc. 2019 Long-Term Stock Incentive Plan (the “2019 Plan”). Upon approval of the 2019 Plan, new awards are no longer permitted under our prior stock-based compensation plan (the “2017 Amended Plan”). Awards outstanding at June 20, 2019 under the 2017 Amended Plan or other previous stock-based compensation plans were not impacted by the approval of the 2019 Plan. Collectively, our stock-based compensation plans are referred to herein as the “Plans”.

The 2019 Plan authorizes our board of directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, other stock-based awards, and performance compensation awards. Subject to adjustment as provided in the 2019 Plan, up to an aggregate of (i) 9,475,000 shares of our common stock plus (ii) the number of shares of our common stock available for issuance under the 2017 Amended Plan as of June 20, 2019, plus (iii) the number of shares of our common stock that become available for issuance as a result of awards made under the 2017 Amended Plan or the 2019 Plan that are forfeited, cancelled, exchanged, or that terminate or expire, may be issued or transferred in connection with awards under the 2019 Plan. Each stock option or stock-settled stock appreciation right granted under the 2019 Plan will reduce the available plan capacity by 1 share and each other award denominated in shares that is granted under the 2019 Plan will reduce the available plan capacity by 2.38 shares.

In March 2021, our board of directors approved an adjustment of the available plan capacity to the 2019 Plan to 14,239,656 shares based on an adjustment ratio of approximately 1.45 as a result of the Spin-Off.

Stock-Based Compensation Expense

We recognized stock-based compensation expense in the following line items on the consolidated statements of operations for the years ended January 31, 2022, 2021, 2020, and 2019:2020:
 
109119


Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Component of income before provision for income taxes:Component of income before provision for income taxes:Component of income before provision for income taxes:
Cost of revenue - product$1,448 $2,014 $1,309 
Cost of revenue - service and support3,926 6,170 4,426 
Cost of revenue — recurringCost of revenue — recurring$1,999 $1,109 $2,100 
Cost of revenue — nonrecurringCost of revenue — nonrecurring3,029 2,184 3,316 
Research and development, netResearch and development, net9,536 13,426 9,870 Research and development, net7,565 3,918 7,212 
Selling, general and administrativeSelling, general and administrative47,523 61,088 51,052 Selling, general and administrative52,672 37,989 52,211 
Total stock-based compensation expenseTotal stock-based compensation expense62,433 82,698 66,657 Total stock-based compensation expense65,265 45,200 64,839 
Income tax benefits related to stock-based compensation (before consideration of valuation allowances)Income tax benefits related to stock-based compensation (before consideration of valuation allowances)8,783 12,651 10,377 Income tax benefits related to stock-based compensation (before consideration of valuation allowances)10,615 6,684 7,357 
Total stock-based compensation, net of taxesTotal stock-based compensation, net of taxes$53,650 $70,047 $56,280 Total stock-based compensation, net of taxes$54,650 $38,516 $57,482 

The following table summarizes stock-based compensation expense by type of award for the years ended January 31, 2022, 2021, 2020, and 2019:2020: 

Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Restricted stock units and restricted stock awardsRestricted stock units and restricted stock awards$63,005 $65,080 $57,639 Restricted stock units and restricted stock awards$58,678 $47,598 $49,475 
Stock bonus program and bonus share programStock bonus program and bonus share program(716)17,543 8,943 Stock bonus program and bonus share program6,568 (2,390)15,327 
Total equity-settled awardsTotal equity-settled awards62,289 82,623 66,582 Total equity-settled awards65,246 45,208 64,802 
Phantom stock units (cash-settled awards)Phantom stock units (cash-settled awards)144 75 75 Phantom stock units (cash-settled awards)19 (8)37 
Total stock-based compensation expenseTotal stock-based compensation expense$62,433 $82,698 $66,657 Total stock-based compensation expense$65,265 $45,200 $64,839 
 
Awards under our stock bonus and bonus share programs are accounted for as liability-classified awards, because the obligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, to be settled with a variable number of shares of our common stock, which for awards under our stock bonus program is determined using a discounted average price of our common stock.
 
We recorded a $1.5$2.5 million net excess tax benefit, a $0.9 million net excess tax deficiency, and $2.4a $1.9 million and $0.2 million of net excess tax benefitsbenefit resulting from our Stock Plans as a component of income tax expense for the years ended January 31, 2022, 2021, 2020 and 2019,2020, respectively.

Restricted Stock Units and Performance Stock Units
 
We periodically award RSUs to our directors, officers, and other employees. The fair value of these awards is equivalent to the market value of our common stock on the grant date. 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 forfeiture provisions 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, an accounting 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 PSUs requires an assessment of the probability that the specified performance criteria will be achieved, which we update at each reporting date and adjust our estimate of the fair value of the PSUs, if necessary. All compensation expense for PSUs with market conditions is recognized if the requisite service period is fulfilled, even if the market condition is not satisfied.

RSUs, and PSUs, or phantom stock units that are expected to settle with cash payments upon vesting, if any, are reflected as liabilities on our consolidated balance sheets. Such RSUs and PSUsawards were insignificant at January 31, 2022, 2021, 2020, and 2019.2020.

The following table (“Award Activity Table”) summarizes activity for RSUs, PSUs, and other stock awards that reduce available Plan capacity under the Plans for the years ended January 31, 2022, 2021, 2020, and 2019:2020:

110120


Year Ended January 31,Year Ended January 31,
202120202019202220212020
(in thousands, except grant date fair values)(in thousands, except grant date fair values)Shares or UnitsWeighted-Average Grant-Date Fair ValueShares or UnitsWeighted-Average Grant-Date Fair ValueShares or UnitsWeighted-Average Grant-Date Fair Value(in thousands, except grant date fair values)Shares or UnitsWeighted-Average Grant-Date Fair ValueShares or UnitsWeighted-Average Grant-Date Fair ValueShares or UnitsWeighted-Average Grant-Date Fair Value
Beginning balanceBeginning balance2,736 $52.53 2,777 $41.05 2,808 $41.18 Beginning balance2,950 $35.97 1,879 $52.96 1,877 $40.98 
GrantedGranted2,031 $47.36 1,620 $60.42 1,708 $43.03 Granted1,540 $48.01 1,469 $47.30 1,157 $59.89 
ReleasedReleased(1,615)$47.64 (1,435)$40.59 (1,481)$43.67 Released(1,800)$36.14 (1,125)$47.53 (1,009)$39.76 
ForfeitedForfeited(282)$52.65 (226)$45.57 (258)$41.07 Forfeited(236)$40.23 (206)$52.59 (146)$45.07 
Ending balanceEnding balance2,870 $51.61 2,736 $52.53 2,777 $41.05 Ending balance2,454 $42.99 2,017 $51.90 1,879 $52.96 

The beginning balance of the outstanding shares for the year ended January 31, 2022 reflects the adjusted shares based on an adjustment ratio of approximately 1.45 as a result of the Spin-Off on February 1, 2021. The related weighted-average grant date fair value for the beginning outstanding shares reflects the adjusted fair value of the awards on the Spin-Off Date. The adjusted shares preserve the same terms and conditions and vesting schedules as the original awards.

