Notes to Consolidated Financial Statements
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1.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Description of Business
Unless the context otherwise requires, the terms "Verint", "we", "us", and "our" in these notes to consolidated financial statements refer to Verint Systems Inc. and its consolidated subsidiaries.
Verint is a global leader in Actionable Intelligence solutions. Actionable Intelligence is a necessity in a dynamic world of massive information growth because it empowers organizations with crucial insights and enables decision makers to anticipate, respond, and take action. With Verint solutions and value-added services, organizations of all sizes and across many industries can make more informed, timely, and effective decisions. Today, over 10,000 organizations in more than 180 countries, including over 80 percent of the Fortune 100, use Verint solutions to optimize customer engagement and make the world a safer place.
Verint delivers its Actionable Intelligence solutions through two operating segments: Customer Engagement Solutions and Cyber Intelligence Solutions.
We have established leadership positions in Actionable Intelligence by developing highly-scalable, enterprise-class software and services with advanced, integrated analytics for both unstructured and structured information. Our innovative solutions are developed by a large research and development (“R&D”) team comprised of approximately 1,400 professionals and backed by more than 800 patents and patent applications worldwide.
To help our customers maximize the benefits of our technology over the solution lifecycle and provide a high degree of flexibility, we offer a broad range of services, such as strategic consulting, managed services, implementation services, training, maintenance, and 24x7 support. Additionally, we offer a broad range of deployment options, including cloud, on-premises, and hybrid, and software licensing and delivery models that include perpetual licenses and software as a service (“SaaS”).
Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of selling and support partners.
Recasting of Historical Segment Information
Through July 31, 2016, we were organized and had reported our operating results in
three
operating segments. In August 2016, we reorganized into two businesses and now report our results in
two
operating segments, as further discussed in Note 16, "Segment, Geographic, and Customer Information". Comparative segment financial information for prior periods appearing in Note 5, "Intangible Assets and Goodwill" and Note 16, "Segment, Geographic, and Customer Information", has been recast to conform to this revised segment structure.
Reclassification Within Consolidated Statements of Cash Flows
Certain amounts within the presentation of net cash provided by operating activities in our consolidated statement of cash flows for the years ended January 31, 2016 and 2015 have been reclassified to conform to the current year's presentation. These reclassifications had no effect on net cash provided by operating activities.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Verint Systems Inc., our wholly owned or otherwise controlled subsidiaries, and a joint venture in which we hold a
50%
equity interest. The joint venture is a variable interest entity in which we are the primary beneficiary. The noncontrolling interest in this joint venture is reflected within stockholders’ equity on our consolidated balance sheet, but separately from our equity. We have two majority owned subsidiaries for which we hold an option to acquire the noncontrolling interests. We account for the option as an in-substance investment in the noncontrolling common stock of each such subsidiary. We include the fair value of the option within other liabilities and do not recognize noncontrolling interests in these subsidiaries.
We include the results of operations of acquired companies from the date of acquisition. All significant intercompany transactions and balances are eliminated.
Investments in companies in which we have less than a
20%
ownership interest and can not exercise significant influence are accounted for at cost.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires our management to make estimates and assumptions, which may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Restricted Cash and Restricted Bank Time Deposits
Restricted cash and restricted bank time deposits are pledged as collateral or otherwise restricted as to use for vendor payables, general liability insurance, workers’ compensation insurance, warranty programs, and other obligations.
Investments
Our investments generally consist of bank time deposits, and marketable debt securities of corporations, the U.S. government, and agencies of the U.S. government, all with remaining maturities in excess of
90
days at the time of purchase. As of January 31, 2017, we held no marketable debt securities. As of January 31, 2016, all of our marketable debt securities were classified as “available-for-sale” and were reported at fair value, with unrealized gains and losses reported in stockholders’ equity until disposition or maturity. Investments with maturities in excess of one year are included in other assets.
Accounts Receivable, Net
Trade accounts receivable are recorded at the invoiced amount and are not interest-bearing.
Accounts receivable, net, includes unbilled accounts receivable on arrangements recognized under contract accounting methods, representing revenue recognized on contracts for which billing will occur in subsequent periods, in accordance with the terms of the contracts. Unbilled accounts receivable on such contracts were
$39.7 million
and
$46.6 million
at January 31, 2017 and 2016, respectively. Substantially all unbilled accounts receivable at January 31, 2017 are expected to be collected during the year ending January 31, 2018. Under most contracts, unbilled accounts receivable are typically billed and collected within one year of revenue recognition. However, as of January 31 2017, we had unbilled accounts receivable on certain complex projects with a long-standing customer for which the underlying billing milestones are still in progress and have remained unbilled for periods in excess of one year, and in some cases, for several years. We have no history of uncollectible accounts with this customer and believe that collection of such amounts is still reasonably assured. We expect billing and collection of these unbilled accounts receivable to occur within the next year.
The application of our revenue recognition policies sometimes results in circumstances for which we are unable to recognize revenue relating to sales transactions that have been billed, but the related account receivable has not been collected. For consolidated balance sheet presentation purposes, we do not recognize the deferred revenue or the related account receivable and no amounts appear in our consolidated balance sheets for such transactions. Only to the extent that we have received cash for a given deferred revenue transaction is the amount included in deferred revenue on the consolidated balance sheets.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, bank time deposits, short-term investments, and trade accounts receivable. We invest our cash in bank accounts, certificates of deposit, and money market accounts with major financial institutions, in U.S. government and agency obligations, and in debt securities of corporations. By policy, we seek to limit credit exposure on investments through diversification and by restricting our investments to highly rated securities.
We grant credit terms to our customers in the ordinary course of business. Concentrations of credit risk with respect to trade accounts receivable are generally limited due to the large number of customers comprising our customer base and their dispersion across different industries and geographic areas. One customer accounted for
$63.5 million
and
$70.9 million
of our
accounts receivable (including both billed and unbilled amounts), at January 31, 2017 and 2016, respectively. This customer is a governmental agency outside of the U.S. which we believe presents insignificant credit risk.
Allowance for Doubtful Accounts
We estimate the collectability of our accounts receivable balances each accounting period and adjust our allowance for doubtful
accounts accordingly. Considerable judgment is required in assessing the collectability of accounts receivable, including consideration of the creditworthiness of each customer, their collection history, and the related aging of past due accounts receivable balances. We evaluate specific accounts when we learn that a customer may be experiencing a deteriorating financial condition due to lower credit ratings, bankruptcy, or other factors that may affect its ability to render payment. We write-off an account receivable and charge it against its recorded allowance at the point when it is considered uncollectible.
The following table summarizes the activity in our allowance for doubtful accounts for the years ended January 31, 2017, 2016, and 2015:
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Year Ended January 31,
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(in thousands)
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2017
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2016
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2015
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Allowance for doubtful accounts, beginning of year
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$
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1,170
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$
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1,099
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$
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1,187
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Provisions charged to expense
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1,791
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669
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423
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Amounts written off
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(1,484
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)
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(933
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)
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(461
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)
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Other, including fluctuations in foreign exchange rates
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365
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335
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(50
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)
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Allowance for doubtful accounts, end of year
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$
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1,842
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$
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1,170
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$
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1,099
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Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the weighted-average method of inventory accounting. The valuation of our inventories requires us to make estimates regarding excess or obsolete inventories, including making estimates of the future demand for our products. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand, price, or technological developments could have a significant impact on the value of our inventory and reported operating results. Charges for excess and obsolete inventories are included within cost of revenue.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method based over the estimated useful lives of the assets. The vast majority of equipment, furniture and other is depreciated over periods ranging from
three
to
seven
years. Software is depreciated over periods ranging from
three
to
four
years. Buildings are depreciated over periods ranging from
ten
to
twenty-five
years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term.
The cost of maintenance and repairs of property and equipment is charged to operations as incurred. When assets are retired or
disposed of, the cost and accumulated depreciation or amortization thereon are removed from the consolidated balance sheet and any resulting gain or loss is recognized in the consolidated statement of operations.
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the enterprise’s chief operating decision maker ("CODM"), or decision making group, in deciding how to allocate resources and in assessing performance.
We conduct our business through
two
operating segments, which are also our reportable segments, Customer Engagement Solutions ("Customer Engagement") and Cyber Intelligence Solutions ("Cyber Intelligence"). Organizing our business through two operating segments allows us to align our resources and domain expertise to effectively address the Actionable Intelligence market. We determine our reportable segments based on a number of factors our management uses to evaluate and run our business operations, including similarities of customers, products and technology. Our Chief Executive Officer is our CODM, who regularly reviews segment revenue and segment operating contribution when assessing financial results of segments and allocating resources.
We measure the performance of our operating segments based upon segment revenue and segment contribution. Segment contribution includes segment revenue and expenses incurred directly by the segment, including material costs, service costs, research and development and selling, marketing, and administrative expenses. We do not allocate certain expenses, which include the majority of general and administrative expenses, facilities and communication expenses, purchasing expenses, manufacturing support and logistic expenses, depreciation and amortization, amortization of capitalized software development costs, stock-based compensation, and special charges such as restructuring costs when calculating segment contribution. These expenses are included within unallocated expenses in our presentation of segment operating results. Revenue from transactions between our operating segments is not material.
Goodwill, Other Acquired Intangible Assets, and Long-Lived Assets
For business combinations, the purchase prices are allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the remaining unallocated purchase prices recorded as goodwill. Goodwill is assigned, at the acquisition date, to those reporting units expected to benefit from the synergies of the combination.
We test goodwill for impairment at the reporting unit level, which can be an operating segment or one level below an operating segment, on an annual basis as of November 1, or more frequently if changes in facts and circumstances indicate that impairment in the value of goodwill may exist. As of January 31, 2017, our reporting units are Customer Engagement, Cyber Intelligence (excluding situational intelligence solutions), and the Situational Intelligence business of our former Video Intelligence segment, which is now a component of our Cyber Intelligence operating segment.
In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference.
For reporting units where we perform the two-step process, we utilize some or all of
three
primary approaches to assess fair value: (a) an income-based approach, using projected discounted cash flows, (b) a market-based approach, using multiples of comparable companies, and (c) a transaction-based approach, using multiples for recent acquisitions of similar businesses made in the marketplace. Our estimate of fair value of each reporting unit is based on a number of subjective factors, including: (a) appropriate consideration of valuation approaches (income approach, comparable public company approach, and comparable transaction approach), (b) estimates of future growth rates, (c) estimates of our future cost structure, (d) discount rates for our estimated cash flows, (e) selection of peer group companies for the public company and the market transaction approaches, (f) required levels of working capital, (g) assumed terminal value, and (h) time horizon of cash flow forecasts.
Acquired identifiable intangible assets include identifiable acquired technologies, customer relationships, trade names, distribution networks, non-competition agreements, sales backlog, and in-process research and development. We amortize the cost of finite-lived identifiable intangible assets over their estimated useful lives, which are periods of
ten
years or less. Amortization is based on the pattern in which the economic benefits of the intangible asset are expected to be realized, which typically is on a straight-line basis. The fair values assigned to identifiable intangible assets acquired in business combinations are determined primarily by using the income approach, which discounts expected future cash flows attributable to these assets to present value using estimates and assumptions determined by management. The acquired identifiable finite-lived intangible assets are being amortized primarily on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.
Fair Value Measurements
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This fair value hierarchy consists of three levels of inputs that may be used to measure fair value:
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Level 1: quoted prices in active markets for identical assets or liabilities;
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Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not
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active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
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Level 3: unobservable inputs that are supported by little or no market activity.
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We review the fair value hierarchy classification of our applicable assets and liabilities at each reporting period. Changes in the observability of valuation inputs may result in transfers within the fair value measurement hierarchy. We did not identify any transfers between levels of the fair value measurement hierarchy during the years ended
January 31, 2017
and 2016.
Fair Values of Financial Instruments
Our recorded amounts of cash and cash equivalents, restricted cash and restricted bank time deposits, accounts receivable, investments, and accounts payable approximate fair value, due to the short-term nature of these instruments. We measure certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.
Derivative Financial Instruments
As part of our risk management strategy, when considered appropriate, we use derivative financial instruments including foreign currency forward contracts and interest rate swap agreements to hedge against certain foreign currency and interest rate exposures. Our intent is to mitigate gains and losses caused by the underlying exposures with offsetting gains and losses on the derivative contracts. By policy, we do not enter into speculative positions with derivative instruments.
We record all derivatives as assets or liabilities on our consolidated balance sheets at their fair values. Gains and losses from the changes in values of these derivatives are accounted for based on the use of the derivative and whether it qualifies for hedge accounting.
The counterparties to our derivative financial instruments consist of several major international financial institutions. We regularly monitor the financial strength of these institutions. While the counterparties to these contracts expose us to credit-related losses in the event of a counterparty’s non-performance, the risk would be limited to the unrealized gains on such affected contracts. We do not anticipate any such losses.
Revenue Recognition
We derive and report our revenue in
two
categories: (a) product revenue, including sale of hardware products (which include software that works together with the hardware to deliver the product's essential functionality) and licensing of software products, and (b) service and support revenue, including revenue from installation services, post-contract customer support ("PCS"), project management, hosting services, software-as-a-service ("SaaS"), application managed services, product warranties, business advisory consulting and training services.
Our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of accounting rules that require us to make significant judgments and estimates. Our customer arrangements typically include several elements, including products, services, and support. Revenue recognition for a particular arrangement is dependent upon such factors as the level of customization within the solution and the contractual delivery, acceptance, payment, and support terms with the customer. Significant judgment is required to conclude whether collectability of fees is reasonably assured and whether fees are fixed or determinable.
For arrangements that do not require significant modification or customization of the underlying products, we recognize revenue when we have persuasive evidence of an arrangement, the product has been delivered or the services have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured. In addition, our multiple-element arrangements must be carefully reviewed to determine the selling price of each element.
Our multiple-element arrangements consist of a combination of our product and service offerings that may be delivered at various points in time. For arrangements within the scope of the multiple-deliverable accounting guidance, a deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements. For multiple-element arrangements comprised only of hardware products containing software components and non-software components and related services, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE") if
available, third-party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available. The total transaction revenue is allocated to the multiple elements based on each element's relative selling price compared to the total selling price.
We limit the amount of revenue recognized for delivered elements to an amount that is not contingent upon future delivery of additional products or services or meeting of any specified performance conditions.
Our policy for establishing VSOE for installation, consulting, and training is based upon an analysis of separate sales of services. We utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish VSOE for our PCS offerings, depending upon the business segment, geographical region, or product line.
TPE of selling price is established by evaluating largely similar and interchangeable competitor products or services in stand-alone sales to similarly situated customers. However, as most of our products contain a significant element of proprietary technology offering substantially different features and functionality, the comparable pricing of products with similar functionality typically cannot be obtained. Additionally, as we are unable to reliably determine what competitors products' selling prices are on a stand-alone basis, we are typically not able to determine TPE.
If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of allocating the arrangement's revenue by considering several external and internal factors including, but not limited to, pricing practices, similar product offerings, margin objectives, geographies in which we offer our products and services, internal costs, competition, and product life cycle. The determination of ESP is made through consultation with and approval by our management, taking into consideration our go-to-market strategies. We have established processes to update ESP for each element, when appropriate, to ensure that it reflects recent pricing experience.
For multiple-element arrangements comprised only of software products and related services, a portion of the total purchase price is allocated to the undelivered elements, primarily installation services, PCS, application managed services, business advisory consulting and training services, using VSOE of fair value of the undelivered elements. The remaining portion of the total transaction value is allocated to the delivered software, referred to as the residual method. If we are unable to establish VSOE for the undelivered elements of the arrangement, revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered, unless the only undelivered element is PCS, in which case, we recognize the arrangement fee ratably over the PCS period.
For multiple-element arrangements that contain software and software-related elements for which we are unable to establish VSOE of
one
or more elements, we use various available indicators of fair value and apply our best judgment to reasonably classify the arrangement's revenue into product revenue and service revenue for financial reporting purposes.
For multiple-element arrangements that are comprised of a combination of software and non-software deliverables, the total transaction value is bifurcated between the software deliverables and non-software deliverables based on the relative selling prices of the software and non-software deliverables as a group. Revenue is then recognized for the software and software-related services following the residual method or ratably over the PCS period if VSOE for PCS does not exist, and for the non-software deliverables following the revenue recognition methodology outlined above for multiple-element arrangements that contain tangible products and other non-software related services.
PCS revenue is derived from providing technical software support services and unspecified software updates and upgrades to customers on a when-and-if-available basis. PCS revenue is recognized ratably over the term of the maintenance period, which in most cases is
one
year.
Under the substantive renewal rate approach, we believe it is necessary to evaluate whether both the support renewal rate and term are substantive and whether the renewal rate is being consistently applied to subsequent renewals for a particular customer. We establish VSOE under this approach through analyzing the renewal rate stated in the customer agreement and determining whether that rate is above the minimum substantive VSOE renewal rate established for that particular PCS offering. The minimum substantive VSOE rate is determined based upon an analysis of renewal rates associated with historical PCS contracts. For multiple-element software arrangements that do not contain a stated renewal rate, revenue associated with the entire bundled arrangement is recognized ratably over the PCS term. Multiple-element software arrangements that have a renewal rate below the minimum substantive VSOE rate are deemed to contain a more than insignificant discount element, for which VSOE cannot be established. We recognize aggregate contractual revenue for these arrangements over the period that the customer is entitled to renew its PCS at the discounted rate, but not to exceed the estimated economic life of the product. We evaluate many factors in determining the estimated economic life of our products, including the support period of the product, technological obsolescence, and customer expectations. We have concluded that our software products have estimated economic lives ranging from
five
to
seven
years.
Under the bell-shaped curve approach of establishing VSOE, we perform VSOE compliance tests to ensure that a substantial majority of our actual PCS renewals are within a narrow range of pricing.
Some of our arrangements require significant customization of the product to meet the particular requirements of the customer. For these arrangements, revenue is recognized under contract accounting principles, typically using the percentage-of-completion ("POC") method. Under the POC method, revenue recognition is generally based upon the ratio of hours incurred to date to the total estimated hours required to complete the contract. Profit estimates on long-term contracts are revised periodically based on changes in circumstances, and any losses on contracts are recognized in the period that such losses become evident. If the range of profitability cannot be estimated, but some level of profit is assured, revenue is recognized to the extent of costs incurred, until such time that the project's profitability can be estimated or the services have been completed. In the event some level of profitability on a contract cannot be assured, the completed-contract method of revenue recognition is applied.
Our SaaS multiple-element arrangements are typically comprised of subscription and support fees from customers accessing our software, set-up fees, and fees for consultation services. We do not provide the customer the contractual right to take possession of the software at any time during the hosting period under these arrangements. We recognize revenue for subscription and support services over the contract period originating when the subscription service is made available to the customer and the contractual hosting period has commenced. The initial set-up fees are recognized over the longer of the initial contract period or the period the customer is expected to benefit from payment of the up-front fees. Revenue from consultation services is generally recognized as services are completed.