The beginning balance of the shares and the respective weighted-average grant date fair value for the years ended January 31, 2021 and 2020 reflect the shares and fair values on the original date of grant without adjustment.

With respect to our stock bonus program, activity presented in the table above only includes shares earned and released in consideration of the discount provided under that program. Consistent with the provisions of the Plans under which such shares are issued, other shares issued under the stock bonus program are not included in the table above because they do not reduce available plan capacity (since such shares are deemed to be purchased by the grantee at fair value in lieu of receiving an earned cash bonus). Activity presented in the table above includes all shares awarded and released under the bonus share program. Further details appear below under “Stock Bonus Program” and “Bonus Share Program”.

Our RSU and PSU 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, 2021,2022, for such awards that are outstanding, settlement with cash payments was not considered probable, and therefore these awards have been accounted for as equity-classified awards and are included in the table above.

In order to achieve an equitable modification of the existing awards following the Spin-Off, we converted unvested awards as of February 1, 2021 by a factor of approximately 1.45, resulting in additional awards being granted to remaining employees denominated solely in Verint common stock. As noted above, a corresponding adjustment was also made to the available capacity under the 2019 Plan.

The following table summarizes PSU activity in isolation under the Plans for the years ended January 31, 2022, 2021, 2020, and 20192020 (these amounts are also included in the Award Activity Table above)above for 2022, 2021, and 2020):

Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Beginning balanceBeginning balance526 512 506 Beginning balance743 423 414 
GrantedGranted381 291 228 Granted212 297 237 
ReleasedReleased(233)(245)(139)Released(381)(182)(200)
ForfeitedForfeited(32)(32)(83)Forfeited(27)(27)(28)
Ending balanceEnding balance642 526 512 Ending balance547 511 423 

Consistent with the table above, the beginning balance of the outstanding shares for the year ended January 31, 2022 reflects the adjusted shares based on an adjustment ratio of approximately 1.45 as a result of the Spin-Off on February 1, 2021. The beginning balance of the outstanding shares of the years ended January 31, 2021 and 2020 reflects the number of shares on the date of grant without adjustment.

Excluding PSUs, we granted 1,650,0001,328,000 RSUs during the year ended January 31, 2021.2022.

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As of January 31, 2021,2022, there was approximately $89.7$66.8 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested restricted stock units, which is expected to be recognized over a weighted average period of 1.281.4 years.

Stock Options

We did not grant stock options during the years ended January 31, 2022, 2021, 2020, and 2019,2020, and activity from stock options awarded in prior periods was not material during these years.

Phantom Stock Units

We have periodically issued phantom stock units to certain employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting.

Phantom stock unit activity for the years ended January 31, 2022, 2021, 2020, and 20192020 was not significant.
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Adjustment in Connection with the Spin-Off

In accordance with the terms of our applicable equity incentive plans, following the completion of the Spin-Off on February 1, 2021, we equitably adjusted the number of shares underlying our remaining unvested awards by a factor of approximately 1.45 based on the ratio of the trading prices of our common stock prior to the Spin-Off to the trading prices of our common stock following the Spin-Off. The tables above reflect the pre-adjustment numbers as of January 31, 2021.

Stock Bonus Program

Our stock bonus program permits eligible employees to receive a portion of their earned bonuses, otherwise payable in cash, in the form of discounted shares of our common stock. Executive officers are eligible to participate in this program to the extent that shares remain available for awards following the enrollment of all other participants. Shares awarded to executive officers with respect to the discount feature of the program are subject to a one-year vesting period. This program is subject to annual funding approval by our board of directors and an annual cap on the number of shares that can be issued. Subject to these limitations, the number of shares to be issued under the program for a given year is determined using a five-day trailing average price of our common stock when the awards are calculated, reduced by a discount determined by the board of directors each year (the “discount”). To the extent that this program is not funded in a given year or the number of shares of common stock needed to fully satisfy employee enrollment exceeds the annual cap, the applicable portion of the employee bonuses will generally revert to being paid in cash. Obligations under this program are accounted for as liabilities, because the obligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, to be settled with a variable number of shares of common stock determined using a discounted average price of our common stock. Shares earned under the program are issued after the end of the performance period, in the subsequent fiscal year.

For bonuses in respect of the year ended January 31, 2019, our board of directors approved the use of up to 200,000 shares of common stock, and a discount of 15%, for awards under this program. We issued 97,000 shares in lieu of cash bonuses and 13,000 shares for the discount feature in the year ended January 31, 2020 (in respect of the performance period ended January 31, 2019).

For bonuses in respect of the year ended January 31, 2020, our board of directors approved the use of up to 200,000 shares of common stock, and a discount of 15%, for awards under the stock bonusthis program. We issued 32,000 shares underin lieu of cash bonuses and 3,000 shares for the stock bonus program fordiscount feature in the year ended January 31, 2021 (in respect of the performance period ended January 31, 2020 during the year ended January 31, 2021.2020).

For bonuses in respect of the year ended January 31, 2021, our board of directors approved the use of up to 200,000 shares of common stock, and a discount of 15%, for awards under this program, however,program. However, the program was not used for such performance period and 0no shares will bewere issued induring the year ended January 31, 2022 (in respect of the performance period ended January 31, 2021.2021).

For bonuses in respect of the year ended January 31, 2022, our board of directors approved the use of up to 300,000 shares of common stock, and a discount of 15%, for awards under this program. Shares earned under the program will be calculated and issued during the first half of the year ending January 31, 2023.

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The following table summarizes activity under the stock bonus program during the years ended January 31, 2022, 2021, and 2020 and 2019 in isolation. Shares areisolation from other share activity. As noted above, shares issued in a given fiscal year are in respect of the prior fiscal year’s program period. AsAlso, as noted above, 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,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Shares in lieu of cash bonus - granted and released (not included in the Award Activity Table above)32 97 19 
Shares in lieu of cash bonus — granted and released (not included in the Award Activity Table above)Shares in lieu of cash bonus — granted and released (not included in the Award Activity Table above)— 32 97 
Shares in respect of discount (included in the Award Activity Table above):Shares in respect of discount (included in the Award Activity Table above):Shares in respect of discount (included in the Award Activity Table above):
Granted Granted16  Granted— — 16 
Released Released13  Released— 13 

As noted above, the shares to be issued in respect of the program period ended January 31, 2022 will be calculated and issued during the first half of the year ending January 31, 2023 and are therefore not shown in this table.

In March 2021,2022, our board of directors approved up to 300,000200,000 shares of common stock, and a discount of 15%, for awards under our stock bonus program for the performance period ending January 31, 2022.2023. Any shares earned under the program will be issued during the year ending January 31, 2024.
    
Bonus Share Program

Under our bonus share program, we may provide discretionary bonuses to employees or pay earned bonuses that are outside the stock bonus program in the form of shares of common stock. Unlike the stock bonus program, there is no enrollment for this program and no discount feature. Similar to the accounting for the stock bonus program, obligations for these bonuses are accounted for as liabilities, because the obligations are based predominantly on fixed monetary amounts that are generally known, to be settled with a variable number of shares of common stock. As noted above, all shares issued under this program are included in the Award Activity Table above.
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During Like the year ended January 31, 2019, approximately 197,000stock bonus program, shares of common stock were awarded and released under the bonus share program in respectare issued after the end of the performance period, ended January 31, 2018.

Duringin the year ended January 31, 2020, approximately 59,000 shares of common stock were awarded and released under the bonus share program in respect of the performance period ended January 31, 2019.

During the year ended January 31, 2021, approximately 272,000 shares of common stock were awarded and released under the bonus share program in respect of the performance period ended January 31, 2020.

subsequent fiscal year.
For bonuses in respect of the year ended January 31, 2021, the2019, our board of directors approved the use of up to 300,000 shares of common stock under this program, reduced byminus any shares used under the stock bonus program in respect of the same performance periodperiod. Approximately 59,000 shares of common stock were awarded and released under this program during the year ended January 31, 2021. For example, assuming all 200,000 shares currently authorized for issuance under the stock bonus program for2020 (in respect of the performance period ended January 31, 2021 were issued, no more than 100,000 shares would be issued under the bonus share program for such performance period. We do not expect to utilize any of the shares authorized under the bonus share program for the performance period ended January 31, 2021.2019).

For bonuses in respect of the year endingended January 31, 2020, our board of directors approved the use of up to 305,000 shares of common stock under this program, minus any shares used under the stock bonus program in respect of the same performance period. Approximately 272,000 shares of common stock were awarded and released under this program during the year ended January 31, 2021 (in respect of the performance period ended January 31, 2020).

For bonuses in respect of the year ended January 31, 2021, our board of directors approved the use of up to 300,000 shares of common stock under this program, minus any shares used under the stock bonus program in respect of the same performance period. Any shares awarded under this program would have been issued during the first half of the year ended January 31, 2022, however the program was not used, and no shares of common stock were issued during the year ended January 31, 2022 (in respect of the performance period ended January 31, 2021). Bonuses in respect of the year ended January 31, 2021 were paid solely in cash.

For bonuses in respect of the year ended January 31, 2022, our board of directors has approved the use of up to 300,000 shares of common stock under this program, reduced byminus any shares used under the stock bonus program in respect of the same performance period.period (the maximum numbers of shares issuable under the stock bonus program and the bonus share program collectively for the performance period ended January 31, 2022 will not exceed 300,000). Any shares awarded under this program will be issued during the first half of the year ending January 31, 2023, however, we do not currently expect to issue any shares under this program in respect of the performance period ended January 31, 2022.
For bonuses in respect of the year ended January 31, 2023, in March 2022 our board of directors approved the use of up to 300,000 shares of common stock under this program, minus any shares used under the stock bonus program in respect of the
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same performance period. Any shares awarded under this program will be issued during the first half of the year ending January 31, 2024.

The combined accrued liabilities for the stock bonus program and the bonus share program were $2.5 million and $17.3was $6.5 million at January 31, 2021 and 2020, respectively. As noted above, we do not intend to grant awards under the stock bonus program or the bonus share program for the performance period ended January 31, 2021 and instead expect to pay bonuses for such period in cash.2022.

Other Benefit Plans

401(k) Plan and Other Retirement Plans

We maintain a 401(k) Plan for our full-time employees in the United States. The plan allows eligible employees who attain the age of 21 beginning with the first of the month following their date of hire to elect to contribute up to 60% of their annual compensation, subject to the prescribed maximum amount. We match employee contributions at a rate of 50%, up to a maximum annual matched contribution of $2,000 per employee.

Employee contributions are always fully vested, while our matching contributions for each year vest on the last day of the calendar year provided the employee remains employed with us on that day.

Our matching contribution expenses for our 401(k) Plan were $2.7$2.6 million, $3.0$2.6 million, and $2.7$2.9 million for the years ended January 31, 2022, 2021, 2020, and 2019,2020, respectively.

We provide retirement benefits for non-U.S. employees as required by local laws or to a greater extent as we deem appropriate through plans that function similar to 401(k) plans. Funding requirements for programs required by local laws are determined on an individual country and plan basis and are subject to local country practices and market circumstances.

Severance Pay

We are obligated to make severance payments for the benefit of certain employees of our foreign subsidiaries. Severance payments made to Israeli employees are considered significant compared to all other subsidiaries with severance payment arrangements. Under Israeli law, we are obligated to make severance payments to employees of our Israeli subsidiaries,subsidiary, subject to certain conditions. In most cases, our liability for these severance payments is fully provided for by regular deposits to funds administered by insurance providers and by an accrual for the amount of our liability which has not yet been deposited.

Severance expenses for our Israeli employees for the years ended January 31, 2022, 2021, and 2020 and 2019 were $8.8$1.3 million, $8.7$1.1 million, and $13.3$1.1 million, respectively.


16. 17.LEASES
We have entered into operating leases primarily for corporate offices, research and development facilities, datacenters, and
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automobiles. Our finance leases primarily relate to infrastructure equipment. Our leases have remaining lease terms of 1 year to 118 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year.to 3 years. As of January 31, 20212022 and 2020,2021, assets recorded under finance leases were $11.0$14.4 million and $13.3$11.0 million, respectively. As of January 31, 20212022 and 2020,2021, accumulated depreciation associated with finance leases was $5.0 million and $2.7 million, and $0.7 million, respectively.

The components of lease expenses for the years ended January 31, 2022, 2021, and 2020 were as follows:

Year Ended January 31,
(in thousands)20212020
Operating lease expenses$32,811 $29,898 
Finance lease expenses:
Amortization of right-of-use assets2,378 581 
Interest on lease liabilities414 226 
Total finance lease expenses2,792 807 
Variable lease expenses8,800 8,233 
Short-term lease expenses616 860 
Sublease income(966)(908)
Total lease expenses$44,053 $38,890 
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Year Ended January 31,
(in thousands)202220212020
Operating lease expenses$24,241 $28,617 $26,583 
Finance lease expenses:
Amortization of right-of-use assets3,223 2,295 581 
Interest on lease liabilities260 312 204 
Total finance lease expenses3,483 2,607 785 
Variable lease expenses6,344 5,504 5,609 
Short-term lease expenses1,055 584 657 
Sublease income(1,804)(966)(908)
Total lease expenses$33,319 $36,346 $32,726 

During the yearyears ended January 31, 2022 and 2021, we exited certain leased offices primarily due to our workforce operating under remote work environments in certain locations due to the COVID-19 resultingpandemic, which resulted in the recognition of accelerated operating lease costs of $9.8 million and $2.4 million, respectively. Operating lease expenses of $2.8 million. Infor the yearyears ended January 31, 2019, we recorded rent expense under all operating leases2021 and 2020 included $6.9 million and $6.7 million, respectively, of $22.6 million underindirect shared facility expenses, which were no longer a component of lease cost subsequent to the previous lease accounting standard.completion of the Spin-Off.