Our application managed services revenue is derived from providing services that enhance our customers IT processes and maximize the business benefits of our solutions. Application managed services revenue is recognized ratably over the applicable term which, in most cases, is at least one year. When application managed services is included within a multiple-element arrangement, we utilize the substantive renewal rate approach to establish VSOE. In addition, we perform a budget versus actual time analysis to support our initial estimate of effort required to provide these services.
If an arrangement includes customer acceptance criteria, revenue is not recognized until we can objectively demonstrate that the software or services meet the acceptance criteria, or the acceptance period lapses, whichever occurs earlier. If an arrangement containing software elements obligates us to deliver specified future software products or upgrades, revenue related to the software elements under the arrangement is initially deferred and is recognized only when the specified future software products or upgrades are delivered, or when the obligation to deliver specified future software products expires, whichever occurs earlier.
We record provisions for estimated product returns in the same period in which the associated revenue is recognized. We base these estimates of product returns upon historical levels of sales returns and other known factors. Actual product returns could be different from our estimates, and current or future provisions for product returns may differ from historical provisions. Concessions granted to customers are recorded as reductions to revenue in the period in which they were granted. The vast majority of our contracts are successfully completed, and concessions granted to customers are minimal in both dollar value and frequency.
Product revenue derived from shipments to resellers and original equipment manufacturers ("OEMs") who purchase our products for resale are generally recognized when such products are shipped (on a "sell-in" basis) since we do not expect our resellers or OEMs to carry inventory of our products. We have historically experienced insignificant product returns from resellers and OEMs, and our payment terms for these customers are similar to those granted to our end-users. If a reseller or OEM develops a pattern of payment delinquency, or seeks payment terms longer than generally accepted, we defer the recognition of revenue until the receipt of cash. Our arrangements with resellers and OEMs are periodically reviewed as our business and products change.
In instances where revenue is derived from sale of third-party vendor services and we are a principal in the transaction, we record revenue on a gross basis and record costs related to a sale within cost of revenue. Though uncommon, in cases where we act as an agent between the customer and the vendor, revenue is recorded net of costs.
Multiple contracts with a single counterparty executed within close proximity of each other are evaluated to determine if the contracts should be combined and accounted for as a single arrangement. We record reimbursements from customers for out-of-pocket expenses as revenue. Shipping and handling fees and expenses that are billed to customers are recognized in revenue and the costs associated with such fees and expenses are recorded in cost of revenue. Historically, these fees and expenses have not been material. Taxes collected from customers and remitted to government authorities are excluded from revenue.
Cost of Revenue
Our cost of revenue includes costs of materials, compensation and benefit costs for operations and service personnel, subcontractor costs, royalties and license fees, depreciation of equipment used in operations and service, amortization of capitalized software development costs and certain purchased intangible assets, and related overhead costs.
Where revenue is recognized over multiple periods in accordance with our revenue recognition policies, we have made an accounting policy election whereby cost of product revenue, including hardware and third-party software license fees, are capitalized and recognized in the same period that product revenue is recognized, while installation and other service costs are generally expensed as incurred, except for certain contracts that are accounted for using contract accounting principles. Deferred cost of revenue is classified in its entirety as current or long-term based on whether the related revenue will be recognized within
twelve
months of the origination date of the arrangement.
For certain contracts accounted for using contract accounting principles, revisions in estimates of costs and profits are reflected in the accounting period in which the facts that require the revision become known, if such facts become known subsequent to the issuance of the consolidated financial statements. If such facts become known before the issuance of the consolidated financial statements, the requisite revisions in estimates of costs and profits are reflected in the consolidated financial statements. At the time a loss on a contract becomes evident, the entire amount of the estimated loss is accrued. Related contract costs include all direct material and labor costs and those indirect costs related to contract performance.
Customer acquisition and origination costs, including sales commissions, are recorded in selling, general and administrative expenses. These costs are expensed as incurred, with the exception of certain sales referral fees in our Cyber Intelligence segment which are capitalized and amortized ratably over the revenue recognition period.
Research and Development, net
With the exception of certain software development costs, all research and development costs are expensed as incurred, and consist primarily of personnel and consulting costs, travel, depreciation of research and development equipment, and related overhead and other costs associated with research and development activities.
We receive non-refundable grants from the Israel Office of the Chief Scientist ("OCS") that fund a portion of our research and development expenditures. We currently only enter into non-royalty-bearing arrangements with the OCS which do not require us to pay royalties. Funds received from the OCS are recorded as a reduction to research and development expense. Royalties, to the extent paid, are recorded as part of our cost of revenue.
We also periodically derive benefits from participation in certain government-sponsored programs in other jurisdictions, for the support of research and development activities conducted in those locations.
Software Development Costs
Costs incurred to acquire or develop software to be sold, leased or otherwise marketed are capitalized after technological feasibility is established, and continue to be capitalized through the general release of the related software product. Amortization of capitalized costs begins in the period in which the related product is available for general release to customers and is recorded on a straight-line basis, which approximates the pattern in which the economic benefits of the capitalized costs are expected to be realized, over the estimated economic lives of the related software products, generally
four
years.
Internal-Use Software
We capitalize costs associated with internal-use software systems that have reached the application development stage. These capitalized costs include external direct costs utilized in developing or obtaining the applications and expenses for employees who are directly associated with the development of the applications. Capitalization of such costs begins when the preliminary project stage is complete and continues until the project is substantially complete and is ready for its intended purpose. Capitalized costs of computer software developed for internal use are amortized over estimates useful lives of
four
years on a straight-line basis, which best represents the pattern of the software’s use.
Income Taxes
We account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements.
Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our tax provision involves the application of complex tax laws and requires significant judgment and estimates.
We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and establish valuation allowances when it is more likely than not that all or a portion of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more-likely-than-not realizable, we establish a valuation allowance.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more-likely-than-not sustainable, based solely on their technical merits, upon examination and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that we believe is more-likely-than-not realizable. Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets. Our policy is to include interest (expense and/or income) and penalties related to unrecognized income tax benefits as a component of income tax expense.
Functional Currencies and Foreign Currency Transaction Gains and Losses
The functional currency for most of our foreign subsidiaries is the applicable local currency, although we have several subsidiaries with functional currencies that differ from their local currency, of which the most notable exceptions are our subsidiaries in Israel, whose functional currencies are the U.S. dollar.
Transactions denominated in currencies other than a functional currency are converted to the functional currency on the transaction date, and any resulting assets or liabilities are further translated at each reporting date and at settlement. Gains and losses recognized upon such translations are included within other income (expense), net in the consolidated statements of operations. We recorded net foreign currency losses of
$2.7 million
,
$8.0 million
, and
$13.4 million
for the years ended January 31, 2017, 2016, and 2015, respectively.
For consolidated reporting purposes, in those instances where a foreign subsidiary has a functional currency other than the U.S. dollar, revenue and expenses are translated into U.S. dollars using average exchange rates for the reporting period, while assets and liabilities are translated into U.S. dollars using period-end rates. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets.
Stock-Based Compensation
We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of the award. We recognize the fair value of the award as compensation expense over the period during which an employee is required to provide service in exchange for the award.
When stock options are awarded, the fair value of the option is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility and expected term are input factors to that model that can require significant management judgment. Expected volatility is estimated utilizing daily historical volatility over a period that equates to the expected life of the option. The expected life (estimated period of time outstanding) is estimated using the historical exercise behavior of employees. The risk-free interest rate is the implied daily yield currently available on U.S. Treasury issues with a remaining term closely approximating the expected term used as the input to the Black-Scholes option pricing model.
Net (Loss) Income Per Common Share Attributable to Verint Systems Inc.
Shares used in the calculation of basic net (loss) income per common share are based on the weighted-average number of common shares outstanding during the accounting period. Shares used in the calculation of basic net income per common share include vested but unissued shares underlying awards of restricted stock units when all necessary conditions for earning those shares have been satisfied at the award's vesting date, but exclude unvested shares of restricted stock because they are contingent upon future service conditions.
We have the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion of our
1.50%
convertible senior notes due June 1, 2021 (the “Notes”), further details for which appear in Note 6, “Long-Term Debt”. We currently intend to settle the principal amount of the Notes in cash upon conversion and as a result, only the amounts payable in excess of the principal amounts of the Notes, if any, are assumed to be settled with shares of common stock for purposes of computing diluted net income per share.
In periods for which we report a net loss, basic net loss per common share and diluted net loss per common share are identical since the effect of potential common shares is anti-dilutive and therefore excluded.
Recent Accounting Pronouncements
New Accounting Pronouncements Not Yet Effective
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business,
and ASU No. 2017-04,
Intangibles—Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment.
ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.
ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash.
This update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This update also requires an entity to disclose the nature of restrictions on its cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. We typically have restrictions on certain amounts of cash and cash equivalents, primarily consisting of amounts used to secure bank guarantees in connection with sales contract performance obligations, and expect to continue to have similar restrictions in the future. We currently report changes in such restricted amounts as cash flows from investing activities on our consolidated statement of cash flows. This standard will change that presentation. We are currently reviewing this standard to assess other potential impacts on our future consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period. The new standard must be adopted using a modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
which provides guidance with the intent of reducing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments—Credit Losses (Topic 326).
This new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation—Stock Compensation (Topic 718),
which
amends the accounting for stock-based compensation and requires excess tax benefits and deficiencies to be recognized as a component of income tax expense rather than stockholders' equity. This guidance also requires excess tax benefits to be presented as an operating activity on the statement of cash flows and allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. ASU No. 2016-09 is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The most significant impact of the pending adoption of this guidance on our future consolidated financial statements, will largely be dependent upon the intrinsic value of our stock-based compensation awards at the time of vesting and may result in more variability in our effective tax rates and net (loss) income, and may also impact the calculation of common stock equivalents, which are used in calculating diluted net income per share. In addition, upon adoption of the new guidance, we will classify excess tax benefits or deficits as operating activities in the consolidated statements of cash flows rather than as financing activities.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842),
which will require lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new guidance will require both types of leases to be recognized on the balance sheet. The new guidance is effective for all periods beginning after December 15, 2018 and we are currently evaluating the effects that the adoption of ASU No. 2016-02 will have on our consolidated financial statements, but anticipate that the new guidance will significantly impact our consolidated financial statements given our significant number of leases.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606).
ASU No. 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. Additionally, this update supersedes some cost guidance included in Subtopic 605-35,
Revenue Recognition-Construction-Type and Production-Type Contracts
. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As originally issued, this guidance was effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption was not permitted. In July 2015, the FASB deferred the effective date by one year, to interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before the original effective date of December 15, 2016. The standard allows entities to apply the standard retrospectively to each prior reporting period presented (“full retrospective adoption”) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application (“modified retrospective adoption”). We currently expect to adopt ASU No. 2014-09 using the modified retrospective option.
We are continuing to review the impacts of adopting ASU No. 2014-09 to our consolidated financial statements. Based upon our preliminary assessments, we currently do not expect the new standard to materially impact the amount or timing of the majority of revenue recognized in our consolidated financial statements. We are still assessing the impact on the timing of revenue recognized under certain contracts under which customized solutions are delivered over extended periods of time.
In addition, the timing of cost of revenue recognition for certain customer contracts requiring significant customization will change, because unlike current guidance, the new guidance precludes the deferral of costs simply to obtain an even profit margin over the contract term. We are also assessing the new standard’s requirement to capitalize costs associated with obtaining customer contracts, including commission payments, which are currently expensed as incurred. Under the new standard, these costs will be deferred on our consolidated balance sheet. We are evaluating the period over which to amortize
these capitalized costs. In addition, for sales transactions that have been billed, but for which the recognition of revenue has been deferred and the related account receivable has not been collected, we currently do not recognize deferred revenue or the related accounts receivable on our consolidated balance sheet. Under the new standard, we will record accounts receivable and related contract liabilities for noncancelable contracts with customers when the right to consideration is unconditional, which we currently expect will result in increases in accounts receivable and contract liabilities (currently presented as deferred revenue) on our consolidated balance sheet, compared to our current presentation. Our preliminary assessments of the impacts to our consolidated financial statements of adopting this new standard are subject to change.
|
|
2.
|
NET (LOSS) INCOME PER COMMON SHARE ATTRIBUTABLE TO VERINT SYSTEMS INC.
|
The following table summarizes the calculation of basic and diluted net (loss) income per common share attributable to Verint Systems Inc. for the
years ended
January 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands, except per share amounts)
|
|
2017
|
|
2016
|
|
2015
|
Net (loss) income
|
|
$
|
(26,246
|
)
|
|
$
|
22,228
|
|
|
$
|
36,402
|
|
Net income attributable to noncontrolling interest
|
|
3,134
|
|
|
4,590
|
|
|
5,471
|
|
Net (loss) income attributable to Verint Systems Inc.
|
|
$
|
(29,380
|
)
|
|
$
|
17,638
|
|
|
$
|
30,931
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
62,593
|
|
|
61,813
|
|
|
58,096
|
|
Dilutive effect of employee equity award plans
|
|
—
|
|
|
1,108
|
|
|
1,278
|
|
Dilutive effect of 1.50% convertible senior notes
|
|
—
|
|
|
—
|
|
|
—
|
|
Dilutive effect of warrants
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted
|
|
62,593
|
|
|
62,921
|
|
|
59,374
|
|
Net (loss) income per common share attributable to Verint Systems Inc.:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.47
|
)
|
|
$
|
0.29
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
(0.47
|
)
|
|
$
|
0.28
|
|
|
$
|
0.52
|
|
We excluded the following weighted-average potential common shares from the calculations of diluted net (loss) income per common share during the applicable periods because their inclusion would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Stock options and restricted stock-based awards
|
|
1,097
|
|
|
596
|
|
|
226
|
|
1.50% convertible senior notes
|
|
6,205
|
|
|
6,205
|
|
|
3,876
|
|
Warrants
|
|
6,205
|
|
|
6,205
|
|
|
3,876
|
|
In periods for which we report a net loss attributable to Verint Systems Inc., basic net loss per common share and diluted net loss per common share are identical since the effect of all potential common shares is anti-dilutive and therefore excluded.
Our 1.50% convertible senior notes will not impact the calculation of diluted net income per share unless the average price of our common stock, as calculated in accordance with the terms of the indenture governing the Notes, exceeds the conversion price of
$64.46
per share. Likewise, diluted net income per share will not include any effect from the Warrants (as defined in Note 6, "Long-Term Debt") unless the average price of our common stock, as calculated under the terms of the Warrants, exceeds the exercise price of
$75.00
per share.
Our Note Hedges (as defined in Note 6, "Long-Term Debt") do not impact the calculation of diluted net income per share under the treasury stock method, because their effect would be anti-dilutive. However, in the event of an actual conversion of any or all of the Notes, the common shares that would be delivered to us under the Note Hedges would neutralize the dilutive effect of the common shares that we would issue under the Notes. As a result, actual conversion of any or all of the Notes would not increase our outstanding common stock. Up to
6,205,000
common shares could be issued upon exercise of the Warrants. Further details regarding the Notes, Note Hedges, and the Warrants appear in Note 6, "Long-Term Debt".
3. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The following tables summarize our cash, cash equivalents, and short-term investments as of January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
(in thousands)
|
|
Cost Basis
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash and bank time deposits
|
|
$
|
307,188
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
307,188
|
|
Money market funds
|
|
175
|
|
|
—
|
|
|
—
|
|
|
175
|
|
Total cash and cash equivalents
|
|
$
|
307,363
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
307,363
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Bank time deposits
|
|
$
|
3,184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,184
|
|
Total short-term investments
|
|
$
|
3,184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2016
|
(in thousands)
|
|
Cost Basis
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash and bank time deposits
|
|
$
|
334,938
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
334,938
|
|
Money market funds
|
|
12,137
|
|
|
—
|
|
|
—
|
|
|
12,137
|
|
Commercial paper and corporate debt securities
|
|
5,054
|
|
|
—
|
|
|
(24
|
)
|
|
5,030
|
|
Total cash and cash equivalents
|
|
$
|
352,129
|
|
|
$
|
—
|
|
|
$
|
(24
|
)
|
|
$
|
352,105
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Commercial paper and corporate debt securities (available-for-sale)
|
|
$
|
53,018
|
|
|
$
|
—
|
|
|
$
|
(86
|
)
|
|
$
|
52,932
|
|
Bank time deposits
|
|
3,050
|
|
|
—
|
|
|
—
|
|
|
3,050
|
|
Total short-term investments
|
|
$
|
56,068
|
|
|
$
|
—
|
|
|
$
|
(86
|
)
|
|
$
|
55,982
|
|
Bank time deposits which are reported within short-term investments consist of deposits held outside of the U.S. with maturities of greater than 90 days, or without specified maturity dates which we intend to hold for periods in excess of 90 days. All other bank deposits are included within cash and cash equivalents.
As of January 31, 2016, all of our available-for-sale investments had contractual maturities of less than one year. Gains and losses on sales of available-for-sale securities during the years ended January 31, 2017, 2016, and 2015 were not significant.
During the years ended January 31, 2017, 2016, and 2015, proceeds from maturities and sales of available-for-sale securities were
$52.8 million
,
$71.5 million
, and
$13.7 million
, respectively.
Year Ended January 31, 2017
Contact Solutions, LLC
On February 19, 2016, we completed the acquisition of Contact Solutions, LLC ("Contact Solutions"), a provider of real-time, contextual self-service solutions, based in Reston, Virginia. The purchase price consisted of
$66.9 million
of cash paid at closing, and a
$2.5 million
post-closing purchase price adjustment based upon a determination of Contact Solutions' acquisition-date working capital, which was paid during the three months ended July 31, 2016. The cash paid for this acquisition was funded with cash on hand.
The purchase price for Contact Solutions was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired were determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management.
Among the factors contributing to the recognition of goodwill as a component of the Contact Solutions purchase price allocation were synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Customer Engagement segment and is deductible for income tax purposes.
In connection with the purchase price allocation for Contact Solutions, the estimated fair value of undelivered performance obligations under customer contracts assumed in the acquisition was determined utilizing a cost build-up approach. The cost build-up approach calculates fair value by estimating the costs required to fulfill the obligations plus a reasonable profit margin, which approximates the amount that we believe would be required to pay a third party to assume the performance obligations. The estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similar services. As a result, in allocating the purchase price, we recorded
$0.6 million
of current and long-term deferred revenue, representing the estimated fair value of undelivered performance obligations for which payment had been received, which will be recognized as revenue as the underlying performance obligations are delivered. For undelivered performance obligations for which payment had not yet been received, we recorded a
$2.9 million
asset as a component of the purchase price allocation, representing the estimated fair value of these obligations,
$1.2 million
of which is included within prepaid expenses and other current assets, and
$1.7 million
of which is included in other assets. We are amortizing this asset over the underlying delivery periods, which adjusts the revenue we recognize for providing these services to its estimated fair value.
Transaction and related costs directly related to the acquisition of Contact Solutions, consisting primarily of professional fees and integration expenses, were
$1.4 million
and
$0.1 million
for the years ended January 31, 2017 and 2016, respectively, and were expensed as incurred and are included in selling, general and administrative expenses.