Other information related to leases was as follows:
Year Ended January 31,Year Ended January 31,
(dollars in thousands)(dollars in thousands)20212020(dollars in thousands)202220212020
Supplemental cash flow informationSupplemental cash flow informationSupplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leasesOperating cash flows from operating leases$29,631$27,599Operating cash flows from operating leases$19,360$21,243$20,083
Operating cash flows from finance leasesOperating cash flows from finance leases414226Operating cash flows from finance leases260312204
Financing cash flows from finance leasesFinancing cash flows from finance leases2,8802,522Financing cash flows from finance leases3,1892,3891,930
Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:
Operating leasesOperating leases$13,488$22,472Operating leases$11,282$7,619$17,843
Finance leasesFinance leases9036,405Finance leases4,0419033,288
Weighted average remaining lease termsWeighted average remaining lease termsWeighted average remaining lease terms
Operating leasesOperating leases6 years6 yearsOperating leases3 years6 years6 years
Finance leasesFinance leases3 years4 yearsFinance leases3 years3 years3 years
Weighted average discount ratesWeighted average discount ratesWeighted average discount rates
Operating leasesOperating leases5.4 %6.0 %Operating leases4.8 %5.8 %5.7 %
Finance leasesFinance leases4.0 %5.2 %Finance leases3.8 %4.0 %5.1 %

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Maturities of lease liabilities as of January 31, 20212022 were as follows:
January 31, 2021January 31, 2022
(in thousands)(in thousands)Operating LeasesFinance Leases(in thousands)Operating LeasesFinance Leases
Year Ending January 31,Year Ending January 31,Year Ending January 31,
2022$25,859 $2,480 
2023202322,856 2,091 2023$26,526 $2,804 
2024202420,517 700 20249,808 2,017 
2025202518,349 277 20258,221 1,418 
2026202613,792 20265,056 550 
202720274,312 19 
ThereafterThereafter16,927 Thereafter5,423 — 
Total future minimum lease paymentsTotal future minimum lease payments118,300 5,548 Total future minimum lease payments59,346 6,808 
Less: imputed interestLess: imputed interest(17,478)(294)Less: imputed interest(6,338)(348)
TotalTotal$100,822 $5,254 Total$53,008 $6,460 
Reported as of January 31, 2021:
Reported as of January 31, 2022:Reported as of January 31, 2022:
Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities$20,936 $2,285 Accrued expenses and other current liabilities$24,551 $2,629 
Operating lease liabilitiesOperating lease liabilities79,886 — Operating lease liabilities28,457 — 
Other liabilitiesOther liabilities— 2,969 Other liabilities— 3,831 
TotalTotal$100,822 $5,254 Total$53,008 $6,460 

As of January 31, 2021,2022, we have additional operating leases for office facilities, equipment, and vehicles that have not yet commenced with future lease obligations of $4.9$2.4 million. These operating leases will commence in 2021the year ending January 31, 2023 with lease terms greater than 1 yearof 3 years to 54 years.


17. 18.COMMITMENTS AND CONTINGENCIES

Unconditional Purchase Obligations

In the ordinary course of business, we enter into certain unconditional purchase obligations, which are agreements to purchase goods or services that are enforceable, legally binding, and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on current needs and are typically fulfilled by our vendors within a relatively short time horizon. As of January 31, 2021,2022, our unconditional purchase obligations totaled approximately $203.8$240.3 million.

Licenses and Royalties

We license certain technology and pay royalties under such licenses and other agreements entered into in connection with research and development activities.

As discussed in Note 1, “Summary of Significant Accounting Policies”,Historically, we receivehave received non-refundable grants from the IIAIsraeli Innovation Authority (“IIA”) that fundfunded a portion of our research and development expenditures. The Israeli law under which the IIA grants are made limits our ability to manufacture products, or transfer technologies, developed using these grants outside of Israel. If we were to seek approval to manufacture products, or transfer technologies, developed using these grants outside of Israel, we could be subject to additional royalty requirements or be required to pay certain redemption fees. If we were to violate these restrictions, we could be required to refund any grants previously received, together with interest and penalties, and may be subject to criminal penalties. Funds received from the IIA were recorded as a reduction to research and development expenses and amounts received were not material during the years ended January 31, 2022, 2021 and 2020.

Off-Balance Sheet Risk

In the normal course of business, we provide certain customers with financial performance guarantees, which are generally backed by standby letters of credit or surety bonds. In general, we would only be liable for the amounts of these guarantees in the event that our nonperformance permits termination of the related contract by our customer, which we believe is remote. At January 31, 2021,2022, we had approximately $72.1$1.5 million of outstanding letters of credit and surety bonds relating primarily to these performance guarantees. As of January 31, 2021,2022, we believe we were in compliance with our performance obligations under all
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contracts for which there is a financial performance guarantee, and the ultimate liability, if any, incurred in connection
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with these guarantees will not have a material adverse effect on our consolidated results of operations, financial position, or cash flows. Our historical non-compliance with our performance obligations has been insignificant.

Indemnifications

In the normal course of business, we provide indemnifications of varying scopes to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

To the extent permitted under Delaware law or other applicable law, we indemnify our directors, officers, employees, and agents against claims they may become subject to by virtue of serving in such capacities for us. We also have contractual indemnification agreements with our directors, officers, and certain senior executives. The maximum amount of future payments we could be required to make under these indemnification arrangements and agreements is potentially unlimited; however, we have insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We are not able to estimate the fair value of these indemnification arrangements and agreements in excess of applicable insurance coverage, if any.

Legal Proceedings

CTI Litigation

In March 2009, one of our former employees, Ms. Orit Deutsch, commenced legal actions in Israel against our former primary Israeli subsidiary, Cognyte Technologies Israel Ltd. (formerly known as Verint Systems Limited or “VSL”) (Case Number 4186/09) and against our former 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). In these actions, the plaintiffs generally sought to certify class action suits against the defendants on behalf of current 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 a result 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 3 defendants: VSL, CTI, and Comverse Limited.

On October 31, 2012, CTI 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 (the “Comverse Share Distribution”). In the period leading up to the Comverse Share Distribution, CTI either sold or transferred substantially all of its business operations and assets (other than its equity ownership interests in Verint and in its then-subsidiary, Comverse, Inc.) to Comverse, Inc. or to unaffiliated third parties. As the result of these transactions, Comverse, Inc. became an independent company 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 of the 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 District Court 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, Verint assumed certain rights and liabilities of CTI, including any liability of CTI arising out of the foregoing legal actions. However, under the terms of a Distribution Agreement entered into in connection with the Comverse Share Distribution, we, as successor to CTI, are entitled to indemnification from Comverse, 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 with respect to all claims relating to Verint stock options, (ii) dismissed the motion to certify the suit against VSL and Comverse Limited, and (iii) approved the plaintiffs’ motion to certify the suit as a class action against CTI with respect to claims of current or former employees of Comverse Limited (now part of Mavenir) 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 case would be evaluated under New York law.

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As a result of this ruling (which excluded claims related to Verint 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 appeal and
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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’ expert opinions.

Following two unsuccessful rounds of mediation in mid to late 2018 and in mid-2019, the proceedings resumed. On April 16, 2020, the District Court accepted plaintiffs’ application to amend the motion to certify a class action and set deadlines for filing amended pleadings by the parties. CTI submitted a motion to appeal the District Court’s decision to the Israeli Supreme Court, as well as a motion to stay the proceedings in the District Court pending the resolution of the appeal. On July 6, 2020, the Israeli Supreme Court granted the motion for a stay. On July 27, 2020, the plaintiffs filed their response on the merits of the motion for leave to appeal. On December 15, 2021, the Israeli Supreme Court rejected CTI’s motion to appeal and the parties are waiting for further instructions or decisions fromproceedings in the Israeli Supreme Court.District Court resumed.

On February 1, 2021, we completed the Spin-Off. As a result of the Spin-Off, Cognyte is now an independent, publicly traded company. Under the terms of the Separation and Distribution Agreement entered into between Verint and Cognyte, Cognyte has agreed to indemnify Verint for Cognyte’s share of any losses that Verint may suffer related to the foregoing legal actions either in its capacity as successor to CTI, to the extent not indemnified by Mavenir, or due to its former ownership of Cognyte and VSL.

Unfair Competition Litigation and Related Investigation

On February 14, 2022, Verint Americas Inc., as successor to ForeSee Results, Inc. (“ForeSee”), received negative partial summary judgment decisions in two cases pending against it in the United States District Court for the Eastern District of Michigan. As discussed below, we believe that the court’s decisions were wrongly decided and are contrary to the facts and the law. We are seeking reconsideration of the rulings and will ultimately appeal the rulings if necessary. We believe that the claims asserted by the plaintiffs are without merit. In addition, as explained in our affirmative Delaware litigation, we also believe that by bringing the claims, plaintiffs breached an agreement not to pursue such claims in an improper attempt by them and their founder, Claes Fornell, to extract additional monies from ForeSee.

The two Eastern District of Michigan cases are captioned ACSI LLC v. ForeSee Results, Inc. and CFI Group USA LLC v. Verint Americas Inc. The former case was filed on October 24, 2018 against ForeSee Results, Inc. by American Customer Satisfaction Index, LLC (“ACSI LLC”). Case No. 2:18-cv-13319. Verint completed its acquisition of ForeSee on December 19, 2018. In its complaint, ACSI LLC alleged infringement of two federally registered trademarks and common law unfair competition under federal and state law. ACSI LLC asserts that ForeSee, despite cancelling its license to use ACSI LLC’s alleged trademarks in 2013, has continued to use ACSI LLC’s trademarks. The trademark infringement claim was subsequently dismissed, but the common law unfair competition claims have proceeded. The latter case was filed on September 5, 2019 against Verint Americas Inc. (as successor in interest to ForeSee) by CFI Group USA LLC (“CFI”). Case No. 2:19-cv-12602. In its complaint, CFI alleges unfair competition and false advertising under federal and state law, as well as tortious interference with contract. CFI asserts that ForeSee engaged in unfair competition by using ACSI LLC’s trademarks without a license, and that ForeSee engaged in false advertising by mis-describing its customer satisfaction products. ACSI LLC’s and CFI’s complaints seek unspecified damages on their claims.

Following discovery, on June 3, 2021, ACSI LLC and CFI moved for partial summary judgment on their claims and ForeSee moved for summary judgment against their claims. On February 14, 2022, the Eastern District of Michigan generally granted ACSI LLC’s and CFI’s motions for partial summary judgment and generally denied ForeSee’s motions for summary judgment. As noted above, ForeSee believes that the court’s decisions were wrongly decided, ignore substantial factual evidence in the record, and are contrary to applicable law. On February 28, 2022, ForeSee moved for reconsideration, and that motion is pending before the court. ForeSee continues to believe that there are substantial defenses to the claims in the ACSI LLC and CFI litigations and intends to continue to defend them vigorously.

Verint has also been informed that the U.S. Attorney’s Office for the Eastern District of Michigan’s Civil Division (“USAO”) is conducting a False Claims Act investigation concerning allegations ForeSee and/or Verint failed to provide the federal government the services described in certain government contracts. Verint received a Civil Investigation Demand (“CID”) in connection with this investigation and has provided responses. The False Claims Act contains provisions that allow for private persons to initiate actions by filing claims under seal. We believe that this investigation was initiated in coordination with the Eastern District of Michigan litigation discussed above. Verint continues to work cooperatively with the USAO in its review of this matter. At this point, Verint has not determined that there were any deficiencies in ForeSee’s and/or Verint’s performance of the government contracts.
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ForeSee also filed affirmative litigation in the Northern District of Georgia (Case No. 1:19-cv-02892, Complaint filed on June 25, 2019) against ACSI LLC’s predecessor in interest. ACSI LLC has now been substituted as the named defendant. In that action, ForeSee seeks cancellation of ACSI LLC’s federally registered trademarks. In response to ASCI LLC’s motion to dismiss the action, on March 15, 2022, the Georgia court issued an order transferring that action to the Eastern District of Michigan.

ForeSee has also filed affirmative litigation in the District of Delaware (Case No. 1:21-cv-00674, Complaint filed on May 7, 2021) against ACSI LLC, CFI, Claes Fornell, and CFI Software LLC. Claes Fornell founded both ACSI LLC and CFI, and previously co-founded ForeSee before selling it in December 2013 for a significant gain. The Delaware action asserts claims against ACSI LLC, CFI, Fornell, and CFI Software for their breach of a “Joinder and Waiver Agreement” entered into in connection with the December 2013 sale in which they represented that they had no claims against ForeSee and in which they released any such claims. The Delaware action alleges that the Eastern District of Michigan litigations effectively represent an improper attempt by Fornell and his affiliates to profit off of ForeSee a second time (first by selling it in 2013 as a law-abiding company, only to sue it in 2018 and 2019 claiming violations of law for business practices that began while Fornell owned a significant position in ForeSee (via CFI Software) and during the time that Fornell served as chairman of ForeSee’s board). The Delaware action also asserts fraud claims against Fornell and CFI Software for affirmative statements they made in the December 2013 merger agreement which effectuated the sale and in other contemporaneous materials that ForeSee was not engaging in unfair competition or other violations of law. The Delaware litigation seeks as damages any amounts recovered by ACSI LLC, CFI or the USAO in the proceedings discussed above, as well as attorneys’ fees. Defendants moved to dismiss, stay or transfer the Delaware litigation, and the magistrate judge assigned to the case denied the motions to dismiss and transfer but recommended temporarily staying the case pending decisions on the motions for summary judgment in the Eastern District of Michigan. ForeSee objected to the recommended stay, and those objections are currently pending before the Delaware court.

No amounts have been recognized in our consolidated financial statements for these loss contingencies as it is not probable a loss has been incurred and the range of a possible loss is not yet estimable. However, in light of the recent rulings by the court in the Eastern District of Michigan, we consider the potential exposure reasonably possible. An estimate of a reasonably possible loss (or a range of loss) cannot be made in either the commercial litigation or False Claims Act investigation at this time. As these matters are ongoing it is at least reasonably possible that our estimates will change in the near term and the effect may be material.