Revenue attributable to Contact Solutions included in our consolidated statement of operations for the year ended January 31, 2017 was not material. Contact Solutions reported a loss before provision (benefit) for income taxes of
$8.5 million
for the year ended January 31, 2017.
OpinionLab, Inc.
On November 16, 2016, we completed the acquisition of all of the outstanding shares of OpinionLab, Inc. ("OpinionLab"), a leading SaaS provider of omnichannel Voice of Customer (“VoC”) feedback solutions which help organizations collect, understand, and leverage customer insights, helping drive smarter, real-time business action. OpinionLab is based in Chicago, Illinois.
The purchase price consisted of
$56.4 million
of cash paid at the closing, funded from cash on hand, partially offset by
$6.4 million
of OpinionLab's cash received in the acquisition, resulting in net cash consideration at closing of
$50.0 million
, and we agreed to pay potential additional future cash consideration of up to
$28.0 million
, contingent upon the achievement of certain performance targets over the period from closing through January 31, 2021, the acquisition date fair value of which was estimated to be
$15.0 million
. The purchase price is subject to customary purchase price adjustments related to the final determination of OpinionLab's cash, net working capital, transaction expenses, and taxes as of November 16, 2016. The acquired business is being integrated into our Customer Engagement operating segment.
The purchase price for OpinionLab was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired were determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management.
Among the factors contributing to the recognition of goodwill as a component of the OpinionLab purchase price allocation were synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Customer Engagement segment and is not deductible for income tax purposes.
In connection with the purchase price allocation for OpinionLab, the estimated fair value of undelivered performance obligations under customer contracts assumed in the acquisition was determined utilizing a cost build-up approach. The cost build-up approach calculates fair value by estimating the costs required to fulfill the obligations plus a reasonable profit margin, which approximates the amount that we believe would be required to pay a third party to assume the performance obligations.
The estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similar services. As a result, in allocating the purchase price, we recorded
$3.1 million
of current and long-term deferred revenue, representing the estimated fair value of undelivered performance obligations for which payment had been received, which will be recognized as revenue as the underlying performance obligations are delivered. For undelivered performance obligations for which payment had not yet been received, we recorded a
$5.4 million
asset as a component of the purchase price allocation, representing the estimated fair value of these obligations,
$3.4 million
of which is included within prepaid expenses and other current assets, and
$2.0 million
of which is included in other assets. We are amortizing this asset over the underlying delivery periods, which adjusts the revenue we recognize for providing these services to its estimated fair value.
The purchase price allocation for OpinionLab has been prepared on a preliminary basis and changes to the allocation may occur as additional information becomes available during the measurement period (up to one year from the acquisition date). Fair values still under review include values assigned to identifiable intangible assets and certain pre-acquisition loss contingencies.
Transaction and related costs directly related to the acquisition of OpinionLab, consisting primarily of professional fees and integration expenses, were
$0.6 million
for the year ended January 31, 2017, and were expensed as incurred and are included in selling, general and administrative expenses.
Revenue and (loss) income before provision (benefit) for income taxes attributable to OpinionLab included in our consolidated statement of operations for the year ended January 31, 2017 were not material.
The following table sets forth the components and the allocation of the purchase price for our acquisitions of Contact Solutions and OpinionLab.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Contact Solutions
|
|
OpinionLab
|
Components of Purchase Price:
|
|
|
|
|
|
Cash paid at closing
|
|
$
|
66,915
|
|
|
$
|
56,355
|
|
Fair value of contingent consideration
|
|
—
|
|
|
15,000
|
|
Other purchase price adjustments
|
|
2,518
|
|
|
—
|
|
Total purchase price
|
|
$
|
69,433
|
|
|
$
|
71,355
|
|
|
|
|
|
|
Allocation of Purchase Price:
|
|
|
|
|
|
Net tangible assets (liabilities):
|
|
|
|
|
|
Accounts receivable
|
|
$
|
8,102
|
|
|
$
|
748
|
|
Other current assets, including cash acquired
|
|
2,392
|
|
|
10,625
|
|
Property and equipment, net
|
|
7,007
|
|
|
298
|
|
Other assets
|
|
1,904
|
|
|
2,036
|
|
Current and other liabilities
|
|
(4,943
|
)
|
|
(1,600
|
)
|
Deferred revenue - current and long-term
|
|
(642
|
)
|
|
(3,082
|
)
|
Deferred Income Taxes - current and long-term
|
|
—
|
|
|
(9,995
|
)
|
Net tangible assets (liabilities)
|
|
13,820
|
|
|
(970
|
)
|
Identifiable intangible assets:
|
|
|
|
|
|
Customer relationships
|
|
18,000
|
|
|
19,100
|
|
Developed technology
|
|
13,100
|
|
|
10,400
|
|
Trademarks and trade names
|
|
2,400
|
|
|
1,800
|
|
Total identifiable intangible assets
|
|
33,500
|
|
|
31,300
|
|
Goodwill
|
|
22,113
|
|
|
41,025
|
|
Total purchase price allocation
|
|
$
|
69,433
|
|
|
$
|
71,355
|
|
For the acquisition of Contact Solutions, the acquired customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of
ten years
,
four years
, and
five years
, respectively, the weighted average of which is approximately
7.3
years.
For the acquisition of OpinionLab, the acquired customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of
ten years
,
six years
, and
four years
, respectively, the weighted average of which is approximately
8.3
years.
The weighted-average estimated useful life of all finite-lived identifiable intangible assets acquired during the year ended January 31, 2017 is
7.8
years.
The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.
Other Business Combinations
During the year ended January 31, 2017, we completed two transactions that qualified as business combinations in our Customer Engagement segment. These business combinations were not material to our consolidated financial statements individually or in the aggregate.
Year Ended January 31, 2016
During the year ended January 31, 2016, we completed three business combinations:
|
|
•
|
On February 12, 2015, we completed the acquisition of a business that has been integrated into our Customer Engagement operating segment.
|
|
|
•
|
On May 1, 2015, we completed the acquisition of a business that has been integrated into our Cyber Intelligence operating segment.
|
|
|
•
|
On August 11, 2015, we acquired certain technology and other assets for use in our Customer Engagement operating segment in a transaction that qualified as a business combination.
|
These business combinations were not individually material to our consolidated financial statements.
The combined consideration for these business combinations was approximately
$49.5 million
, including
$33.2 million
of combined cash paid at the closings. For one of these business combinations, we also agreed to make potential additional cash payments to the respective former shareholders aggregating up to approximately
$30.5 million
, contingent upon the achievement of certain performance targets over periods extending through April 2020. The fair value of these contingent consideration obligations was estimated to be
$16.2 million
at the applicable acquisition date.
Included among the factors contributing to the recognition of goodwill in these transactions were synergies in products and technologies, and the addition of skilled, assembled workforces. Of the
$28.7 million
of goodwill associated with these business combinations,
$7.7 million
and
$21.0 million
was assigned to our Customer Engagement and Cyber Intelligence segments, respectively. For income tax purposes,
$5.1 million
of this goodwill is deductible and
$23.6 million
is not deductible.
Revenue and the impact on net income attributable to these acquisitions for the year ended January 31, 2016 were not significant.
Transaction and related costs, consisting primarily of professional fees and integration expenses, directly related to these acquisitions, totaled
$0.6 million
and
$1.4 million
for the years ended January 31, 2017 and 2016, respectively. All transaction and related costs were expensed as incurred and are included in selling, general and administrative expenses.
The purchase price allocations for business combinations completed during the year ended January 31, 2016 are final.
The following table sets forth the components and the allocations of the combined purchase prices for the business combinations completed during the year ended January 31, 2016, including adjustments identified subsequent to the respective valuation dates, none of which were material:
|
|
|
|
|
|
(in thousands)
|
|
Amount
|
Components of Purchase Prices:
|
|
|
|
Cash
|
|
$
|
33,222
|
|
Fair value of contingent consideration
|
|
16,237
|
|
Total purchase prices
|
|
$
|
49,459
|
|
|
|
|
Allocation of Purchase Prices:
|
|
|
|
Net tangible assets (liabilities):
|
|
|
|
Accounts receivable
|
|
$
|
992
|
|
Other current assets, including cash acquired
|
|
4,274
|
|
Other assets
|
|
395
|
|
Current and other liabilities
|
|
(3,037
|
)
|
Deferred revenue - current and long-term
|
|
(1,872
|
)
|
Deferred income taxes - current and long-term
|
|
(2,922
|
)
|
Net tangible liabilities
|
|
(2,170
|
)
|
Identifiable intangible assets:
|
|
|
|
Customer relationships
|
|
1,212
|
|
Developed technology
|
|
20,300
|
|
Trademarks and trade names
|
|
300
|
|
In-process research and development
|
|
1,100
|
|
Total identifiable intangible assets
|
|
22,912
|
|
Goodwill
|
|
28,717
|
|
Total purchase price allocations
|
|
$
|
49,459
|
|
For these acquisitions, customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of from
five
years to
ten
years, from
four
years to
five
years, and
three
years, respectively, the weighted average of which is approximately
4.4
years.
The pro forma impact of these acquisitions was not material to our historical consolidated operating results and is therefore not presented.
Year Ended January 31, 2015
KANA Software, Inc.
On February 3, 2014, we completed the acquisition of Sunnyvale, California-based KANA Software, Inc. and its subsidiaries ("KANA"), a leading global provider of on-premises and cloud-based solutions which create differentiated, personalized, and integrated customer experiences for large enterprises and mid-market organizations. The purchase price consisted of
$542.4 million
of cash paid at the closing, partially offset by
$25.1 million
of KANA’s cash received in the acquisition, and a
$0.7 million
post-closing purchase price adjustment, resulting in net cash consideration of
$516.6 million
.
The merger consideration was funded by a combination of cash on hand,
$300.0 million
of incremental term loans incurred in connection with an amendment to our Credit Agreement, and
$125.0 million
of borrowings under our 2013 Revolving Credit Facility (further details for which appear in Note 6, "Long-Term Debt").
KANA has been integrated into our Customer Engagement operating segment.
Among the factors contributing to the recognition of goodwill as a component of the KANA purchase price allocation were synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Customer Engagement segment and while generally not deductible for income tax purposes, certain goodwill related to previous business combinations by KANA is deductible for income tax purposes.
In connection with the purchase price allocation for KANA, the estimated fair value of undelivered performance obligations under customer contracts assumed in the merger was determined utilizing a cost build-up approach. The cost build-up approach calculates fair value by estimating the costs required to fulfill the obligations plus a reasonable profit margin, which approximates the amount that we believe would be required to pay a third party to assume the performance obligations. The
estimated costs to fulfill the performance obligations were based on the historical direct costs for delivering similar services. As a result, in allocating the purchase price, we recorded
$7.9 million
of current and long-term deferred revenue, representing the estimated fair value of undelivered performance obligations for which payment had been received, which will be recognized as revenue as the underlying performance obligations are delivered. For undelivered performance obligations for which payment had not yet been received, we recorded an
$18.6 million
asset within prepaid expenses and other current assets as a component of the purchase price allocation. We are amortizing this asset over the underlying delivery periods for these obligations as a reduction to revenue, which reduces the revenue we recognize for providing these services to its estimated fair value.
Transaction and related costs directly related to the acquisition of KANA, consisting primarily of professional fees and integration expenses, were
$0.6 million
,
$3.2 million
, and
$10.0 million
for the years ended January 31, 2017, 2016, and 2015, respectively. All transaction and related costs were expensed as incurred and are included in selling, general and administrative expenses.
UTX Technologies Limited
On March 31, 2014, we completed the acquisition of all of the outstanding shares of UTX Technologies Limited (“UTX”), a provider of certain mobile device tracking solutions for security applications, from UTX Limited. UTX Limited was the supplier of these products to our Cyber Intelligence operating segment prior to the acquisition. The purchase price consisted of
$82.9 million
of cash paid at closing, and up to
$1.5 million
of potential future contingent consideration payments to UTX Limited, the acquisition date fair value of which was estimated to be
$1.3 million
. During the year ended January 31, 2015,
$1.5 million
of contingent consideration was paid to UTX Limited.
UTX is based in the Europe, the Middle East and Africa (“EMEA”) region and has been integrated into our Cyber Intelligence operating segment.
Among the factors contributing to the recognition of goodwill as a component of the UTX purchase price allocation were synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill has been assigned to our Cyber Intelligence segment and is not deductible for income tax purposes.
Transaction and related costs directly related to the acquisition of UTX, consisting primarily of professional fees, integration expenses and related adjustments, were
$2.5 million
for the year ended January 31, 2015 and not material for the years ended January 31, 2017 and 2016. Such costs were expensed as incurred and are included in selling, general and administrative expenses.
As a result of the UTX acquisition, we recorded a
$2.6 million
charge for the impairment of certain capitalized software development costs during the year ended January 31, 2015, reflecting strategy changes in certain product development initiatives. This charge is reflected within cost of product revenue.
Purchase Price Allocations
The following table sets forth the components and the allocations of the purchase prices for our acquisitions of KANA and UTX, including adjustments identified subsequent to the respective acquisition dates:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
KANA
|
|
UTX
|
Components of Purchase Prices:
|
|
|
|
|
|
Cash, including post-closing adjustments
|
|
$
|
541,685
|
|
|
$
|
82,901
|
|
Fair value of contingent consideration
|
|
—
|
|
|
1,347
|
|
Total purchase prices
|
|
$
|
541,685
|
|
|
$
|
84,248
|
|
|
|
|
|
|
Allocation of Purchase Prices:
|
|
|
|
|
|
Net tangible assets (liabilities):
|
|
|
|
|
|
Accounts receivable
|
|
$
|
18,473
|
|
|
$
|
—
|
|
Other current assets, including cash acquired
|
|
49,707
|
|
|
3,799
|
|
Other assets
|
|
14,494
|
|
|
924
|
|
Current and other liabilities
|
|
(17,851
|
)
|
|
(263
|
)
|
Deferred revenue - current and long-term
|
|
(7,932
|
)
|
|
(340
|
)
|
Deferred income taxes - current and long-term
|
|
(60,879
|
)
|
|
(4,882
|
)
|
Net tangible liabilities
|
|
(3,988
|
)
|
|
(762
|
)
|
Identifiable intangible assets:
|
|
|
|
|
|
Customer relationships
|
|
152,700
|
|
|
2,000
|
|
Developed technology
|
|
55,500
|
|
|
37,400
|
|
Trademarks and trade names
|
|
11,500
|
|
|
—
|
|
Other intangible assets
|
|
—
|
|
|
1,100
|
|
Total identifiable intangible assets
|
|
219,700
|
|
|
40,500
|
|
Goodwill
|
|
325,973
|
|
|
44,510
|
|
Total purchase price allocations
|
|
$
|
541,685
|
|
|
$
|
84,248
|
|
For the acquisition of KANA, the acquired customer relationships, developed technology, and trademarks and trade names were assigned estimated useful lives of
five
to
ten
years,
three
to
five
years, and
five
years, respectively, the weighted average of which is approximately
8.1
years.
For the acquisition of UTX, the acquired customer relationships, developed technology and other intangible assets were assigned estimated useful lives of
three
years,
four
years, and
four
years, respectively, the weighted average of which is approximately
4.0
years.
The weighted-average estimated useful life of all finite-lived identifiable intangible assets acquired during the year ended January 31, 2015 is
7.4
years.
The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.
Pro Forma Information
The following table provides unaudited pro forma operating results for the year ended January 31, 2015, as if KANA and UTX had been acquired on February 1, 2014. These unaudited pro forma results reflect certain adjustments related to these acquisitions, including amortization expense on finite-lived intangible assets acquired from KANA and UTX, interest expense and fees associated with additional long-term debt incurred to partially fund the acquisition of KANA, and adjustments to recognize the fair value of revenue associated with performance obligations assumed in the acquisition of KANA.
The unaudited pro forma results do not include any operating efficiencies or potential cost savings associated with these business combinations. Accordingly, such unaudited pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on February 1, 2014, nor are they indicative of future operating results.
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Year Ended January 31, 2015
|
Revenue
|
|
$
|
1,158,141
|
|
Net income
|
|
$
|
29,644
|
|
Net income attributable to Verint Systems Inc.
|
|
$
|
24,173
|
|
Net income per common share attributable to Verint Systems Inc.:
|
|
|
Basic
|
|
$
|
0.42
|
|
Diluted
|
|
$
|
0.41
|
|
Other Business Combination Information
The acquisition date fair values of contingent consideration obligations associated with business combinations are estimated based on probability adjusted present values of the consideration expected to be transferred using significant inputs that are not observable in the market. Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving the performance targets and discount rates consistent with the level of risk of achievement. At each reporting date, we revalue the contingent consideration obligations to their fair values and record increases and decreases in fair value within selling, general and administrative expenses in our consolidated statements of operations. Changes in the fair value of the contingent consideration obligations result from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets.
For the years ended January 31, 2017, 2016, and 2015, we recorded a charge of
$7.3 million
, a benefit of
$0.9 million
, and a charge of
$0.9 million
, respectively, within selling, general and administrative expenses for changes in the fair values of contingent consideration obligations associated with business combinations. The aggregate fair value of the remaining contingent consideration obligations associated with business combinations was
$52.7 million
at January 31, 2017, of which
$10.0 million
was recorded within accrued expenses and other current liabilities, and
$42.7 million
was recorded within other liabilities.
Payments of contingent consideration earned under these agreements were
$3.3 million
,
$7.4 million
, and
$12.0 million
for the years ended January 31, 2017, 2016, and 2015, respectively.
|
|
5.
|
INTANGIBLE ASSETS AND GOODWILL
|
Acquisition-related intangible assets consisted of the following as of
January 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
(in thousands)
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
403,657
|
|
|
$
|
(244,792
|
)
|
|
$
|
158,865
|
|
Acquired technology
|
|
233,982
|
|
|
(168,653
|
)
|
|
65,329
|
|
Trade names
|
|
23,493
|
|
|
(14,187
|
)
|
|
9,306
|
|
Non-competition agreements
|
|
3,047
|
|
|
(2,499
|
)
|
|
548
|
|
Distribution network
|
|
4,440
|
|
|
(4,329
|
)
|
|
111
|
|
Total intangible assets with finite lives
|
|
668,619
|
|
|
(434,460
|
)
|
|
234,159
|
|
In-process research and development, with indefinite lives
|
|
1,100
|
|
|
—
|
|
|
1,100
|
|
Total intangible assets
|
|
$
|
669,719
|
|
|
$
|
(434,460
|
)
|
|
$
|
235,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2016
|
(in thousands)
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
Intangible assets, all with finite lives:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
371,722
|
|
|
$
|
(211,824
|
)
|
|
$
|
159,898
|
|
Acquired technology
|
|
211,388
|
|
|
(134,391
|
)
|
|
76,997
|
|
Trade names
|
|
18,457
|
|
|
(11,570
|
)
|
|
6,887
|
|
Non-competition agreements
|
|
3,047
|
|
|
(2,137
|
)
|
|
910
|
|
Distribution network
|
|
4,440
|
|
|
(3,550
|
)
|
|
890
|
|
Total intangible assets with finite lives
|
|
609,054
|
|
|
(363,472
|
)
|
|
245,582
|
|
In-process research and development, with indefinite lives
|
|
1,100
|
|
|
—
|
|
|
1,100
|
|
Total intangible assets
|
|
$
|
610,154
|
|
|
$
|
(363,472
|
)
|
|
$
|
246,682
|
|
The following table presents net acquisition-related intangible assets by reportable segment as of
January 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Customer Engagement
|
|
$
|
207,436
|
|
|
$
|
201,503
|
|
Cyber Intelligence
|
|
27,823
|
|
|
45,179
|
|
Total
|
|
$
|
235,259
|
|
|
$
|
246,682
|
|
Total amortization expense recorded for acquisition-related intangible assets was
$81.5 million
,
$78.9 million
, and
$76.2 million
for the
years ended
January 31, 2017
,
2016
, and
2015
, respectively. The reported amount of net acquisition-related intangible assets can fluctuate from the impact of changes in foreign currency exchange rates on intangible assets not denominated in U.S. dollars.