We are a party to other various litigation matters and claims that arise from time to time in the ordinary course of our business. While we believe that the ultimate outcome of any such current matters will not have a material adverse effect on us, their outcomes are not determinable and negative outcomes may adversely affect our financial position, liquidity, or results of operations.


18. 19.SEGMENT, GEOGRAPHIC, AND SIGNIFICANT CUSTOMER INFORMATION
 
Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is
evaluated regularly by the enterprise’s chief operating decision maker, or CODM, or decision making group, in deciding how to allocate resources and in assessing performance. Our Chief Executive Officer is our CODM.

For
Prior to the year ended January 31, 2021 and prior periods,Spin-Off, we reported our results inhad 2 operatingreportable segments—Customer Engagement and Cyber Intelligence. Our Customer Engagement solutions help customer-centric organizations optimizeUpon completion of the Spin-Off, we began operating as a pure-play customer engagement increase customer loyalty,company that operates as a single reporting segment as our CODM reviews the financial information presented on a consolidated basis for purposes of allocating resources and maximize revenue opportunities, while generating operational efficiencies, reducing cost, and mitigating risk. Our Cyber Intelligence solutions are used for a wide range of applications, including predictive intelligence, advanced and complex investigations, security threat analysis, and electronic data and physical assets protection, as well as for generating legal evidence and preventing criminal activity and terrorism. As more fully disclosed in Note 19, “Subsequent Events” on December 4, 2019, we announced our intent to spin off our Cyber Intelligence business into an independent publicly traded company through a pro rata distribution to our common stockholders. The Spin-Off was completed on February 1, 2021.

We measure the performance of our operating segments primarily based on segment revenue and segment contribution.

Segment revenue includes adjustments associated with revenue of acquired companies which are not recognizable within GAAP revenue. These adjustments primarily relate to the acquisition-date excess of the historical carrying value over the fair value of acquired companies’ future maintenance and service performance obligations. As the obligations are satisfied, we report our segment revenue using the historical carrying values of these obligations, which we believe better reflects our ongoing maintenance and service revenue streams, whereas GAAP revenue is reported using the obligations’ acquisition-date fair values. 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 and development, selling, marketing, and certain 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 support expenses” in our table of segment operating results, the majority of which are expenses for administrative support functions, such as information technology, human resources, finance, legal, and other general corporate support, and for occupancy expenses. These unallocated expenses also include procurement, manufacturing support, and logistics expenses. We share resources across our segments for efficiency and to avoid duplicative costs.

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In addition, segment contribution does not include amortization of acquired intangible assets, stock-based compensation, and other expenses that either can vary significantly in amount and frequency, are based upon subjective assumptions, or in certain cases are unplanned for or difficult to forecast, such as restructuring expenses and business combination transaction and integration expenses, all of which are not considered when evaluating segmentfinancial performance.

Revenue from transactions between our operating segments is not material.

Operating results by segment for the years ended January 31, 2021, 2020, and 2019 were as follows:

 Year Ended January 31,
(in thousands)202120202019
Revenue:  
Customer Engagement:  
Segment revenue$840,583 $873,200 $811,346 
Revenue adjustments(10,336)(26,675)(15,059)
830,247 846,525 796,287 
Cyber Intelligence:  
Segment revenue447,027 462,817 433,753 
Revenue adjustments(3,569)(5,708)(293)
 443,458 457,109 433,460 
Total revenue$1,273,705 $1,303,634 $1,229,747 
Segment contribution:  
Customer Engagement$339,688 $338,098 $316,776 
Cyber Intelligence137,131 130,519 114,012 
Total segment contribution476,819 468,617 430,788 
Reconciliation of segment contribution to operating income:  
Revenue adjustments13,905 32,383 15,352 
Shared support expenses180,033 177,308 163,893 
Amortization of acquired intangible assets49,900 55,442 56,413 
Stock-based compensation62,433 82,698 66,657 
Separation expenses47,707 5,288 
Acquisition, integration, restructuring, and other unallocated expenses14,136 27,642 14,238 
Total reconciling items, net368,114 380,761 316,553 
Operating income$108,705 $87,856 $114,235 

With the exception of goodwill and acquired intangible assets, we do not identify or allocate our assets by operating segment. Consequently, it is not practical to present assets by operating segment. There were no material changes in the allocations of goodwill and acquired intangible assets by operating segment during the years ended January 31, 2021, 2020, and 2019. Further details regarding the allocations of goodwill and acquired intangible assets by operating segment appear in Note 6, “Intangible Assets and Goodwill”.

Geographic Information

Revenue by major geographic region is based upon the geographic location of the customers who purchase our products and services. The geographic locations of distributors, resellers, and systems integrators who purchase and resell our products may be different from the geographic locations of end customers.

Revenue in the Americas includes the United States, Canada, Mexico, Brazil, and other countries in the Americas. Revenue in Europe, the Middle East and Africa (“EMEA”) includes the United Kingdom, Germany, Israel, and other countries in EMEA. Revenue in the Asia-Pacific (“APAC”) region includes Australia, India, Singapore, and other Asia-Pacific countries.
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The information below summarizes revenue from unaffiliated customers by geographic area for the years ended January 31, 2022, 2021, 2020, and 2019:2020:
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Year Ended January 31,Year Ended January 31,
(in thousands)(in thousands)202120202019(in thousands)202220212020
Americas:Americas:Americas:
United StatesUnited States$555,458 $590,602 $555,365 United States$552,680 $515,480 $539,586 
OtherOther105,064 93,302 103,158 Other48,043 54,470 49,489 
Total AmericasTotal Americas660,522 683,904 658,523 Total Americas600,723 569,950 589,075 
EMEA358,879 374,721 321,723 
EMEA:EMEA:
United KingdomUnited Kingdom100,606 100,855 100,107 
OtherOther79,560 72,361 68,835 
Total EMEATotal EMEA180,166 173,216 168,942 
APACAPAC254,304 245,009 249,501 APAC93,620 87,081 88,508 
Total revenueTotal revenue$1,273,705 $1,303,634 $1,229,747 Total revenue$874,509 $830,247 $846,525 

Our long-lived assets primarily consist of net property and equipment, operating lease right-of-use assets, goodwill and other intangible assets, and deferred income taxes. We believe that our tangible long-lived assets, which consist of our net property and equipment, are exposed to greater geographic area risks and uncertainties than intangible assets, operating lease right of use assets, and long-term cost deferrals, because these tangible assets are difficult to move and are relatively illiquid.
 
Property and equipment, net by geographic area consisted of the following as of January 31, 20212022 and 2020:2021:
January 31,January 31,
(in thousands)(in thousands)20212020(in thousands)20222021
United StatesUnited States$51,996 $61,096 United States$50,241 $51,537 
Israel34,014 33,316 
United KingdomUnited Kingdom9,225 11,345 
Other countriesOther countries20,232 21,699 Other countries4,624 6,208 
Total property and equipment, netTotal property and equipment, net$106,242 $116,111 Total property and equipment, net$64,090 $69,090 

Significant Customers
 
No single customer accounted forend-customer represented more than 10% of our total revenue during the years ended January 31, 2022, 2021, 2020, and 2019.2020. In the year ended January 31, 2021, we had an authorized global reseller of our solutions that represented approximately 10% of our total revenue, but did not represent 10% or greater of our total revenue for the years ended January 31, 2022 or 2020.