Estimated future amortization expense on finite-lived acquisition-related intangible assets is as follows:
|
|
|
|
|
|
(in thousands)
|
|
|
|
Years Ending January 31,
|
|
Amount
|
2018
|
|
$
|
68,227
|
|
2019
|
|
41,246
|
|
2020
|
|
31,888
|
|
2021
|
|
24,716
|
|
2022
|
|
21,626
|
|
Thereafter
|
|
46,456
|
|
Total
|
|
$
|
234,159
|
|
During the year ended January 31, 2016, we recorded a
$3.2 million
impairment of an acquired technology asset, which is included within cost of product revenue. No impairments of acquired intangible assets were recorded during the years ended
January 31, 2017 and 2015.
As discussed in Note 16, "Segment Information", effective in August 2016, we reorganized into two businesses and now present our results in
two
reportable segments. We reallocated
$51.8 million
of goodwill, net of
$25.3 million
of accumulated impairment losses, from our former Video Intelligence segment to our Customer Engagement segment, and
$22.2 million
of goodwill, net of
$10.8 million
of accumulated impairment losses, to our Cyber Intelligence segment, using a relative fair value approach. In addition, we completed an assessment for potential impairment of the goodwill previously allocated to our former Video Intelligence segment immediately prior to the reallocation and determined that no impairment existed.
Goodwill activity for the years ended
January 31, 2017
, and
2016
, in total and by reportable segment, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment
|
(in thousands)
|
|
Total
|
|
Customer Engagement
|
|
Cyber Intelligence
|
Year Ended January 31, 2016:
|
|
|
|
|
|
|
Goodwill, gross, at January 31, 2015
|
|
$
|
1,267,682
|
|
|
$
|
1,144,188
|
|
|
$
|
123,494
|
|
Accumulated impairment losses through January 31, 2015
|
|
(66,865
|
)
|
|
(56,043
|
)
|
|
(10,822
|
)
|
Goodwill, net, at January 31, 2015
|
|
1,200,817
|
|
|
1,088,145
|
|
|
112,672
|
|
Business combinations
|
|
28,717
|
|
|
7,695
|
|
|
21,022
|
|
Foreign currency translation and other
|
|
(22,358
|
)
|
|
(20,634
|
)
|
|
(1,724
|
)
|
Goodwill, net, at January 31, 2016
|
|
$
|
1,207,176
|
|
|
$
|
1,075,206
|
|
|
$
|
131,970
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2017:
|
|
|
|
|
|
|
Goodwill, gross, at January 31, 2016
|
|
$
|
1,274,041
|
|
|
$
|
1,131,249
|
|
|
$
|
142,792
|
|
Accumulated impairment losses through January 31, 2016
|
|
(66,865
|
)
|
|
(56,043
|
)
|
|
(10,822
|
)
|
Goodwill, net, at January 31, 2016
|
|
1,207,176
|
|
|
1,075,206
|
|
|
131,970
|
|
Business combinations
|
|
91,209
|
|
|
91,209
|
|
|
—
|
|
Foreign currency translation and other
|
|
(33,567
|
)
|
|
(34,436
|
)
|
|
869
|
|
Goodwill, net, at January 31, 2017
|
|
$
|
1,264,818
|
|
|
$
|
1,131,979
|
|
|
$
|
132,839
|
|
|
|
|
|
|
|
|
Balance at January 31, 2017:
|
|
|
|
|
|
|
|
|
|
Goodwill, gross, at January 31, 2017
|
|
$
|
1,331,683
|
|
|
$
|
1,188,022
|
|
|
$
|
143,661
|
|
Accumulated impairment losses through January 31, 2017
|
|
(66,865
|
)
|
|
(56,043
|
)
|
|
(10,822
|
)
|
Goodwill, net, at January 31, 2017
|
|
$
|
1,264,818
|
|
|
$
|
1,131,979
|
|
|
$
|
132,839
|
|
As a result of the segment reorganization discussed above, we concluded that, for purposes of reviewing for potential goodwill impairment, we have
three
reporting units, consisting of Customer Engagement, Cyber Intelligence (excluding situational intelligence solutions), and the Situational Intelligence business of our former Video Intelligence segment, which is now a component of our Cyber Intelligence operating segment. Based upon our November 1, 2016 goodwill impairment reviews, we concluded that the estimated fair values of all of our reporting units significantly exceeded their carrying values.
No changes in circumstances or indicators of potential impairment were identified between November 1 and January 31 in each of the years ended
January 31, 2017
and
2016
.
No goodwill impairment was identified for the
years ended
January 31, 2017
,
2016
, and
2015
.
The following table summarizes our long-term debt at January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
|
|
|
|
1.50% Convertible Senior Notes
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
February 2014 Term Loans
|
|
130,060
|
|
|
130,729
|
|
March 2014 Term Loans
|
|
278,978
|
|
|
280,413
|
|
Other debt
|
|
404
|
|
|
—
|
|
Less: Unamortized debt discounts and issuance costs
|
|
(60,571
|
)
|
|
(73,055
|
)
|
Total debt
|
|
748,871
|
|
|
738,087
|
|
Less: current maturities
|
|
4,611
|
|
|
2,104
|
|
Long-term debt
|
|
$
|
744,260
|
|
|
$
|
735,983
|
|
1.50% Convertible Senior Notes
On June 18, 2014, we issued
$400.0 million
in aggregate principal amount of
1.50%
convertible senior notes due June 1, 2021, unless earlier converted by the holders pursuant to their terms. Net proceeds from the Notes after underwriting discounts were
$391.9 million
. The Notes pay interest in cash semiannually in arrears at a rate of
1.50%
per annum.
The Notes were issued concurrently with our public issuance of
5,750,000
shares of common stock, the majority of the combined net proceeds of which were used to partially repay certain indebtedness under our Credit Agreement, as further described below. Additional details regarding our June 18, 2014 issuance of common stock appear in Note 8, “Stockholders’ Equity”.
The Notes are unsecured and rank senior in right of payment to our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to our indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally subordinated to indebtedness and other liabilities of our subsidiaries.
The Notes are convertible into, at our election, cash, shares of common stock, or a combination of both, subject to satisfaction of specified conditions and during specified periods, as described below. If converted, we currently intend to pay cash in respect of the principal amount of the Notes.
The Notes have a conversion rate of
15.5129
shares of common stock per
$1,000
principal amount of Notes, which represents an effective conversion price of approximately
$64.46
per share of common stock and would result in the issuance of approximately
6,205,000
shares if all of the Notes were converted. The conversion rate has not changed since issuance of the Notes, although throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events.
Holders may surrender their Notes for conversion at any time prior to the close of business on the business day immediately preceding December 1, 2020, only under the following circumstances:
|
|
•
|
during any calendar quarter commencing after the calendar quarter which ended on September 30, 2014, if the closing sale price of our common stock, for at least
20
trading days (whether or not consecutive) in the period of
30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter, is more than
130%
of the conversion price of the Notes in effect on each applicable trading day;
|
|
|
•
|
during the ten consecutive trading-day period following any
five
consecutive trading-day period in which the trading price for the Notes for each such trading day was less than
98%
of the closing sale price of our common stock on such date multiplied by the then-current conversion rate; or
|
|
|
•
|
upon the occurrence of specified corporate events, as described in the indenture governing the Notes, such as a consolidation, merger, or binding share exchange.
|
On or after December 1, 2020 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may surrender their Notes for conversion regardless of whether any of the foregoing conditions have been satisfied.
As of January 31, 2017, the Notes were not convertible.
In accordance with accounting guidance for convertible debt with a cash conversion option, we separately accounted for the debt and equity components of the Notes in a manner that reflected our estimated nonconvertible debt borrowing rate. We estimated the debt and equity components of the Notes to be
$319.9 million
and
$80.1 million
respectively, at the issuance date assuming a
5.00%
non-convertible borrowing rate. The equity component was recorded as an increase to additional paid-in capital. The excess of the principal amount of the debt component over its carrying amount (the “debt discount”) is being amortized as interest expense over the term of the Notes using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
We allocated transaction costs related to the issuance of the Notes, including underwriting discounts, of
$7.6 million
and
$1.9 million
to the debt and equity components, respectively. Issuance costs attributable to the debt component of the Notes are presented as a reduction of long-term debt
and are being amortized as interest expense over the term of the Notes, and issuance costs attributable to the equity component were netted with the equity component in additional paid-in capital. The carrying amount of the equity component, net of issuance costs, was
$78.2 million
at January 31, 2017.
As of January 31, 2017, the carrying value of the debt component was
$341.7 million
, which is net of unamortized debt discount and issuance costs of
$53.3 million
and
$5.0 million
, respectively. Including the impact of the debt discount and related deferred debt issuance costs, the effective interest rate on the Notes was approximately
5.29%
for each of the years ended January 31, 2017, 2016, and 2015.
Based on the closing market price of our common stock on January 31, 2017, the if-converted value of the Notes was less than the aggregate principal amount of the Notes.
Note Hedges and Warrants
Concurrently with the issuance of the Notes, we entered into convertible note hedge transactions (the “Note Hedges”) and sold warrants (the “Warrants”). The combination of the Note Hedges and the Warrants serves to increase the effective initial conversion price for the Notes to
$75.00
per share. The Note Hedges and Warrants are each separate instruments from the Notes.
Note Hedges
Pursuant to the Note Hedges, we purchased call options on our common stock, under which we have the right to acquire from the counterparties up to approximately
6,205,000
shares of our common stock, subject to customary anti-dilution adjustments, at a price of
$64.46
, which equals the initial conversion price of the Notes. Our exercise rights under the Note Hedges generally trigger upon conversion of the Notes and the Note Hedges terminate upon maturity of the Notes, or the first day the Notes are no longer outstanding. The Note Hedges may be settled in cash, shares of our common stock, or a combination thereof, at our option, and are intended to reduce our exposure to potential dilution upon conversion of the Notes. We paid
$60.8 million
for the Note Hedges, which was recorded as a reduction to additional paid-in capital. As of January 31, 2017, we had not purchased any shares of our common stock under the Note Hedges.
Warrants
We sold the Warrants to several counterparties. The Warrants provide the counterparties rights to acquire from us up to approximately
6,205,000
shares of our common stock at a price of
$75.00
per share. The Warrants expire incrementally on a series of expiration dates beginning in August 2021. At expiration, if the market price per share of our common stock exceeds the strike price of the Warrants, we will be obligated to issue shares of our common stock having a value equal to such excess. The Warrants could have a dilutive effect on net income per share to the extent that the market value of our common stock exceeds the strike price of the Warrants. Proceeds from the sale of the Warrants were
$45.2 million
and were recorded as additional paid-in capital. As of January 31, 2017, no Warrants had been exercised and all Warrants remained outstanding.
The Note Hedges and Warrants both meet the requirements for classification within stockholders’ equity, and their respective fair values are not remeasured and adjusted as long as these instruments continue to qualify for stockholders’ equity classification.
Credit Agreement
In April 2011, we terminated a prior credit agreement and entered into a credit agreement with our lenders, which was amended and restated in March 2013, and further amended in February, March and June 2014 (the “Credit Agreement"). The Credit Agreement, as amended and restated, provides for senior secured credit facilities, currently comprised of
$300.0 million
of term loans borrowed in February 2014 (the “February 2014 Term Loans”), and
$643.5 million
of term loans borrowed in March 2014 (the "March 2014 Term Loans"), all of which matures in September 2019, and a
$300.0 million
revolving credit facility maturing in September 2018 (the "Revolving Credit Facility"), subject to increase and reduction from time to time as described in the Credit Agreement.
Debt issuance and debt modification costs, as well as original issuance discounts, incurred in connection with the Credit Agreement are deferred and amortized as adjustments to interest expense over the remaining contractual life of the associated borrowing.
The February 2014 Term Loans were borrowed in connection with our February 2014 acquisition of KANA. The March 2014 Term Loans were borrowed as part of a refinancing of previously outstanding term loans under the Credit Agreement, which was accounted for as an early retirement of the previously outstanding term loans. As a result,
$4.3 million
of unamortized deferred debt issuance costs and a
$2.8 million
unamortized discount associated with the previously outstanding term loans were written off as a
$7.1 million
loss on early retirement of debt during the year ended January 31, 2015.
In June 2014, we utilized the majority of the combined net proceeds from the issuance of the Notes and the concurrent issuance of
5,750,000
shares of common stock to retire
$530.0 million
of the February 2014 Term Loans and March 2014 Term Loans, and all
$106.0 million
of then-outstanding borrowings under the Revolving Credit Facility. As a result,
$3.8 million
and
$1.3 million
of deferred debt issuance costs associated with the February 2014 Term Loans and March 2014 Term Loans, respectively, and a
$0.4 million
unamortized discount associated with the February 2014 Term Loans, were written off as a
$5.5 million
loss on early retirement of debt during the year ended January 31, 2015.
The outstanding February 2014 Term Loans and March 2014 Term Loans incur interest at our option at either a base rate plus a spread of
1.75%
or an
Adjusted LIBOR Rate
, as defined in the Credit Agreement, plus a spread of
2.75%
.
As of January 31, 2017, the weighted-average interest rate on both the February 2014 Term Loans and the March 2014 Term Loans was
3.58%
. Taking into account the impact of original issuance discounts, if any, and related deferred debt issuance costs, the effective interest rates on the February 2014 Term Loans and March 2014 Term Loans were approximately
4.11%
and
3.66%
, respectively, at January 31, 2017.
During the year ended January 31, 2017, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risks associated with the variable interest rate on our term loans, further details for which appear in Note 12, "Derivative Financial Instruments".
We are required to pay a commitment fee equal to
0.50%
per annum of the undrawn portion on the Revolving Credit Facility, payable quarterly, and customary administrative agent and letter of credit fees.
Loans under the Credit Agreement are subject to mandatory prepayment requirements with respect to certain asset sales, excess cash flows (as defined in the Credit Agreement), and certain other events. Optional prepayments of the term loans are permitted without premium or penalty, other than customary breakage costs associated with the prepayment of loans bearing interest based on LIBOR.
Our obligations under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and certain foreign subsidiaries, and are secured by security interests in substantially all of our and the aforementioned subsidiaries' assets, subject to certain exceptions.
The Credit Agreement contains certain customary affirmative and negative covenants for credit facilities of this type. The Revolving Credit Facility also contains a financial covenant that requires us to maintain a ratio of Consolidated Total Debt to Consolidated EBITDA (each as defined in the Credit Agreement) of no greater than
4.50
to
1
(the "Leverage Ratio Covenant"). The limitations imposed by the covenants are subject to certain exceptions as detailed in the Credit Agreement.
The Credit Agreement provides for certain customary events of default with corresponding grace periods. Upon the occurrence of an event of default resulting from a violation of the Leverage Ratio Covenant, the lenders under our Revolving Credit Facility may require us to immediately repay outstanding borrowings under the Revolving Credit Facility and may terminate their commitments to provide loans under that facility. A violation of the Leverage Ratio Covenant would not, by itself, result in an event of default under the February 2014 Term Loans or March 2014 Term Loans but may trigger a cross-default under the term loans in the event we are required to repay outstanding borrowings under the Revolving Credit Facility. Upon the occurrence of other events of default, the lenders may require us to immediately repay all outstanding borrowings under the Credit Agreement and the lenders under our Revolving Credit Facility may terminate their commitments to provide loans under the facility.
Future Principal Payments on Term Loans
As of January 31, 2017, future scheduled principal payments on the February 2014 Term Loans and March 2014 Term Loans are presented in the following table:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
February
2014
|
|
March
2014
|
Years Ending January 31,
|
|
Term Loans
|
|
Term Loans
|
2018
|
|
$
|
1,337
|
|
|
$
|
2,869
|
|
2019
|
|
1,337
|
|
|
2,869
|
|
2020
|
|
127,386
|
|
|
273,240
|
|
Total
|
|
$
|
130,060
|
|
|
$
|
278,978
|
|
Interest Expense
The following table presents the components of interest expense incurred on the Notes and on borrowings under our Credit Agreement for the years ended January 31, 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
1.50% Convertible Senior Notes:
|
|
|
|
|
|
|
Interest expense at 1.50% coupon rate
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
|
$
|
3,717
|
|
Amortization of debt discount
|
|
10,669
|
|
|
10,123
|
|
|
6,014
|
|
Amortization of deferred debt issuance costs
|
|
1,007
|
|
|
955
|
|
|
566
|
|
Total - 1.50% Convertible Senior Notes
|
|
$
|
17,676
|
|
|
$
|
17,078
|
|
|
$
|
10,297
|
|
|
|
|
|
|
|
|
Borrowings under Credit Agreement:
|
|
|
|
|
|
|
Interest expense at contractual rates
|
|
$
|
14,682
|
|
|
$
|
14,590
|
|
|
$
|
23,236
|
|
Impact of interest rate swap agreement
|
|
259
|
|
|
—
|
|
|
—
|
|
Amortization of debt discounts
|
|
58
|
|
|
56
|
|
|
116
|
|
Amortization of deferred debt issuance costs
|
|
2,211
|
|
|
2,166
|
|
|
2,435
|
|
Total - Borrowings under Credit Agreement
|
|
$
|
17,210
|
|
|
$
|
16,812
|
|
|
$
|
25,787
|
|
|
|
7.
|
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION
|
Consolidated Balance Sheets
Inventories consisted of the following as of
January 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Raw materials
|
|
$
|
9,074
|
|
|
$
|
7,177
|
|
Work-in-process
|
|
4,355
|
|
|
6,668
|
|
Finished goods
|
|
4,108
|
|
|
4,467
|
|
Total inventories
|
|
$
|
17,537
|
|
|
$
|
18,312
|
|
Property and equipment, net consisted of the following as of January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Land and buildings
|
|
$
|
9,543
|
|
|
$
|
10,276
|
|
Leasehold improvements
|
|
29,247
|
|
|
28,538
|
|
Software
|
|
61,810
|
|
|
47,615
|
|
Equipment, furniture, and other
|
|
93,968
|
|
|
79,545
|
|
|
|
194,568
|
|
|
165,974
|
|
Less: accumulated depreciation and amortization
|
|
(117,017
|
)
|
|
(97,070
|
)
|
Total property and equipment, net
|
|
$
|
77,551
|
|
|
$
|
68,904
|
|
Depreciation expense on property and equipment was
$25.2 million
,
$20.3 million
, and
$17.7 million
the years ended January 31, 2017, 2016, and 2015, respectively.
Other assets consisted of the following as of January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Long-term restricted cash and time deposits
|
|
$
|
54,566
|
|
|
$
|
15,359
|
|
Deferred debt issuance costs, net
|
|
1,929
|
|
|
3,142
|
|
Long-term security deposits
|
|
4,123
|
|
|
4,112
|
|
Other
|
|
16,002
|
|
|
13,611
|
|
Total other assets
|
|
$
|
76,620
|
|
|
$
|
36,224
|
|
Accrued expenses and other current liabilities consisted of the following as of January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Compensation and benefits
|
|
$
|
73,998
|
|
|
$
|
69,895
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
59,810
|
|
|
54,873
|
|
Income taxes
|
|
11,410
|
|
|
18,707
|
|
Professional and consulting fees
|
|
8,020
|
|
|
7,094
|
|
Derivative financial instruments - current portion
|
|
1,655
|
|
|
2,347
|
|
Distributor and agent commissions
|
|
10,384
|
|
|
8,471
|
|
Taxes other than income taxes
|
|
8,564
|
|
|
8,430
|
|
Interest on indebtedness
|
|
3,712
|
|
|
4,597
|
|
Contingent consideration - current portion
|
|
9,725
|
|
|
3,691
|
|
Other
|
|
25,946
|
|
|
28,862
|
|
Total accrued expenses and other current liabilities
|
|
$
|
213,224
|
|
|
$
|
206,967
|
|
Other liabilities consisted of the following as of January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Unrecognized tax benefits, including interest and penalties
|
|
$
|
28,204
|
|
|
$
|
25,315
|
|
Contingent consideration - long-term portion
|
|
42,708
|
|
|
18,401
|
|
Deferred rent expense
|
|
13,805
|
|
|
12,553
|
|
Obligations for severance compensation
|
|
2,880
|
|
|
2,712
|
|
Other
|
|
6,762
|
|
|
2,647
|
|
Total other liabilities
|
|
$
|
94,359
|
|
|
$
|
61,628
|
|
Consolidated Statements of Operations
Other expense, net consisted of the following for the years ended
January 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Foreign currency losses, net
|
|
$
|
(2,743
|
)
|
|
$
|
(8,037
|
)
|
|
$
|
(13,402
|
)
|
(Losses) gains on derivative financial instruments, net
|
|
(322
|
)
|
|
394
|
|
|
3,986
|
|
Other, net
|
|
(3,861
|
)
|
|
(4,634
|
)
|
|
(155
|
)
|
Total other expense, net
|
|
$
|
(6,926
|
)
|
|
$
|
(12,277
|
)
|
|
$
|
(9,571
|
)
|
Consolidated Statements of Cash Flows
The following table provides supplemental information regarding our consolidated cash flows for the years ended
January 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Cash paid for interest
|
|
$
|
21,892
|
|
|
$
|
20,734
|
|
|
$
|
29,296
|
|
Cash payments of income taxes, net
|
|
$
|
29,582
|
|
|
$
|
17,165
|
|
|
$
|
15,362
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
Accrued but unpaid purchases of property and equipment
|
|
$
|
2,868
|
|
|
$
|
4,562
|
|
|
$
|
4,258
|
|
Inventory transfers to property and equipment
|
|
$
|
552
|
|
|
$
|
1,142
|
|
|
$
|
630
|
|
Liabilities for contingent consideration in business combinations
|
|
$
|
26,400
|
|
|
$
|
16,238
|
|
|
$
|
8,347
|
|
Leasehold improvements funded by lease incentives
|
|
$
|
82
|
|
|
$
|
1,721
|
|
|
$
|
2,242
|
|
Issuance of Common Stock
On June 18, 2014, we completed a public offering of our common stock pursuant to which we issued and sold
5,750,000
shares of common stock at a price of
$47.75
per share. We received aggregate proceeds of
$265.6 million
from the offering, net of underwriters’ discounts and commissions, but before deducting approximately
$0.7 million
of other offering expenses.
Common Stock Dividends
We did not declare or pay any dividends on our common stock during the years ended January 31, 2017, 2016, and 2015. Under the terms of our Credit Agreement, we are subject to certain restrictions on declaring and paying dividends on our common stock.
Share Repurchase Program
On March 29, 2016, we announced that our board of directors had authorized a share repurchase program whereby we may make up to
$150 million
in purchases of our outstanding shares of common stock over the two years following the date of announcement. Under the share repurchase program, purchases can be made from time to time using a variety of methods, which may include open market purchases. The specific timing, price and size of purchases depends on prevailing stock prices, general market and economic conditions, and other considerations, including the amount of cash generated in the U.S. and other potential uses of cash, such as acquisitions. Purchases may be made through a Rule 10b5-1 plan pursuant to pre-determined metrics set forth in such plan. The authorization of the share repurchase program does not obligate us to acquire any particular amount of common stock, and the program may be suspended or discontinued at any time.
Treasury Stock
Repurchased shares of common stock are recorded as treasury stock, at cost, but may from time to time be retired. At January 31, 2017, we held approximately
1,654,000
shares of treasury stock with a cost of
$57.1 million
. At January 31, 2016, we held approximately
348,000
and shares of treasury stock with a cost of
$10.3 million
.
During the year ended January 31, 2017 we acquired approximately
1,306,000
shares of treasury stock with a cost of
$46.9 million
under the aforementioned share repurchase program. We did not acquire any shares of treasury stock during the year ended January 31, 2016. During the year ended January 31, 2015, we acquired approximately
46,000
shares of treasury stock from directors, executive officers, and other employees at a cost of
$2.2 million
.
From time to time, our board of directors has approved limited programs to repurchase shares of our common stock from directors or officers in connection with the vesting of restricted stock or restricted stock units to facilitate required income tax withholding by us or the payment of required income taxes by such holders. In addition, the terms of some of our equity award agreements with all grantees provide for automatic repurchases by us for the same purpose if a vesting-related or delivery-related tax event occurs at a time when the holder is not permitted to sell shares in the market. Our stock bonus program contains similar terms. Any such repurchases of common stock occur at prevailing market prices and are recorded as treasury stock.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities and derivative financial instruments designated as hedges. Accumulated other comprehensive income (loss) is presented as a separate line item in the stockholders’ equity section of our consolidated balance sheets. Accumulated other comprehensive income (loss) items have no impact on our net income as presented in our consolidated statements of operations.
The following table summarizes changes in the components of our accumulated other comprehensive income (loss) by component for the years ended
January 31, 2017
and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Unrealized Gains (Losses) on Derivative Financial Instruments Designated as Hedges
|
|
Unrealized Gain on Interest Rate Swap Designated as Hedge
|
|
Unrealized Gains (Losses) on Available-for-Sale Investments
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
Accumulated other comprehensive (loss) income at January 31, 2015
|
|
$
|
(7,992
|
)
|
|
$
|
—
|
|
|
$
|
101
|
|
|
$
|
(86,444
|
)
|
|
$
|
(94,335
|
)
|
Other comprehensive loss before reclassifications
|
|
(992
|
)
|
|
—
|
|
|
(211
|
)
|
|
(27,769
|
)
|
|
(28,972
|
)
|
Amounts reclassified out of accumulated other comprehensive income (loss)
|
|
7,113
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,113
|
|
Net other comprehensive income (loss)
|
|
6,121
|
|
|
—
|
|
|
(211
|
)
|
|
(27,769
|
)
|
|
(21,859
|
)
|
Accumulated other comprehensive loss at January 31, 2016
|
|
(1,871
|
)
|
|
—
|
|
|
(110
|
)
|
|
(114,213
|
)
|
|
(116,194
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
3,585
|
|
|
632
|
|
|
110
|
|
|
(41,850
|
)
|
|
(37,523
|
)
|
Amounts reclassified out of accumulated other comprehensive income (loss)
|
|
(1,139
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,139
|
)
|
Net other comprehensive income (loss)
|
|
2,446
|
|
|
632
|
|
|
110
|
|
|
(41,850
|
)
|
|
(38,662
|
)
|
Accumulated other comprehensive income (loss) at January 31, 2017
|
|
$
|
575
|
|
|
$
|
632
|
|
|
$
|
—
|
|
|
$
|
(156,063
|
)
|
|
$
|
(154,856
|
)
|
All amounts presented in the table above are net of income taxes, if applicable. The accumulated net losses in foreign currency translation adjustments primarily reflect the strengthening of the U.S. dollar against the British pound sterling, which has resulted in lower U.S. dollar-translated balances of British pound sterling-denominated goodwill and intangible assets.
The amounts reclassified out of accumulated other comprehensive income (loss) into the consolidated statement of operations, with presentation location, for the years ended
January 31, 2017
, 2016, and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
Financial Statement Location
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
|
Unrealized (gains) losses on derivative financial instruments:
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
(108
|
)
|
|
$
|
718
|
|
|
$
|
190
|
|
|
Cost of product revenue
|
|
|
(115
|
)
|
|
672
|
|
|
159
|
|
|
Cost of service and support revenue
|
|
|
(651
|
)
|
|
4,556
|
|
|
1,050
|
|
|
Research and development, net
|
|
|
(383
|
)
|
|
2,205
|
|
|
458
|
|
|
Selling, general and administrative
|
|
|
(1,257
|
)
|
|
8,151
|
|
|
1,857
|
|
|
Total, before income taxes
|
|
|
118
|
|
|
(1,038
|
)
|
|
(299
|
)
|
|
Provision (benefit) for income taxes
|
|
|
$
|
(1,139
|
)
|
|
$
|
7,113
|
|
|
$
|
1,558
|
|
|
Total, net of income taxes
|
9. RESEARCH AND DEVELOPMENT, NET
Our gross research and development expenses for the years ended
January 31, 2017
,
2016
, and
2015
, were
$174.6 million
,
$181.7 million
, and
$178.7 million
, respectively. Reimbursements from the OCS and other government grant programs
amounted to
$3.5 million
,
$4.0 million
, and
$5.0 million
for the years ended
January 31, 2017
,
2016
, and
2015
, respectively, which were recorded as reductions of gross research and development expenses.
We capitalize certain costs incurred to develop our commercial software products, and we then recognize those costs within cost of product revenue as the products are sold. Activity for our capitalized software development costs for the years ended
January 31, 2017
,
2016
, and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Capitalized software development costs, net, beginning of year
|
|
$
|
11,992
|
|
|
$
|
10,112
|
|
|
$
|
8,483
|
|
Software development costs capitalized during the year
|
|
2,338
|
|
|
5,027
|
|
|
6,083
|
|
Amortization of capitalized software development costs
|
|
(3,341
|
)
|
|
(2,976
|
)
|
|
(1,666
|
)
|
Impairments, foreign currency translation and other
|
|
(1,480
|
)
|
|
(171
|
)
|
|
(2,788
|
)
|
Capitalized software development costs, net, end of year
|
|
$
|
9,509
|
|
|
$
|
11,992
|
|
|
$
|
10,112
|
|
During the years ended January 31, 2017 and 2015, we recorded impairments of capitalized software development costs of
$1.3 million
and
$2.6 million
, respectively, reflecting strategy changes in certain product development initiatives, due in part to acquisition of technology associated with business combinations. There were no impairments of such costs during the year ended January 31, 2016.
The components of (loss) income before provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
|
$
|
(60,722
|
)
|
|
$
|
(43,471
|
)
|
|
$
|
(53,877
|
)
|
Foreign
|
|
37,248
|
|
|
66,651
|
|
|
75,280
|
|
Total (loss) income before provision (benefit) for income taxes
|
|
$
|
(23,474
|
)
|
|
$
|
23,180
|
|
|
$
|
21,403
|
|
The provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Current provision (benefit) for income taxes:
|
|
|
|
|
|
|
Federal
|
|
$
|
604
|
|
|
$
|
(2,997
|
)
|
|
$
|
342
|
|
State
|
|
989
|
|
|
1,300
|
|
|
1,575
|
|
Foreign
|
|
18,120
|
|
|
8,289
|
|
|
30,415
|
|
Total current provision for income taxes
|
|
19,713
|
|
|
6,592
|
|
|
32,332
|
|
Deferred (benefit) provision for income taxes:
|
|
|
|
|
|
|
Federal
|
|
(8,179
|
)
|
|
2,244
|
|
|
(40,007
|
)
|
State
|
|
(842
|
)
|
|
12
|
|
|
(2,610
|
)
|
Foreign
|
|
(7,920
|
)
|
|
(7,896
|
)
|
|
(4,714
|
)
|
Total deferred benefit for income taxes
|
|
(16,941
|
)
|
|
(5,640
|
)
|
|
(47,331
|
)
|
Total provision (benefit) for income taxes
|
|
$
|
2,772
|
|
|
$
|
952
|
|
|
$
|
(14,999
|
)
|
We identified misstatements in certain income tax disclosures included in the footnotes to our previously issued consolidated financial statements as of and for the years ended January 31, 2016 and 2015. The misstatements impacted certain components of the income tax rate reconciliation, deferred income tax, and valuation allowance tables, but had no effect on our consolidated statements of operations, comprehensive loss, stockholders’ equity, or cash flows for the years ended January 31, 2016 and 2015, or on our consolidated balance sheet as of January 31, 2016. We assessed the materiality of the misstatements, in accordance with guidance provided in SEC Staff Accounting Bulletin No. 99, and concluded that the misstatements were not material to the applicable consolidated financial statements. The comparative financial information presented in the applicable tables included in this footnote reflects the correction of these immaterial misstatements, details for which appear following those tables.
The reconciliation of the U.S. federal statutory rate to our effective tax rate on (loss) income before provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
U.S. federal statutory income tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
|
|
|
|
|
|
Income tax (benefit) provision at the U.S. federal statutory rate
|
|
$
|
(8,215
|
)
|
|
$
|
8,115
|
|
|
$
|
7,489
|
|
State income tax (benefit) provision
|
|
(312
|
)
|
|
(79
|
)
|
|
(1,739
|
)
|
Foreign tax rate differential
|
|
(5,794
|
)
|
|
(3,068
|
)
|
|
(9,650
|
)
|
Tax incentives
|
|
(3,507
|
)
|
|
(12,293
|
)
|
|
(14,865
|
)
|
Valuation allowances
|
|
(3,640
|
)
|
|
(7,767
|
)
|
|
(15,793
|
)
|
Stock-based and other compensation
|
|
2,522
|
|
|
3,562
|
|
|
4,222
|
|
Non-deductible expenses
|
|
5,315
|
|
|
6,061
|
|
|
2,156
|
|
Tax credits
|
|
(112
|
)
|
|
(482
|
)
|
|
(2,461
|
)
|
Tax contingencies
|
|
5,566
|
|
|
(6,281
|
)
|
|
14,762
|
|
Tax effects of reorganizations and liquidations
|
|
975
|
|
|
6,136
|
|
|
—
|
|
U.S. tax effects of foreign operations
|
|
9,542
|
|
|
7,574
|
|
|
1,451
|
|
Other, net
|
|
432
|
|
|
(526
|
)
|
|
(571
|
)
|
Total provision (benefit) for income taxes
|
|
$
|
2,772
|
|
|
$
|
952
|
|
|
$
|
(14,999
|
)
|
Effective income tax rate
|
|
(11.8
|
)%
|
|
4.1
|
%
|
|
(70.1
|
)%
|
The table above reflects the correction of certain amounts previously presented for the years ended January 31, 2016 and 2015. For the year ended January 31, 2016, the favorable impact of valuation allowances was increased by
$4.3 million
, and the favorable impact of tax contingencies was reduced by
$4.3 million
. For the year ended January 31, 2015, the favorable impact of valuation allowances was increased by
$4.9 million
, and the unfavorable impact of tax contingencies was increased by
$4.9 million
. The effective income tax rates for the years ended January 31, 2016 and 2015 were unchanged.
Our operations in Israel have been granted "Approved Enterprise" ("AE") status by the Investment Center of the Israeli Ministry of Industry, Trade and Labor, which makes us eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the program, income attributable to an approved enterprise is exempt from income tax for a period of
two years
and is subject to a reduced income tax rate for the subsequent
five
to
eight
years (generally
10%
-
25%
, depending on the percentage of foreign investment in the company). In addition, certain operations in Cyprus qualify for favorable tax treatment under the Cypriot Intellectual Property Regime ("IP Regime"). This legislation exempts 80% of income and gains derived from patents, copyrights, and trademarks from taxation. These tax incentives decreased our effective tax rate by
12.4%
,
51.0%
, and
64.0%
for the years ended January 31, 2017, 2016, and 2015, respectively. The current year benefit is lower than in prior years as a result of the Company’s taxable loss position in the Cyprus entity. At the lower IP Regime tax rate, the deferred tax benefit of the net operating losses generated by those companies is less than it would be under the higher statutory tax rate.
Deferred tax assets and liabilities consisted of the following at January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
Accrued expenses
|
|
$
|
10,627
|
|
|
$
|
9,553
|
|
Deferred revenue
|
|
3,953
|
|
|
7,819
|
|
Loss carryforwards
|
|
125,986
|
|
|
127,718
|
|
Tax credits
|
|
7,972
|
|
|
8,308
|
|
Stock-based and other compensation
|
|
20,187
|
|
|
20,213
|
|
Capitalized research and development expenses
|
|
4,146
|
|
|
4,125
|
|
Other, net
|
|
2,672
|
|
|
3,783
|
|
Total deferred tax assets
|
|
175,543
|
|
|
181,519
|
|
Deferred tax liabilities:
|
|
|
|
|
Goodwill and other intangible assets
|
|
(50,679
|
)
|
|
(53,354
|
)
|
Unremitted earnings of foreign subsidiaries
|
|
(18,215
|
)
|
|
(18,870
|
)
|
Other, net
|
|
(2,344
|
)
|
|
(3,053
|
)
|
Total deferred tax liabilities
|
|
(71,238
|
)
|
|
(75,277
|
)
|
Valuation allowance
|
|
(108,609
|
)
|
|
(115,756
|
)
|
Net deferred tax liabilities
|
|
$
|
(4,304
|
)
|
|
$
|
(9,514
|
)
|
|
|
|
|
|
Recorded as:
|
|
|
|
|
Long-term deferred tax assets
|
|
$
|
21,510
|
|
|
$
|
17,528
|
|
Long-term deferred tax liabilities
|
|
(25,814
|
)
|
|
(27,042
|
)
|
Net deferred tax liabilities
|
|
$
|
(4,304
|
)
|
|
$
|
(9,514
|
)
|
The table above reflects the correction of certain amounts previously presented as of January 31, 2016. Deferred tax assets resulting from loss carryforwards and total deferred tax assets were both reduced by
$12.4 million
, with a corresponding
$12.4 million
decrease to the valuation allowance. Net deferred tax liabilities as of January 31, 2016 were unchanged.