19. SUBSEQUENT EVENTS

Spin-Off of Cognyte Software Ltd.

On February 1, 2021, we completed the previously announced Spin-Off of the Cognyte Business into a separate, independent publicly traded company, Cognyte Software Ltd. The Spin-Off was completed by means of a distribution in which each holder of Verint’s common stock received 1 Cognyte ordinary share for every share of common stock of Verint held of record as of the close of business on January 25, 2021. After the distribution, we do not beneficially own any ordinary shares of Cognyte and will no longer consolidate Cognyte into our financial results for periods ending after January 31, 2021. 20.The Spin-Off is intended to be generally tax-free to our stockholders for U.S. federal income tax purposes.SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Our consolidatedSummarized condensed quarterly financial statementsinformation for the yearyears ended and as of January 31, 2021 include the financial position and results of Cognyte in continuing operations. However, effective in the first quarter of the year ending January 31, 2022 and 2021 appears in the historical financial results of Cognyte will be presented in our consolidated financial statements as a discontinued operation under GAAP for all historical periods presented.following tables:

On February 1, 2021, in connection with the Spin-Off, we entered into certain agreements with Cognyte that govern the relationship between the Company and Cognyte following the Spin-Off, including each of the following: a Separation and Distribution Agreement, a Tax Matters Agreement, an Employee Matters Agreement, a limited duration Transition Services Agreement, an Intellectual Property Cross License Agreement, and a Trademark Cross License Agreement.

Cash Collateralization of 1.50% Convertible Senior Notes

On February 26, 2021, we deposited approximately $390.0 million of cash, representing the full principal amount of the Notes then outstanding as well as the final interest payment on the Notes due at maturity on June 1, 2021, into an escrow account in satisfaction of the cash collateralization provisions of the 2020 Amendment. Accordingly, the maturity dates of the 2017 Term Loan and 2017 Revolving Credit Facility will not be accelerated to March 1, 2021. The $390.0 million escrow deposit will be reported within our restricted cash balance until the Notes are retired.
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Three Months Ended
(in thousands, except per share data)April 30, 2021July 31, 2021October 31, 2021January 31, 2022
Revenue$200,904 $214,617 $224,820 $234,168 
Gross profit$128,564 $142,050 $152,736 $152,587 
Income from continuing operations before provision for income taxes$1,022 $9,517 $22,850 $6,115 
Net income (loss) from continuing operations$1,094 $5,316 $13,501 $(4,260)
Net income (loss) attributable to Verint Systems Inc.$799 $5,000 $13,237 $(4,623)
Net (loss) income attributable to Verint Systems Inc. common shares$(2,523)$(200)$8,037 $(9,823)
Net (loss) income from continuing operations attributable to Verint Systems Inc. common shares
   Basic$(0.04)$— $0.12 $(0.15)
   Diluted$(0.04)$— $0.12 $(0.15)

Stock Repurchase Program
Three Months Ended
(in thousands, except per share data)April 30, 2020July 31, 2020October 31, 2020January 31, 2021
Revenue$185,865 $204,080 $215,222 $225,080 
Gross profit$114,962 $137,179 $141,350 $149,205 
Loss from continuing operations before provision for income taxes$(14,071)$(1,025)$(1,017)$(25,551)
Net loss from continuing operations$(14,418)$(9,370)$(2,101)$(22,712)
Net (loss) income attributable to Verint Systems Inc.$(6,014)$8,494 $10,175 $(19,922)
Net loss from continuing operations attributable to Verint Systems Inc. common shares$(14,658)$(12,181)$(5,068)$(25,403)
Net income from discontinued operations attributable to Verint Systems Inc. common shares$8,644 $18,191 $12,585 $2,967 
Net loss per common share attributable to Verint Systems Inc. from continuing operations
   Basic$(0.23)$(0.19)$(0.08)$(0.39)
   Diluted$(0.23)$(0.18)$(0.08)$(0.39)
Net income per common share attributable to Verint Systems Inc. from discontinued operations
   Basic$0.14 $0.28 $0.19 $0.05 
   Diluted$0.14 $0.27 $0.19 $0.05 

Net (loss) income per common share attributable to Verint Systems Inc. is computed independently for each quarterly period and for the year. Therefore, the sum of quarterly net (loss) income per common share amounts may not equal the amounts reported for the years.

As a result of the Spin-Off, the statement of operations, balance sheets, and related financial information reflect Cognyte’s operations, assets and liabilities as discontinued operations. Please refer to Note 2, “Discontinued Operations” for a more detailed discussion of the Spin-Off.

The quarterly operating results for the year ended January 31, 2022 did not include any material unusual or infrequently occurring items.

Net loss from continuing operations attributable to Verint Systems Inc. common shares for the three months ended January 31, 2021 reflects a non-cash Future Tranche Right charge of $33.3 million. Please refer to Note 10, “Convertible Preferred Stock” and Note 14, “Fair Value Measurements” for additional information regarding the Future Tranche Right.

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As is typical for many software and technology companies, our business is subject to seasonable and cyclical factors. In most years, our revenue and operating income are typically highest in the fourth quarter and lowest in the first quarter (prior to the impact of unusual or nonrecurring items). Moreover, revenue and operating income in the first quarter of a new year may be lower than in the fourth quarter of the preceding year, in some years, potentially by a significant margin. In addition, we generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that month. We believe that these seasonal and cyclical factors primarily reflect customer spending patterns and budget cycles, as well as the impact of compensation incentive plans for our sales personnel. While seasonal and cyclical factors such as these are common in the software and technology industry, this pattern should not be considered a reliable indicator of our future revenue or financial performance. Many other factors, including general economic conditions, also have an impact on our business and financial results. See “Risk Factors” in Item 1A of this report for a more detailed discussion of factors which may affect our business and financial results.


21.SUBSEQUENT EVENT

On March 31,December 2, 2021, we announced that our board of directors had authorized a new stock repurchase program for the fiscal year ending January 31, 2023 whereby we may repurchase up to a number of1.5 million shares of common stock approximately equal to the number of shares to be issued asoffset dilution from our equity compensation during theprogram for such fiscal year endingyear. Subsequent to January 31, 2022.2022, through the date of filing this report, we repurchased 1.5 million shares of our common stock for an aggregate purchase price of $78.2 million at an average price of $52.11 per share under our stock repurchase program. Repurchases are expected to bewere financed with available cash of up to 60% of our free cash flow during such period (as determined by management), subject to compliance with applicable laws, rules and regulations. We may utilize a number of different methods to effect the repurchases, including open market purchases, which may include, without limitation, round lot or block transactions, including through one or more accelerated stock repurchase plans or pursuant to the terms of one or more repurchase plans in accordance with Rule 10b5-1 or Rule 10b-18 under the Securities Exchange Act of 1934. The specific timing, price, and size of purchases will depend on prevailing stock prices, general market and economic conditions, and other considerations, including the amount of cash available in the U.S. and other potential uses of cash. The program may be extended, suspended, or discontinued at any time without prior notice and does not obligate us to acquire any particular amount of common stock.United States.

On March 22, 2022, our board of directors authorized an additional 500,000 shares of common stock to be repurchased under this program.

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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
Management conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of January 31, 2021.2022. Disclosure controls and procedures are those controls and other procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As a result of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of January 31, 2021.2022.
 
Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31, 20212022 based on the 2013 framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.

Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of January 31, 2021.2022. We reviewed the results of management’s assessment with our Audit Committee.
 
Our independent registered accounting firm, Deloitte & Touche LLP, has audited the effectiveness of our internal control over financial reporting as stated in their report included herein.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended January 31, 2021,2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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As a result of the COVID-19 pandemic, our global workforce continued to operate primarily in a work from home environment for the quarter ended January 31, 2021.2022. The design of our financial reporting processes, systems, and controls allows for remote execution with accessibility to secure data.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be achieved. Further, the design of a control system must reflect the impact of resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by individual acts, by collusion of two or more people, or by
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management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all possible conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

To the Stockholders and the Board of Directors of Verint Systems Inc.
Melville, New York
 
Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Verint Systems Inc. and subsidiaries (the “Company”) as of January 31, 2021,2022, based on criteria 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, 2021,2022, based on criteria 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 consolidated financial statements as of and for the year ended January 31, 2021,2022, of the Company and our report dated March 31, 2021,29, 2022, expressed an unqualified opinion on those financial statements.
 
Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
/s/ DELOITTE & TOUCHE LLP

New York, New York
March 31, 202129, 2022

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Item 9B. Other Information

Not applicable.


Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.
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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Except as set forth below, the information required by Item 10 will be included under the captions “Proposal No. 1 - Election of Directors”, “Corporate Governance”, “Executive Officers” and “Delinquent Section 16(a) Reports” in our definitive Proxy Statement for the 20212022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the year ended January 31, 20212022 (the “2021“2022 Proxy Statement”) and is incorporated herein by reference.

Corporate Governance Guidelines

All of our employees, including our executive officers, are required to comply with our Code of Conduct. The purpose of this corporate policy is to ensure to the greatest possible extent that our business is conducted in a consistently legal and ethical manner. The text of the Code of Conduct is available on our website (www.verint.com). We intend to disclose on our website any amendment to, or waiver from, a provision of our policies as required by law.


Item 11. Executive Compensation

The information required by Item 11 will be included under the captions “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in the 20212022 Proxy Statement and is incorporated herein by reference.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except as set forth below, the information required by Item 12 will be included under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 20212022 Proxy Statement and is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth certain information regarding our equity compensation plans as of January 31, 2021.2022.
Plan CategoryPlan Category
(a)
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights
(b)
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (1)
(c)
Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Plan Category
(a)
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights
(b)
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (1)
(c)
Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by security holdersEquity compensation plans approved by security holders2,870,267 (2)$— 7,757,276 (3)Equity compensation plans approved by security holders2,454,314 $— 11,094,875 (2)
Equity compensation plans not approved by security holdersEquity compensation plans not approved by security holders— — Equity compensation plans not approved by security holders— — 
TotalTotal2,870,267 7,757,276 Total2,454,314 11,094,875 

(1) The weighted-average price relates to outstanding stock options only (as of the applicable date). Other outstanding awards carry no exercise price and are therefore excluded from the weighted-average price.

(2) Consists of 2,870,267 restricted stock units.

(3) Consists of shares that may be issued pursuant to future awards under the Verint Systems Inc. 2019 Long-Term Stock Incentive Plan (the “2019 Plan”). The 2019 Plan uses a fungible ratio such that each option or stock-settled stock appreciation right granted under the 2019 Plan will reduce the plan capacity by one share and each other award denominated in shares that is granted under the 2019 Plan will reduce the available capacity by 2.38 shares.

The information presented above does not reflectreflects adjustments resulting from the Spin-Off.


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Item 13.  Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 will be included under the captions “Corporate Governance” and “Certain Relationships and Related Person Transactions” in the 20212022 Proxy Statement and is incorporated herein by reference.


Item 14. Principal Accounting Fees and Services

The information required by Item 14 will be included under the caption “Audit Matters” in the 20212022 Proxy Statement and is incorporated herein by reference.

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PART IV

Item 15.  Exhibits and Financial Statement Schedules
 
(a) Documents filed as part of this report

(1) Financial Statements

The consolidated financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

(2) Financial Statement Schedules

All financial statement schedules have been omitted here because they are not applicable, not required, or the information is shown in the consolidated financial statements or notes thereto.

(3) Exhibits

See (b) below.

(b) Exhibits
NumberDescriptionFiled Herewith /
Incorporated by
Reference from
   
  
  
  
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NumberDescriptionFiled Herewith /
Incorporated by
Reference from
   

  
  
  
  
  
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NumberDescriptionFiled Herewith /
Incorporated by
Reference from
   
  
  
  
  
  
  
101.INS XBRL Instance Document Filed herewith
101.SCH XBRL Taxonomy Extension Schema Document Filed herewith
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith


(1) These exhibits are being “furnished” with this periodic report and are not deemed “filed” with the SEC and are not incorporated by reference in any filing of the company under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.

* Certain exhibits and schedules have been omitted, and the Company agrees to furnish supplementally to the SEC a copy of any omitted exhibits or schedules upon request.

** Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(b) of this report.
 
(c) Financial Statement Schedules

None
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Item 16. Form 10-K Summary

Not applicable.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 
 
 VERINT SYSTEMS INC.
  
  
March 31, 202129, 2022/s/ Dan Bodner
 Dan Bodner
 Chief Executive Officer
  
March 31, 202129, 2022/s/ Douglas E. Robinson
 Douglas E. Robinson
 Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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NameTitleDate
/s/ Dan BodnerChief Executive Officer, and Chairman of the BoardMarch 31, 202129, 2022
Dan Bodner(Principal Executive Officer) 
  
/s/ Douglas E. RobinsonChief Financial OfficerMarch 31, 202129, 2022
Douglas E. Robinson(Principal Financial Officer and Principal Accounting Officer) 
 
/s/ Linda CrawfordDirectorMarch 29, 2022
Linda Crawford
/s/ John R. EganDirectorMarch 31, 202129, 2022
John R. Egan 
/s/ Stephen J. GoldReid French, Jr.DirectorMarch 31, 202129, 2022
Stephen J. GoldReid French, Jr.
/s/ Penelope HerscherStephen J. GoldDirectorMarch 31, 202129, 2022
Penelope HerscherStephen J. Gold
/s/ William H. KurtzDirectorMarch 31, 202129, 2022
William H. Kurtz 
/s/ Andrew MillerDirectorMarch 31, 202129, 2022
Andrew Miller 
/s/ Richard NottenburgDirectorMarch 31, 202129, 2022
Richard Nottenburg 
/s/ Howard SafirKristen RobinsonDirectorMarch 31, 202129, 2022
Howard SafirKristen Robinson
/s/ Jason WrightDirectorMarch 31, 202129, 2022
Jason Wright

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