At January 31, 2017, we had U.S. federal net operating loss ("NOL") carryforwards of approximately
$661.0 million
. These loss carryforwards expire in various years ending from January 31, 2019 to January 31, 2036. We had state NOL carryforwards of approximately
$248.6 million
, expiring in years ending from January 31, 2018 to January 31, 2035. We had foreign NOL carryforwards of approximately
$53.8 million
. At January 31, 2017, all but
$8.8 million
of these foreign loss carryforwards had indefinite carryforward periods. Certain of these federal, state, and foreign loss carryforwards and credits are subject to Internal Revenue Code Section 382 or similar provisions, which impose limitations on their utilization following certain changes in ownership of the entity generating the loss carryforward. The NOL carryforwards for tax return purposes are different from the NOL carryforwards for financial statement purposes, primarily due to the reduction of NOL carryforwards for financial statement purposes under the authoritative guidance on accounting for uncertainty in income taxes. We had U.S. federal, state, and foreign tax credit carryforwards of approximately
$12.1 million
at January 31, 2017, the utilization of which is subject to limitation. At January 31, 2017, approximately
$3.0 million
of these tax credit carryforwards may be carried forward indefinitely. The balance of
$9.1 million
expires in various years ending from January 31, 2019 to January 31, 2034.
As of January 31, 2017, we have not provided for deferred taxes on the excess of financial reporting over the tax basis of investments in certain foreign subsidiaries in the amount of
$479.8 million
because we plan to reinvest such earnings indefinitely outside the United States. If these earnings were repatriated in the future, additional income and withholding tax expense would be incurred. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the total amount of income taxes that would have to be provided on such earnings.
As required by the authoritative guidance on accounting for income taxes, we evaluate the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes guidance requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, we establish a valuation allowance. We have recorded valuation allowances in the amounts of
$108.6 million
and
$115.8 million
at January 31, 2017 and 2016, respectively.
Activity in the recorded valuation allowance consisted of the following for the years ended January 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Valuation allowance, beginning of year
|
|
$
|
(115,756
|
)
|
|
$
|
(123,837
|
)
|
Provision (benefit) for income taxes
|
|
3,640
|
|
|
7,767
|
|
Additional paid-in capital
|
|
3,204
|
|
|
(59
|
)
|
Currency translation adjustment
|
|
303
|
|
|
373
|
|
Valuation allowance, end of year
|
|
$
|
(108,609
|
)
|
|
$
|
(115,756
|
)
|
The table above reflects the correction of certain amounts previously presented for the year ended January 31, 2016. The valuation allowance at January 31, 2015 year was reduced by
$8.1 million
, and the reduction in the valuation allowance resulting from the provision for income taxes for the year ended January 31, 2016 was increased by
$4.3 million
, resulting in a
$12.4 million
net decrease to the valuation allowance as of January 31, 2016.
In accordance with the authoritative guidance for accounting for stock-based compensation, we use a "with-and-without" approach to applying the intra-period allocation rules in accordance with accounting for income taxes. Under this approach, the windfall tax benefit is calculated based on the incremental tax benefit received from deductions related to stock-based compensation. The amount is measured by calculating the tax benefit both "with" and "without" the excess tax deduction; the resulting difference between the two calculations is considered the windfall. We did not recognize windfall benefits in our U.S. federal income tax (benefit) provisions for the years ended January 31, 2017, 2016, and 2015.
In accordance with the authoritative guidance on accounting for uncertainty in income taxes, differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements, determined by applying the prescribed methodologies of accounting for uncertainty in income taxes, represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets.
For the years ended January 31, 2017, 2016, and 2015, the aggregate changes in the balance of gross unrecognized tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Gross unrecognized tax benefits, beginning of year
|
|
$
|
142,271
|
|
|
$
|
159,648
|
|
|
$
|
145,408
|
|
Increases related to tax positions taken during the current year
|
|
11,034
|
|
|
9,465
|
|
|
15,522
|
|
Increases as a result of business combinations
|
|
—
|
|
|
985
|
|
|
4,744
|
|
Increases related to tax positions taken during prior years
|
|
585
|
|
|
2,514
|
|
|
1,927
|
|
Increases (decreases) related to foreign currency exchange rates
|
|
648
|
|
|
(741
|
)
|
|
(3,900
|
)
|
Reductions for tax positions of prior years
|
|
(5,094
|
)
|
|
(13,613
|
)
|
|
(3,440
|
)
|
Reductions for settlements with tax authorities
|
|
(145
|
)
|
|
(13,811
|
)
|
|
—
|
|
Lapses of statutes of limitations
|
|
(660
|
)
|
|
(2,176
|
)
|
|
(613
|
)
|
Gross unrecognized tax benefits, end of year
|
|
$
|
148,639
|
|
|
$
|
142,271
|
|
|
$
|
159,648
|
|
As of January 31, 2017, we had
$148.6 million
of unrecognized tax benefits, of which
$143.0 million
represents the amount that, if recognized, would impact the effective income tax rate in future periods. We recorded
$0.5 million
of tax expense,
$4.4 million
of tax benefit, and
$1.9 million
of tax expense for interest and penalties related to uncertain tax positions in our provision (benefit) for income taxes for the years ended January 31, 2017, 2016, and 2015, respectively. Accrued liabilities for interest and penalties were
$3.9 million
and
$3.3 million
at January 31, 2017 and 2016, respectively. Interest and penalties (expense and/or benefit) are recorded as a component of the provision (benefit) for income taxes in the consolidated financial statements.
Our income tax returns are subject to ongoing tax examinations in several jurisdictions in which we operate. In Israel, we are no longer subject to income tax examination for years prior to January 31, 2014. In the United Kingdom, with the exception of years which are currently under examination, we are no longer subject to income tax examination for years prior to January 31, 2015. In the U.S., our federal returns are no longer subject to income tax examination for years prior to January 31, 2014. However, to the extent we generated NOLs or tax credits in closed tax years, future use of the NOL or tax credit carry forward balance would be subject to examination within the relevant statute of limitations for the year in which utilized.
As of January 31, 2017, income tax returns are under examination in the following significant tax jurisdictions:
|
|
|
|
Jurisdiction
|
|
Tax Years
|
Canada
|
|
January 31, 2011 - January 31, 2012
|
United Kingdom
|
|
December 31, 2006; January 31, 2008
|
India
|
|
March 31, 2006 - March 31, 2008; March 31, 2010 - March 31, 2013, March 31, 2015
|
Israel
|
|
January 31, 2014 - January 31, 2016
|
We regularly assess the adequacy of our provisions for income tax contingencies. As a result, we may adjust the reserves for unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of expiration. We believe that it is reasonably possible that the total amount of unrecognized tax benefits at January 31, 2017 could decrease by approximately
$3.2 million
in the next twelve months as a result of settlement of certain tax audits or lapses of statutes of limitation. Such decreases may involve the payment of additional taxes, the adjustment of certain deferred taxes including the need for additional valuation allowances and the recognition of tax benefits.
|
|
11.
|
FAIR VALUE MEASUREMENTS
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our assets and liabilities measured at fair value on a recurring basis consisted of the following as of
January 31, 2017
and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
|
Fair Value Hierarchy Category
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
175
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency forward contracts
|
|
—
|
|
|
1,646
|
|
|
—
|
|
Interest rate swap agreement
|
|
—
|
|
|
1,429
|
|
|
—
|
|
Total assets
|
|
$
|
175
|
|
|
$
|
3,075
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
—
|
|
|
$
|
1,246
|
|
|
$
|
—
|
|
Interest rate swap agreement
|
|
—
|
|
|
408
|
|
|
—
|
|
Contingent consideration - business combinations
|
|
—
|
|
|
—
|
|
|
52,733
|
|
Option to acquire noncontrolling interests of consolidated subsidiaries
|
|
—
|
|
|
—
|
|
|
3,550
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
1,654
|
|
|
$
|
56,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2016
|
|
|
Fair Value Hierarchy Category
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
12,137
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper and corporate debt securities, classified as cash and cash equivalents
|
|
—
|
|
|
5,030
|
|
|
—
|
|
Short-term investments, classified as available-for-sale
|
|
—
|
|
|
52,932
|
|
|
—
|
|
Foreign currency forward contracts
|
|
—
|
|
|
113
|
|
|
—
|
|
Total assets
|
|
$
|
12,137
|
|
|
$
|
58,075
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
—
|
|
|
$
|
2,377
|
|
|
$
|
—
|
|
Contingent consideration - business combinations
|
|
—
|
|
|
—
|
|
|
22,391
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
2,377
|
|
|
$
|
22,391
|
|
The following table presents the changes in the estimated fair values of our liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for the
years ended
January 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
Fair value measurement, beginning of year
|
|
$
|
22,391
|
|
|
$
|
14,507
|
|
Contingent consideration liabilities recorded for business combinations
|
|
26,400
|
|
|
16,238
|
|
Changes in fair values, recorded in operating expenses
|
|
7,255
|
|
|
(910
|
)
|
Payments of contingent consideration
|
|
(3,313
|
)
|
|
(7,444
|
)
|
Fair value measurement, end of year
|
|
$
|
52,733
|
|
|
$
|
22,391
|
|
Our estimated liability for contingent consideration represents potential payments of additional consideration for business combinations, payable if certain defined performance goals are achieved. Changes in fair value of contingent consideration are recorded in the consolidated statements of operations within selling, general and administrative expenses.
During the year ended
January 31, 2017
, we acquired two majority owned subsidiaries for which we hold an option to acquire the noncontrolling interests. We account for the option as an in-substance investment in the noncontrolling common stock of each such subsidiary. We include the fair value of the option within other liabilities and do not recognize noncontrolling interests in these subsidiaries. The following table presents the change in the estimated fair value of this liability, which is measured using Level 3 inputs, for the year ended
January 31, 2017
:
|
|
|
|
|
|
(in thousands)
|
|
Year Ended
January 31, 2017
|
Fair value measurement, beginning of year
|
|
$
|
—
|
|
Acquisition of option to acquire noncontrolling interests of consolidated subsidiaries
|
|
3,134
|
|
Change in fair value, recorded in operating expenses
|
|
416
|
|
Fair value measurement, end of year
|
|
$
|
3,550
|
|
There were no transfers between levels of the fair value measurement hierarchy during the years ended
January 31, 2017
and 2016.
Fair Value Measurements
Money Market Funds
- We value our money market funds using quoted active market prices for such funds.
Short-term Investments, Corporate Debt Securities, and Commercial Paper -
The fair values of short-term investments, as well as corporate debt securities and commercial paper classified as cash equivalents, are estimated using observable market prices for identical securities that are traded in less-active markets, if available. When observable market prices for identical securities are not available, we value these short-term investments using non-binding market price quotes from brokers which we review for reasonableness using observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model.
Foreign Currency Forward Contracts
- The estimated fair value of foreign currency forward contracts is based on quotes received from the counterparties thereto. These quotes are reviewed for reasonableness by discounting the future estimated cash flows under the contracts, considering the terms and maturities of the contracts and market foreign currency exchange rates using readily observable market prices for similar contracts.
Interest Rate Swap Agreement
- The fair value of our interest rate swap agreement is based in part on data received from the counterparty, and represents the estimated amount we would receive or pay to settle the agreement, taking into consideration current and projected future interest rates as well as the creditworthiness of the parties, all of which can be validated through readily observable data from external sources.
Contingent Consideration
-
Business Combinations
- The fair value of the contingent consideration related to business combinations is estimated using a probability-adjusted discounted cash flow model. These fair value measurements are based on significant inputs not observable in the market. The key internally developed assumptions used in these models are discount rates and the probabilities assigned to the milestones to be achieved. We remeasure the fair value of the contingent consideration at each reporting period, and any changes in fair value resulting from either the passage of time or events occurring after the acquisition date, such as changes in discount rates, or in the expectations of achieving the performance targets, are recorded within selling, general, and administrative expenses. Increases or decreases in discount rates would have
inverse impacts on the related fair value measurements, while favorable or unfavorable changes in expectations of achieving performance targets would result in corresponding increases or decreases in the related fair value measurements. We utilized discount rates ranging from
3.0%
to
20.0%
in our calculations of the estimated fair values of our contingent consideration liabilities as of
January 31, 2017
. We utilized discount rates ranging from
3.0%
to
41.7%
in our calculations of the estimated fair values of our contingent consideration liabilities as of
January 31, 2016
.
Option to Acquire Noncontrolling Interests of Consolidated Subsidiaries
- The fair value of the option is determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management. This fair value measurement is based upon significant inputs not observable in the market. We remeasure the fair value of the option at each reporting period, and any changes in fair value are recorded within selling, general, and administrative expenses. We utilized a discount rate of
14.0%
in our calculation of the estimated fair value of the option as of
January 31, 2017
.
Other Financial Instruments
The carrying amounts of accounts receivable, accounts payable, and accrued liabilities and other current liabilities approximate fair value due to their short maturities.
The estimated fair values of our term loan borrowings were
$410 million
and
$411 million
at
January 31, 2017
and 2016, respectively. The estimated fair values of the term loans are based upon indicative bid and ask prices as determined by the agent responsible for the syndication of our term loans. We consider these inputs to be within Level 3 of the fair value hierarchy because we cannot reasonably observe activity in the limited market in which participations in our term loans are traded. The indicative prices provided to us as at each of
January 31, 2017
and 2016 did not significantly differ from par value. The estimated fair value of our revolving credit borrowings, if any, is based upon indicative market values provided by one of our lenders. We had no revolving credit borrowings at
January 31, 2017
and 2016.
The estimated fair values of our Notes were approximately
$381 million
and
$367 million
at
January 31, 2017
and 2016, respectively. The estimated fair value of the Notes is determined based on quoted bid and ask prices in the over-the-counter market in which the Notes trade. We consider these inputs to be within Level 2 of the fair value hierarchy.
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property, plant and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is recognized. Further details regarding our regular impairment reviews appear in Note 1, "Summary of Significant Accounting Policies".
12. DERIVATIVE FINANCIAL INSTRUMENTS
Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemed appropriate. We enter into these contracts in the normal course of business to mitigate risks and not for speculative purposes.
Foreign Currency Forward Contracts
Under our risk management strategy, we periodically use foreign currency forward contracts to manage our short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates. These cash flow exposures result from portions of our forecasted operating expenses, primarily compensation and related expenses, which are transacted in currencies other than the U.S. dollar, most notably the Israeli shekel. We also periodically utilize foreign currency forward contracts to manage exposures resulting from forecasted customer collections to be remitted in currencies other than the applicable functional currency, and exposures from cash, cash equivalents and short-term investments denominated in currencies other than the applicable functional currency. Our joint venture, which has a Singapore dollar functional currency, also utilizes foreign exchange forward contracts to manage its exposure to exchange rate fluctuations related to settlements of liabilities denominated in U.S. dollars. These foreign currency forward contracts generally have maturities of no longer than twelve months, although occasionally we will execute a contract that extends beyond
twelve months
, depending upon the nature of the underlying risk.
Our outstanding foreign currency forward contracts had notional amounts of
$144.0 million
and
$136.4 million
as of
January 31, 2017
and 2016, respectively.
Interest Rate Swap Agreement
During the year ended January 31, 2017, we executed a pay-fixed, receive-variable interest rate swap agreement with a multinational financial institution to partially mitigate risks associated with the variable interest rate on our term loans, under which we will pay interest at a fixed rate of
4.143%
and receive variable interest of three-month LIBOR (subject to a minimum of
0.75%
), plus a spread of
2.75%
, on a notional amount of
$200.0 million
. The effective date of the agreement was
November 1, 2016
, and settlements with the counterparty occur on a quarterly basis, beginning on February 1, 2017. The agreement will terminate on
September 6, 2019
. Throughout the term of the interest rate swap agreement, if we elect three-month LIBOR at the term loans' periodic interest rate reset dates for at least
$200.0 million
of our term loans, as we did on
November 1, 2016
and February 1, 2017, the annual interest rate on
$200.0 million
of our term loans will be fixed at
4.143%
for the applicable interest rate period.
The interest rate swap agreement is designated as a cash flow hedge and as such, changes in its fair value are recognized in accumulated other comprehensive income (loss) in the consolidated balance sheet and are reclassified into the statement of operations in the period in which the hedged transaction affects earnings. Hedge ineffectiveness, if any, is recognized currently in the consolidated statement of operations.
Fair Values of Derivative Financial Instruments
The fair values of our derivative financial instruments and their classifications in our consolidated balance sheets as of
January 31, 2017
and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
Balance Sheet Classification
|
|
2017
|
|
2016
|
Derivative assets:
|
|
|
|
|
|
Foreign currency forward contracts:
|
|
|
|
|
|
Designated as cash flow hedges
|
Prepaid expenses and other current assets
|
|
$
|
927
|
|
|
$
|
—
|
|
Not designated as hedging instruments
|
Prepaid expenses and other current assets
|
|
719
|
|
|
113
|
|
Interest rate swap agreement, designated as a cash flow hedge
|
Other assets
|
|
1,429
|
|
|
—
|
|
Total derivative assets
|
|
|
$
|
3,075
|
|
|
$
|
113
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
Foreign currency forward contracts:
|
|
|
|
|
|
Designated as cash flow hedges
|
Accrued expenses and other current liabilities
|
|
$
|
288
|
|
|
$
|
2,108
|
|
Not designated as hedging instruments
|
Accrued expenses and other current liabilities
|
|
958
|
|
|
239
|
|
|
Other liabilities
|
|
—
|
|
|
30
|
|
Interest rate swap agreement, designated as a cash flow hedge
|
Accrued expenses and other current liabilities
|
|
408
|
|
|
—
|
|
Total derivative liabilities
|
|
|
$
|
1,654
|
|
|
$
|
2,377
|
|
Derivative Financial Instruments in Cash Flow Hedging Relationships
The effects of derivative financial instruments designated as cash flow hedges on accumulated other comprehensive loss ("AOCL") and on the consolidated statement of operations for the years ended
January 31, 2017
,
2016
, and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net gains (losses) recognized in Other comprehensive (loss) income:
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
575
|
|
|
$
|
(1,871
|
)
|
|
$
|
(7,992
|
)
|
Interest rate swap agreement
|
|
632
|
|
|
—
|
|
|
—
|
|
|
|
$
|
1,207
|
|
|
$
|
(1,871
|
)
|
|
$
|
(7,992
|
)
|
Net gains (losses) reclassified from Other comprehensive (loss) income to the consolidated statements of operations:
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
1,257
|
|
|
$
|
(8,151
|
)
|
|
$
|
(1,857
|
)
|
For information regarding the line item locations of the net gains (losses) on foreign currency forward contracts reclassified out of Other comprehensive (loss) income into the consolidated statements of operations, see Note 8, "Stockholders' Equity".
There were no gains or losses from ineffectiveness of these cash flow hedges recorded for the years ended
January 31, 2017
, 2016, and 2015. All of the foreign currency forward contracts underlying the
$0.6 million
of net unrealized gains recorded in our accumulated other comprehensive loss at
January 31, 2017
mature within twelve months, and therefore we expect all such gains to be reclassified into earnings within the next twelve months. The
$0.6 million
net unrealized gain recorded in our accumulated other comprehensive loss at
January 31, 2017
for the interest rate swap agreement includes
$0.4 million
of net losses expected to be reclassified into earnings within the next twelve months.
Derivative
Financial Instruments
Not Designated as Hedging Instruments
(losses) gains recognized on derivative financial instruments not designated as hedging instruments in our consolidated statements of operations for the
years ended
January 31, 2017
,
2016
, and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification in Consolidated Statements of Operations
|
|
Year Ended January 31,
|
(in thousands)
|
|
|
2017
|
|
2016
|
|
2015
|
Foreign currency forward contracts
|
|
Other income (expense), net
|
|
$
|
(323
|
)
|
|
$
|
394
|
|
|
$
|
3,986
|
|
|
|
13.
|
STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS
|
Stock-Based Compensation Plans
Plan Summaries
We issue stock-based incentive awards to eligible employees, directors and consultants, including restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance awards, stock options (both incentive and non-qualified), and other awards, under the terms of our outstanding stock benefit plans (the "Plans" or "Stock Plans") and/or forms of equity award agreements approved by our board of directors.
Awards are generally subject to multi-year vesting periods. We recognize compensation expense for awards on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods, reduced by estimated forfeitures. Upon issuance of restricted stock, exercise of stock options, or issuance of shares under the Plans, we generally issue new shares of common stock, but occasionally may issue treasury shares.
2015 Stock-Based Compensation Plan
On June 25, 2015, our stockholders approved the Verint Systems Inc. 2015 Long-Term Stock Incentive Plan (the "2015 Plan"). which authorizes our board of directors to provide equity-based compensation in various forms, including RSUs, RSAs, performance awards, and other stock-based awards. Subject to adjustment as provided in the 2015 Plan, an aggregate of up to
9,700,000
shares of our common stock may be issued or transferred in connection with awards under the 2015 Plan. Each stock option or stock-settled stock appreciation right granted under the 2015 Plan will reduce the available plan capacity by
one
share and each other award denominated in shares that is granted under the 2015 Plan will reduce the available plan capacity by
2.29
shares.
Upon approval of the 2015 Plan, additional awards were no longer permitted under our other stock-based compensation plans. Awards outstanding at June 25, 2015 under our prior stock-based compensation plans were not impacted by approval of the 2015 Plan.
Stock-Based Compensation Expense
We recognized stock-based compensation expense in the following line items on the consolidated statements of operations for the years ended
January 31, 2017
,
2016
, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Component of (loss) income before provision (benefit) for income taxes:
|
|
|
|
|
|
|
Cost of revenue - product
|
|
$
|
1,290
|
|
|
$
|
1,466
|
|
|
$
|
1,228
|
|
Cost of revenue - service and support
|
|
7,297
|
|
|
5,719
|
|
|
5,028
|
|
Research and development, net
|
|
11,637
|
|
|
9,195
|
|
|
6,421
|
|
Selling, general and administrative
|
|
45,384
|
|
|
48,169
|
|
|
41,781
|
|
Total stock-based compensation expense
|
|
65,608
|
|
|
64,549
|
|
|
54,458
|
|
Income tax benefits related to stock-based compensation (before consideration of valuation allowances)
|
|
15,752
|
|
|
14,385
|
|
|
12,364
|
|
Total stock-based compensation, net of taxes
|
|
$
|
49,856
|
|
|
$
|
50,164
|
|
|
$
|
42,094
|
|
Total stock-based compensation expense by type of award was as follows for the years ended
January 31, 2017
,
2016
, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Restricted stock units and restricted stock awards
|
|
$
|
55,123
|
|
|
$
|
58,028
|
|
|
$
|
46,634
|
|
Stock bonus program and bonus share program
|
|
10,298
|
|
|
6,359
|
|
|
7,680
|
|
Total equity-settled awards
|
|
65,421
|
|
|
64,387
|
|
|
54,314
|
|
Phantom stock units (cash-settled awards)
|
|
187
|
|
|
162
|
|
|
144
|
|
Total stock-based compensation expense
|
|
$
|
65,608
|
|
|
$
|
64,549
|
|
|
$
|
54,458
|
|
Awards under our stock bonus and bonus share programs are accounted for as liability-classified awards, because the obligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, to be settled with a variable number of shares of our common stock.
Net excess tax benefits resulting from our Stock Plans were
$0.7 million
,
$0.5 million
, and
$0.3 million
for the years ended January 31, 2017, 2016, and 2015, respectively. Excess tax benefits represent a reduction in income taxes, otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits, and are recorded as increases to additional paid-in capital.
Restricted Stock Units and Restricted Stock Awards
We periodically award RSUs and RSAs to our directors, officers, and other employees. The fair value of these awards is equivalent to the market value of our common stock on the grant date. The principal difference between these instruments is that RSUs are not shares of our common stock and do not have any of the rights or privileges thereof, including voting or dividend rights. On the applicable vesting date, the holder of an RSU becomes entitled to a share of our common stock. Both RSAs and RSUs are subject to certain restrictions and forfeiture provisions prior to vesting.
We periodically award RSUs to executive officers and certain employees that vest upon the achievement of specified performance goals or market conditions (“PRSUs”). An accounting grant date for PRSUs is generally not established until the performance vesting condition has been defined and communicated and for some PRSUs, the performance goals are established by our board subsequent to the award date.
We separately recognize compensation expense for each tranche of a PRSU award as if it were a separate award with its own vesting date. For certain PRSUs, an accounting grant date may be established prior to the requisite service period.
Once a performance vesting condition has been defined and communicated, and the requisite service period has begun, our estimate of the fair value of PRSUs requires an assessment of the probability that the specified performance criteria will be achieved, which we update at each reporting date and adjust our estimate of the fair value of the PRSUs, if necessary. All compensation expense for PRSUs with market conditions is recognized if the requisite service period is fulfilled, even if the market condition is not satisfied.
RSUs that are expected to settle with cash payments upon vesting, if any, are reflected as liabilities on our consolidated balance sheets. Such RSU's were insignificant at January 31, 2017 and 2016.
The following table summarizes activity for RSUs (including PRSUs) and RSAs under the Plans for the years ended January 31, 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2017
|
|
2016
|
|
2015
|
(in thousands, except grant date fair values)
|
|
Shares or Units
|
|
Weighted-Average Grant-Date Fair Value
|
|
Shares or Units
|
|
Weighted-Average Grant-Date Fair Value
|
|
Shares or Units
|
|
Weighted-Average Grant-Date Fair Value
|
Beginning balance
|
|
2,649
|
|
|
$
|
54.57
|
|
|
2,545
|
|
|
$
|
40.96
|
|
|
2,250
|
|
|
$
|
33.77
|
|
Granted
|
|
1,870
|
|
|
$
|
35.33
|
|
|
1,729
|
|
|
$
|
62.62
|
|
|
1,504
|
|
|
$
|
46.11
|
|
Released
|
|
(1,433
|
)
|
|
$
|
47.98
|
|
|
(1,312
|
)
|
|
$
|
39.75
|
|
|
(1,009
|
)
|
|
$
|
33.11
|
|
Forfeited
|
|
(344
|
)
|
|
$
|
52.20
|
|
|
(313
|
)
|
|
$
|
50.56
|
|
|
(200
|
)
|
|
$
|
38.46
|
|
Ending balance
|
|
2,742
|
|
|
$
|
45.20
|
|
|
2,649
|
|
|
$
|
54.57
|
|
|
2,545
|
|
|
$
|
40.96
|
|
With respect of our stock bonus program, activity presented in the table above only includes shares earned and released in consideration of the discount provided under that program. Consistent with the provisions of the Plans under which such shares are issued, other shares issued under the stock bonus program are not included in the table above because they do not reduce available plan capacity (since such shares are deemed to be purchased by the grantee at fair value in lieu of receiving an earned cash bonus). Further details appear below under “Stock Bonus Program”.
Activity for performance awards under the Plans for the years ended January 31, 2017, 2016, and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Beginning balance
|
|
332
|
|
|
497
|
|
|
477
|
|
Granted
|
|
312
|
|
|
195
|
|
|
250
|
|
Released
|
|
(159
|
)
|
|
(239
|
)
|
|
(189
|
)
|
Forfeited
|
|
(47
|
)
|
|
(121
|
)
|
|
(41
|
)
|
Ending balance
|
|
438
|
|
|
332
|
|
|
497
|
|
As of January 31, 2017, unrecognized compensation expense related to unvested RSUs expected to vest subsequent to January 31, 2017 was approximately
$70.2 million
, with remaining weighted-average vesting periods of approximately
1.7 years
, over which such expense is expected to be recognized. The unrecognized compensation expense does not include compensation expense of up to
$2.1 million
, related to shares for which a grant date has been established but the requisite service period has not begun. The total fair values of RSUs vested during the years ended January 31, 2017, 2016, and 2015 were
$68.7 million
,
$52.2 million
, and
$33.4 million
, respectively.
Stock Options
We did not grant stock options during the years ended
January 31, 2017
,
2016
, and
2015
.
The following table summarizes stock option activity under the Plans for the years ended
January 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2017
|
|
2016
|
|
2015
|
(in thousands, except exercise prices)
|
|
Stock Options
|
|
Weighted-Average Exercise Price
|
|
Stock Options
|
|
Weighted-Average Exercise Price
|
|
Stock Options
|
|
Weighted-Average Exercise Price
|
Beginning balance
|
|
3
|
|
|
$
|
9.59
|
|
|
9
|
|
|
$
|
28.74
|
|
|
516
|
|
|
$
|
34.60
|
|
Exercised
|
|
(1
|
)
|
|
$
|
8.71
|
|
|
(6
|
)
|
|
$
|
36.10
|
|
|
(505
|
)
|
|
$
|
34.71
|
|
Expired
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
(2
|
)
|
|
$
|
23.13
|
|
Ending balance
|
|
2
|
|
|
$
|
10.09
|
|
|
3
|
|
|
$
|
9.59
|
|
|
9
|
|
|
$
|
28.74
|
|
Stock options exercisable
|
|
2
|
|
|
$
|
10.09
|
|
|
3
|
|
|
$
|
9.59
|
|
|
9
|
|
|
$
|
28.74
|
|
The following table summarizes certain key data for exercised options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Intrinsic value of options exercised
|
|
$
|
24
|
|
|
$
|
164
|
|
|
$
|
8,759
|
|
Cash received from the exercise of stock options
|
|
$
|
8
|
|
|
$
|
232
|
|
|
$
|
17,606
|
|
Tax benefits realized from stock options exercised
|
|
$
|
6
|
|
|
$
|
107
|
|
|
$
|
2,306
|
|
Fair value of options vested
|
|
$
|
35
|
|
|
$
|
56
|
|
|
$
|
178
|
|
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, 2017, 2016, and 2015 was not significant.
Stock Bonus Program
Under the terms of our stock bonus program, eligible employees may elect to receive a portion of their earned bonuses, otherwise payable in cash, in the form of discounted shares of our common stock. Executive officers are eligible to participate in this program to the extent that shares remained available for awards following the enrollment of all other participants. Shares awarded to executive officers with respect to the discount feature of the program are subject to a
one
-year vesting period. This program is subject to annual funding approval by our board of directors and an annual cap on the number of shares that can be issued. Subject to these limitations, the number of shares to be issued under the program for a given year is determined using a
five
-day trailing average price of our common stock when the awards are calculated, reduced by a discount to be determined by the board of directors each year (the "discount"). To the extent that this program is not funded in a given year or the number of shares of common stock needed to fully satisfy employee enrollment exceeds the annual cap, the applicable portion of the employee bonuses will generally revert to being paid in cash. Obligations under this program are accounted for as liabilities, because the obligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, to be settled with a variable number of shares of common stock determined using a discounted average price of our common stock, as described above.
The following table summarizes certain key data for the stock bonus program for the years ended January 31, 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands, except discount)
|
|
2017
|
|
2016
|
|
2015
|
Maximum stock bonus program shares
|
|
—
|
|
|
125
|
|
|
125
|
|
Discount
|
|
—
|
%
|
|
—
|
%
|
|
15
|
%
|
Shares in lieu of earned cash bonus - granted and released
|
|
25
|
|
|
43
|
|
|
82
|
|
Shares in respect of discount:
|
|
|
|
|
|
|
Granted
|
|
—
|
|
|
7
|
|
|
12
|
|
Released
|
|
—
|
|
|
5
|
|
|
9
|
|
Shares granted in a particular year, as presented in the table above, represent the shares earned under the prior year's stock bonus program authorization.
Awards under the stock bonus program for the performance period ended January 31, 2017 will consist of shares earned in respect of executive officer incentive plans and will be awarded without a discount, and are expected to be issued during the first half of the year ending January 31, 2018.
In March 2017, our board of directors approved up to
125,000
shares of common stock, and a discount of
15%
, for awards under our stock bonus program for the year ending January 31, 2018. Executive officers will be permitted to participate in this program for the year ending January 31, 2018, but only to the extent that shares remain available for awards following the enrollment of all other participants. Shares awarded to executive officers with respect to the
15%
discount will be subject to a one-year vesting period.
Bonus Share Program
In February 2015, the board of directors authorized an additional program under which we may provide discretionary year-end bonuses to employees in the form of shares of common stock. Unlike the stock bonus program, there is no enrollment for this program and no discount feature. Similar to the accounting for the stock bonus program, obligations for these bonuses are accounted for as liabilities, because the obligations are based predominantly on fixed monetary amounts that are generally known, to be settled with a variable number of shares of common stock.
For bonuses in respect of the year ended January 31, 2015, the board of directors authorized the use of up to approximately
$4.7 million
in shares for bonuses under this program to employees other than executive officers, subject to certain limitations on the aggregate number of shares that may be issued. During the year ended January 31, 2016, approximately
74,000
shares of common stock were awarded and released under the bonus share program in respect of the performance period ended January 31, 2015.
For bonuses in respect of the year ended January 31, 2016, the board of directors approved the use of up to
75,000
shares of common stock, plus any shares not used under the stock bonus program in respect of the year ended January 31, 2016, for awards under this program (not to exceed
200,000
shares in aggregate between the two programs). During the year ended January 31, 2017, approximately
171,000
shares of common stock were awarded and released under the bonus share program in respect of the performance period ended January 31, 2016.
Our board of directors has authorized up to
300,000
shares of common stock for awards under this program in respect of the performance period ended January 31, 2017.
The combined accrued liabilities for the stock bonus program and the bonus share program were
$10.0 million
and
$6.6 million
at January 31, 2017 and 2016, respectively.
Other Benefit Plans
401(k) Plan and Other Retirement Plans
We maintain a 401(k) Plan for our full-time employees in the United States. The plan allows eligible employees who attain the age of
21
beginning with the first of the month following their date of hire to elect to contribute up to
60%
of their annual compensation, subject to the prescribed maximum amount. We match employee contributions at a rate of
50%
, up to a maximum annual matched contribution of
$2,000
per employee.
Employee contributions are always fully vested, while our matching contributions for each year vest on the last day of the calendar year provided the employee remains employed with us on that day.
Our matching contribution expenses for our 401(k) Plan were
$2.6 million
,
$2.2 million
, and
$2.1 million
for the years ended January 31, 2017, 2016, and 2015, respectively.
We provide retirement benefits for non-U.S. employees as required by local laws or to a greater extent as we deem appropriate through plans that function similar to 401(k) plans. Funding requirements for programs required by local laws are determined on an individual country and plan basis and are subject to local country practices and market circumstances.
Severance Pay
We are obligated to make severance payments for the benefit of certain employees of our foreign subsidiaries. Severance payments made to Israeli employees are considered significant compared to all other subsidiaries with severance payment arrangements. Under Israeli law, we are obligated to make severance payments to employees of our Israeli subsidiaries, subject to certain conditions. In most cases, our liability for these severance payments is fully provided for by regular deposits to funds administered by insurance providers and by an accrual for the amount of our liability which has not yet been deposited.
Severance expenses for the years ended January 31, 2017, 2016, and 2015 were
$6.4 million
,
$7.2 million
, and
$6.8 million
, respectively.
14. RELATED PARTY TRANSACTIONS
During the years ended January 31, 2016 and 2015, our joint venture incurred certain operating expenses, including office rent and other administrative costs, under arrangements with one of its then noncontrolling shareholders. These expenses totaled
$0.4 million
and
$0.5 million
for the years ended January 31, 2016 and 2015, respectively. Revenue recognized by our joint venture from this noncontrolling shareholder was
$0.3 million
for the year ended January 31, 2016, and was not significant for the year ended January 31, 2015. The counterparty to these transactions is no longer a noncontrolling shareholder of our joint venture.
15. COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases
We lease office, manufacturing, and warehouse space, as well as certain equipment, under non-cancelable operating lease agreements. We have also periodically entered into capital leases. Terms of the leases, including renewal options and escalation clauses, vary by lease.
Rent expense incurred under all operating leases was
$25.6 million
,
$19.4 million
, and
$17.2 million
for the years ended January 31, 2017, 2016, and 2015, respectively.
As of January 31, 2017, our minimum future rent obligations under non-cancelable operating leases with initial or remaining terms in excess of one year were as follows:
|
|
|
|
|
|
(in thousands)
|
|
Operating
|
Years Ending January 31,
|
|
Leases
|
2018
|
|
$
|
25,447
|
|
2019
|
|
24,138
|
|
2020
|
|
17,865
|
|
2021
|
|
15,460
|
|
2022
|
|
14,335
|
|
Thereafter
|
|
56,945
|
|
Total
|
|
$
|
154,190
|
|
We sublease certain space in our facilities to third parties. As of January 31, 2017, total expected future sublease income was
$0.6 million
and will range from
$0.2 million
to
$0.4 million
on an annual basis through August 2018.
Unconditional Purchase Obligations
In the ordinary course of business, we enter into certain unconditional purchase obligations, which are agreements to purchase goods or services that are enforceable, legally binding, and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on current needs and are typically fulfilled by our vendors within a relatively short time horizon.
As of January 31, 2017, our unconditional purchase obligations totaled approximately
$109.8 million
, the majority of which were scheduled to occur within the subsequent
twelve
months. Due to the relatively short life of the obligations, the carrying value approximates the fair value of these obligations at January 31, 2017.
Warranty Liability
The following table summarizes the activity in our warranty liability, which is included in accrued expenses and other current liabilities in the consolidated balance sheets, for the years ended January 31, 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Warranty liability, beginning of year
|
|
$
|
826
|
|
|
$
|
633
|
|
|
$
|
706
|
|
Provision charged to (credited against) expenses
|
|
797
|
|
|
473
|
|
|
(60
|
)
|
Warranty charges
|
|
(658
|
)
|
|
(278
|
)
|
|
—
|
|
Foreign currency translation and other
|
|
(3
|
)
|
|
(2
|
)
|
|
(13
|
)
|
Warranty liability, end of year
|
|
$
|
962
|
|
|
$
|
826
|
|
|
$
|
633
|
|
We accrue for warranty costs as part of our cost of revenue based on associated product costs, labor costs, and associated overhead. Our Customer Engagement solutions are sold with a warranty of generally
one year
on hardware and
90
days for software. Our Cyber Intelligence solutions are sold with warranties that typically range in duration from
90
days to
three years
, and in some cases longer.
Licenses and Royalties
We license certain technology and pay royalties under such licenses and other agreements entered into in connection with research and development activities.
As discussed in Note 1, "Summary of Significant Accounting Policies", we receive non-refundable grants from the OCS that fund a portion of our research and development expenditures. The Israeli law under which the OCS grants are made limits our ability to manufacture products, or transfer technologies, developed using these grants outside of Israel. If we were to seek approval to manufacture products, or transfer technologies, developed using these grants outside of Israel, we could be subject to additional royalty requirements or be required to pay certain redemption fees. If we were to violate these restrictions, we could be required to refund any grants previously received, together with interest and penalties, and may be subject to criminal penalties.
Off-Balance Sheet Risk
In the normal course of business, we provide certain customers with financial performance guarantees, which are generally backed by standby letters of credit or surety bonds. In general, we would only be liable for the amounts of these guarantees in the event that our nonperformance permits termination of the related contract by our customer, which we believe is remote. At January 31, 2017, we had approximately
$92.6 million
of outstanding letters of credit and surety bonds relating primarily to these performance guarantees. As of January 31, 2017, we believe we were in compliance with our performance obligations under all contracts for which there is a financial performance guarantee, and the ultimate liability, if any, incurred in connection with these guarantees will not have a material adverse effect on our consolidated results of operations, financial position, or cash flows. Our historical non-compliance with our performance obligations has been insignificant.
Indemnifications
In the normal course of business, we provide indemnifications of varying scopes to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.
To the extent permitted under Delaware law or other applicable law, we indemnify our directors, officers, employees, and agents against claims they may become subject to by virtue of serving in such capacities for us. We also have contractual indemnification agreements with our directors, officers, and certain senior executives. The maximum amount of future payments we could be required to make under these indemnification arrangements and agreements is potentially unlimited; however, we have insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We are not able to estimate the fair value of these indemnification arrangements and agreements in excess of applicable insurance coverage, if any.
Legal Proceedings
On March 26, 2009, legal actions were commenced by Ms. Orit Deutsch, a former employee of our subsidiary, Verint Systems Limited ("VSL"), against VSL in the Tel Aviv Regional Labor Court (Case Number 4186/09) (the “Deutsch Labor Action”) and against CTI in the Tel Aviv District Court (Case Number 1335/09) (the “Deutsch District Action”). In the Deutsch Labor Action, Ms. Deutsch filed a motion to approve a class action lawsuit on the grounds that she purports to represent a class of our employees and former employees who were granted Verint and CTI stock options and were allegedly damaged as a result of the suspension of option exercises during the period from March 2006 through March 2010, during which we did not make periodic filings with the SEC as a result of certain internal and external investigations and reviews of accounting matters discussed in our prior public filings. In the Deutsch District Action, in addition to a small amount of individual damages, Ms. Deutsch is seeking to certify a class of plaintiffs who were allegedly damaged due to their inability to exercise Verint and CTI stock options as a result of alleged negligence by CTI in its financial reporting. The class certification motions do not specify an amount of damages. On February 8, 2010, the Deutsch Labor Action was dismissed for lack of material jurisdiction and was transferred to the Tel Aviv District Court and consolidated with the Deutsch District Action. On March 16, 2009 and March 26, 2009, respectively, legal actions were commenced by Ms. Roni Katriel, a former employee of CTI's former subsidiary, Comverse Limited, against Comverse Limited in the Tel Aviv Regional Labor Court (Case Number 3444/09) (the “Katriel Labor Action”) and against CTI in the Tel Aviv District Court (Case Number 1334/09) (the “Katriel District Action”). In the Katriel Labor Action, Ms. Katriel is seeking to certify a class of plaintiffs who were granted CTI stock options and were allegedly damaged as a result of the suspension of option exercises during an extended filing delay period affecting CTI's periodic reporting discussed in CTI's historical SEC filings. In the Katriel District Action, in addition to a small amount of individual damages, Ms. Katriel is seeking to certify a class of plaintiffs who were allegedly damaged due to their inability to exercise CTI stock options as a result of alleged negligence by CTI in its financial reporting. The class certification motions do not specify an amount of damages. On March 2, 2010, the Katriel Labor Action was transferred to the Tel Aviv District Court, based on an agreed motion filed by the parties requesting such transfer.
On April 4, 2012, Ms. Deutsch and Ms. Katriel filed an uncontested motion to consolidate and amend their claims and on June 7, 2012, the District Court allowed Ms. Deutsch and Ms. Katriel to file the consolidated class certification motion and an amended consolidated complaint against VSL, CTI, and Comverse Limited. Following CTI's announcement of its intention to effect the Comverse Share Distribution, on July 12, 2012, the plaintiffs filed a motion requesting that the District Court order CTI to set aside up to
$150.0
million in assets to secure any future judgment. The District Court ruled that it would not decide this motion until the Deutsch and Katriel class certification motion was heard. Plaintiffs initially filed a motion to appeal this ruling in August 2012, but subsequently withdrew it in July 2014.
Prior to the consummation of the Comverse Share Distribution, CTI either sold or transferred substantially all of its business operations and assets (other than its equity ownership interests in us and Comverse) to Comverse or unaffiliated third parties. On October 31, 2012, CTI completed the Comverse Share Distribution, in which it distributed all of the outstanding shares of common stock of Comverse to CTI's shareholders. As a result of the Comverse Share Distribution, Comverse became an independent public company and ceased to be a wholly owned subsidiary of CTI, and CTI ceased to have any material assets other than its equity interest in us. On September 9, 2015, Comverse changed its name to Xura, Inc.
On February 4, 2013, we completed the CTI Merger. As a result of the CTI Merger, we have assumed certain rights and liabilities of CTI, including any liability of CTI arising out of the Deutsch District Action and the Katriel District Action. However, under the terms of the Distribution Agreement between CTI and Comverse relating to the Comverse Share Distribution, we, as successor to CTI, are entitled to indemnification from Comverse (now Xura) for any losses we suffer in our capacity as successor-in-interest to CTI in connection with the Deutsch District Action and the Katriel District Action.
Following an unsuccessful mediation process, the proceeding before the District Court resumed. On August 28, 2016, the District Court (i) denied the plaintiffs' motion to certify the suit as a class action with respect to all claims relating to Verint stock options and (ii) approved the plaintiffs' motion to certify the suit as a class action with respect to claims of current or former employees of Comverse Limited (now Xura) or VSL who held unexercised CTI stock options at the time CTI suspended option exercises. The court also ruled that the merits of the case and any calculation of damages would be evaluated under New York law.
On December 15, 2016, CTI filed with the Supreme Court a motion for leave to appeal the District Court's August 28, 2016 ruling. The plaintiffs filed their response to the motion on February 26, 2017. The plaintiffs did not file an appeal of the District Court's August 28, 2016 ruling.
On December 13, 2016, the plaintiffs filed a notice with the District Court regarding the appointment of a new representative plaintiff, David Vaknin, for the current or former employees of VSL who held unexercised CTI stock options at the time CTI suspended option exercises. The plaintiffs must now file an amended statement of claims by May 1, 2017.
From time to time we or our subsidiaries may be involved in legal proceedings and/or litigation arising in the ordinary course of our business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any current claims will have a material effect on our consolidated financial position, results of operations, or cash flows.
16. SEGMENT, GEOGRAPHIC, AND SIGNIFICANT CUSTOMER INFORMATION
Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the enterprise’s chief operating decision maker ("CODM"), or decision making group, in deciding how to allocate resources and in assessing performance. Our Chief Executive Officer is our CODM.
Through July 31, 2016, we were organized and had reported our operating results in
three
operating segments: Enterprise Intelligence, Video Intelligence, and Cyber Intelligence. In August 2016, we reorganized into
two
businesses and, now report our results in two operating segments, Customer Engagement Solutions ("Customer Engagement") and Cyber Intelligence Solutions ("Cyber Intelligence"). Comparative segment financial information provided for prior periods has been recast to conform to this revised segment structure.
Over time, our Video Intelligence business had evolved to focus on two use cases: the first is fraud mitigation and loss prevention, and the second is situational intelligence and incident response. The fraud and loss prevention use case is applicable to our banking and retail customers, while the situational intelligence and incident response use case is applicable to other vertical markets, including our public sector and campus customers. As part of this evolution, in August 2016, we separated our Video Intelligence team to create better vertical market alignment and growth opportunities. We transitioned the banking and retail portion of the Video Intelligence team into our Enterprise Intelligence segment, aligning it with our large banking and retail customer presence in our Enterprise Intelligence segment. This combined segment has been named Customer Engagement Solutions. We transitioned the situational intelligence portion of the Video Intelligence team into our Cyber Intelligence segment, reflecting this business’s focus on security and public safety. We believe this change creates two strong businesses of scale, well positioned for growth in their respective markets, with dedicated management teams, unique product portfolios, and domain expertise, and aligns with the manner in which our CODM receives and uses financial information to allocate resources and evaluate the performance of our Customer Engagement and Cyber Intelligence businesses.
We measure the performance of our operating segments based upon operating segment revenue and operating segment contribution. Operating segment contribution includes segment revenue and expenses incurred directly by the segment, including material costs, service costs, research and development and selling, marketing, and administrative expenses. We do not allocate certain expenses, which include the majority of general and administrative expenses, facilities and communication expenses, purchasing expenses, manufacturing support and logistic expenses, depreciation and amortization, amortization of capitalized software development costs, stock-based compensation, and special charges such as restructuring costs when calculating operating segment contribution. These expenses are included in the unallocated expenses section of the table presented below. Revenue from transactions between our operating segments is not material.
Operating results by segment for the years ended
January 31, 2017
,
2016
, and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Revenue:
|
|
|
|
|
|
|
|
|
Customer Engagement:
|
|
|
|
|
|
|
|
|
Segment revenue
|
|
$
|
716,163
|
|
|
$
|
698,298
|
|
|
$
|
742,537
|
|
Revenue adjustments
|
|
(10,266
|
)
|
|
(3,441
|
)
|
|
(29,032
|
)
|
|
|
705,897
|
|
|
694,857
|
|
|
713,505
|
|
Cyber Intelligence:
|
|
|
|
|
|
|
|
|
Segment revenue
|
|
356,533
|
|
|
436,343
|
|
|
415,626
|
|
Revenue adjustments
|
|
(324
|
)
|
|
(934
|
)
|
|
(695
|
)
|
|
|
356,209
|
|
|
435,409
|
|
|
414,931
|
|
Total revenue
|
|
$
|
1,062,106
|
|
|
$
|
1,130,266
|
|
|
$
|
1,128,436
|
|
|
|
|
|
|
|
|
Segment contribution:
|
|
|
|
|
|
|
|
|
Customer Engagement
|
|
$
|
269,017
|
|
|
$
|
264,378
|
|
|
$
|
286,587
|
|
Cyber Intelligence
|
|
85,777
|
|
|
133,186
|
|
|
133,203
|
|
Total segment contribution
|
|
354,794
|
|
|
397,564
|
|
|
419,790
|
|
|
|
|
|
|
|
|
Unallocated expenses, net:
|
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets
|
|
81,461
|
|
|
78,904
|
|
|
76,167
|
|
Stock-based compensation
|
|
65,608
|
|
|
64,549
|
|
|
54,458
|
|
Other unallocated expenses
|
|
190,359
|
|
|
186,259
|
|
|
210,054
|
|
Total unallocated expenses, net
|
|
337,428
|
|
|
329,712
|
|
|
340,679
|
|
Operating income
|
|
17,366
|
|
|
67,852
|
|
|
79,111
|
|
Other expense, net
|
|
(40,840
|
)
|
|
(44,672
|
)
|
|
(57,708
|
)
|
(Loss) income before provision (benefit) for income taxes
|
|
$
|
(23,474
|
)
|
|
$
|
23,180
|
|
|
$
|
21,403
|
|
Revenue adjustments represent revenue of acquired companies which is included within segment revenue reviewed by the CODM, but not recognizable within GAAP revenue. These adjustments primarily relate to the acquisition-date excess of the historical carrying value over the fair value of acquired companies’ future maintenance and service performance obligations. As the obligations are satisfied, we report our segment revenue using the historical carrying values of these obligations, which we believe better reflects our ongoing maintenance and service revenue streams, whereas GAAP revenue is reported using the obligations’ acquisition-date fair values.
With the exception of goodwill and acquired intangible assets, we do not identify or allocate our assets by operating segment. Consequently, it is not practical to present assets by operating segment. In connection with our August 2016 change in segmentation, we reallocated goodwill previously assigned to the Video Intelligence operating segment to the Customer Engagement and Cyber Intelligence operating segments. There were no other material changes in the allocations of goodwill and acquired intangible assets by operating segment during the years ended
January 31, 2017
,
2016
, and
2015
. Further details regarding the allocations of goodwill and acquired intangible assets by operating segment appear in Note 5, "Intangible Assets and Goodwill".
Geographic Information
Revenue by major geographic region is based upon the geographic location of the customers who purchase our products and services. The geographic locations of distributors, resellers, and systems integrators who purchase and resell our products may be different from the geographic locations of end customers.
Revenue in the Americas includes the United States, Canada, Mexico, Brazil, and other countries in the Americas. Revenue in EMEA includes the United Kingdom, Germany, Israel, and other countries in EMEA. Revenue in the Asia-Pacific ("APAC") region includes Australia, India, Singapore, and other Asia-Pacific countries.
The information below summarizes revenue from unaffiliated customers by geographic area for the years ended
January 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Americas:
|
|
|
|
|
|
|
United States
|
|
$
|
438,034
|
|
|
$
|
430,626
|
|
|
$
|
430,565
|
|
Other
|
|
134,111
|
|
|
150,435
|
|
|
157,992
|
|
Total Americas
|
|
572,145
|
|
|
581,061
|
|
|
588,557
|
|
EMEA
|
|
322,130
|
|
|
350,217
|
|
|
347,056
|
|
APAC
|
|
167,831
|
|
|
198,988
|
|
|
192,823
|
|
Total revenue
|
|
$
|
1,062,106
|
|
|
$
|
1,130,266
|
|
|
$
|
1,128,436
|
|
Our long-lived assets primarily consist of net property and equipment, goodwill and other intangible assets, capitalized software development costs, deferred cost of revenue, and deferred income taxes. We believe that our tangible long-lived assets, which consist of our net property and equipment, are exposed to greater geographic area risks and uncertainties than intangible assets and long-term cost deferrals, because these tangible assets are difficult to move and are relatively illiquid.
Property and equipment, net by geographic area consisted of the following as of
January 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
(in thousands)
|
|
2017
|
|
2016
|
United States
|
|
$
|
37,751
|
|
|
$
|
28,572
|
|
Israel
|
|
25,421
|
|
|
25,350
|
|
Other countries
|
|
14,379
|
|
|
14,982
|
|
Total property and equipment, net
|
|
$
|
77,551
|
|
|
$
|
68,904
|
|
Significant Customers
No single customer accounted for more than 10% of our revenue during the years ended January 31, 2017, 2016 and 2015.
17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized condensed quarterly financial information for the years ended January 31, 2017 and 2016 appears in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
January 31,
|
(in thousands, except per share data)
|
|
2016
|
|
2016
|
|
2016
|
|
2017
|
Revenue
|
|
$
|
245,424
|
|
|
$
|
261,921
|
|
|
$
|
258,902
|
|
|
$
|
295,859
|
|
Gross profit
|
|
$
|
144,730
|
|
|
$
|
159,460
|
|
|
$
|
155,696
|
|
|
$
|
179,591
|
|
(Loss) income before (benefit) provision for income taxes
|
|
$
|
(15,863
|
)
|
|
$
|
(10,020
|
)
|
|
$
|
(4,075
|
)
|
|
$
|
6,484
|
|
Net (loss) income
|
|
$
|
(16,193
|
)
|
|
$
|
(11,078
|
)
|
|
$
|
(7,434
|
)
|
|
$
|
8,459
|
|
Net (loss) income attributable to Verint Systems Inc.
|
|
$
|
(17,456
|
)
|
|
$
|
(11,705
|
)
|
|
$
|
(8,237
|
)
|
|
$
|
8,018
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share attributable to Verint Systems Inc.
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.28
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
(0.28
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
January 31,
|
(in thousands, except per share data)
|
|
2015
|
|
2015
|
|
2015
|
|
2016
|
Revenue
|
|
$
|
269,536
|
|
|
$
|
295,882
|
|
|
$
|
284,054
|
|
|
$
|
280,794
|
|
Gross profit
|
|
$
|
166,363
|
|
|
$
|
177,344
|
|
|
$
|
178,537
|
|
|
$
|
179,116
|
|
Income (loss) before (benefit) provision for income taxes
|
|
$
|
1,678
|
|
|
$
|
(3,139
|
)
|
|
$
|
10,021
|
|
|
$
|
14,620
|
|
Net income (loss)
|
|
$
|
731
|
|
|
$
|
(5,760
|
)
|
|
$
|
8,470
|
|
|
$
|
18,787
|
|
Net (loss) income attributable to Verint Systems Inc.
|
|
$
|
(416
|
)
|
|
$
|
(7,085
|
)
|
|
$
|
7,634
|
|
|
$
|
17,505
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share attributable to Verint Systems Inc.
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.12
|
|
|
$
|
0.28
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.12
|
|
|
$
|
0.28
|
|
Net (loss) income per common share attributable to Verint Systems Inc. is computed independently for each quarterly period and for the year. Therefore, the sum of quarterly net (loss) income per common share amounts may not equal the amounts reported for the years.
Quarterly operating results for the years ended January 31, 2017 and 2016 did not include any material unusual or infrequently occurring items.
As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. In most years, our revenue and operating income are typically highest in the fourth quarter and lowest in the first quarter (prior to the impact of unusual or nonrecurring items). Moreover, revenue and operating income in the first quarter of a new year may be lower than in the fourth quarter of the preceding year, in some years, potentially by a significant margin. In addition, we generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that month. We believe that these seasonal and cyclical factors primarily reflects customer spending patterns and budget cycles, as well as the impact of compensation incentive plans for our sales personnel. While seasonal and cyclical factors such as these are common in the software and technology industry, this pattern should not be considered a reliable indicator of our future revenue or financial performance. Many other factors, including general economic conditions, also have an impact on our business and financial results. See "Risk Factors" under Item 1A of this report for a more detailed discussion of factors which may affect our business and financial results.