STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS

Stock-Based Compensation Plans

Plan Summaries

We issue stock-based incentive awards to eligible employees, directors and consultants, including restricted stock units (“RSUs”), performance stock units (“PSUs”), stock options (both incentive and non-qualified), and other awards, under the terms of our outstanding stock benefit plans (the “Plans” or “Stock Plans”) and/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.

Amended and Restated Stock-Based Compensation Plan

On June 22, 2017, our stockholders approved the Verint Systems Inc. Amended and Restated 2015 Long-Term Stock Incentive Plan (the “2017 Amended Plan”), which amended and restated the Verint Systems Inc. 2015 Long-Term Stock Incentive Plan (the “2015 Plan”). As with the 2015 Plan, the 2017 Amended Plan authorizes our board of directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, other stock-based awards, and performance compensation awards.

The 2017 Amended Plan amends and restates the 2015 Plan to, among other things, increase the number of shares available for issuance under the 2017 Amended Plan. Subject to adjustment as provided in the 2017 Amended Plan, up to an aggregate of (i) 7,975,000 shares of our common stock (on an option-equivalent basis), plus (ii) the number of shares of our common stock available for issuance under the 2015 Plan as of June 22, 2017, plus (iii) the number of shares of our common stock that become available for issuance as a result of awards made under the 2015 Plan or the 2017 Amended Plan that are forfeited, cancelled, exchanged, withheld or surrendered or terminate or expire, may be issued or transferred in connection with awards under the 2017 Amended Plan. Each stock option or stock-settled stock appreciation right granted under the 2017 Amended Plan will reduce the available plan capacity by one share and each other award will reduce the available plan capacity by 2.47 shares.

The 2017 Amended Plan expires on June 22, 2027.

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, 2018, 2017, and 2016:



	Year Ended January 31,
(in thousands)	2018		2017		2016
Component of (loss) income before provision (benefit) for income taxes:
Cost of revenue - product	$	1,561	$	1,290	$	1,466
Cost of revenue - service and support	6,904		7,297		5,719
Research and development, net	13,144		11,637		9,195
Selling, general and administrative	47,757		45,384		48,169
Total stock-based compensation expense	69,366		65,608		64,549
Income tax benefits related to stock-based compensation (before consideration of valuation allowances)	16,504		15,752		14,385
Total stock-based compensation, net of taxes	$	52,862	$	49,856	$	50,164

Total stock-based compensation expense by type of award was as follows for the years ended January 31, 2018, 2017, and 2016:



	Year Ended January 31,
(in thousands)	2018		2017		2016
Restricted stock units and restricted stock awards	$	57,188	$	55,123	$	58,028
Stock bonus program and bonus share program	12,108		10,298		6,359
Total equity-settled awards	69,296		65,421		64,387
Phantom stock units (cash-settled awards)	70		187		162
Total stock-based compensation expense	$	69,366	$	65,608	$	64,549

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.

Effective with our adoption of ASU No. 2016-09 effective February 1, 2017, we recorded $0.5 million of net excess tax deficiencies resulting from our Stock Plans as a component of income tax expense for the year ended January 31, 2018. Net excess tax deficiencies of $0.7 million and net excess tax benefits of $0.5 million resulting from our Stock Plans were recorded as a decrease or increase to additional paid-in capital for the years ended January 31, 2017 and 2016, respectively.

Restricted Stock Units and Performance Stock Units

We periodically award RSUs to our directors, officers, and other employees. The fair value of these awards is equivalent to the market value of our common stock on the grant date. RSUs are not shares of our common stock and do not have any of the rights or privileges thereof, including voting or dividend rights. On the applicable vesting date, the holder of an RSU becomes entitled to a share of our common stock. RSUs are subject to certain restrictions and forfeiture provisions prior to vesting.

We periodically award PSUs to executive officers and certain employees that vest upon the achievement of specified performance goals or market conditions. We separately recognize compensation expense for each tranche of a PSU award as if it were a separate award with its own vesting date. For certain PSUs, an accounting grant date may be established prior to the requisite service period.

Once a performance vesting condition has been defined and communicated, and the requisite service period has begun, our estimate of the fair value of PSUs requires an assessment of the probability that the specified performance criteria will be achieved, which we update at each reporting date and adjust our estimate of the fair value of the PSUs, if necessary. All compensation expense for PSUs with market conditions is recognized if the requisite service period is fulfilled, even if the market condition is not satisfied.

RSUs and PSUs that are expected to settle with cash payments upon vesting, if any, are reflected as liabilities on our consolidated balance sheets. Such RSUs and PSUs were insignificant at January 31, 2018 and 2017.

The following table (“Award Activity Table”) summarizes activity for RSUs, PSUs, and other stock awards that reduce available Plan capacity under the Plans for the years ended January 31, 2018, 2017, and 2016:



	Year Ended January 31,
	2018				2017				2016
(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	2,742		$	45.20	2,649		$	54.57	2,545		$	40.96
Granted	1,804		$	40.19	1,870		$	35.33	1,729		$	62.62
Released	(1,403	)	$	45.96	(1,433	)	$	47.98	(1,312	)	$	39.75
Forfeited	(335	)	$	48.92	(344	)	$	52.20	(313	)	$	50.56
Ending balance	2,808		$	41.18	2,742		$	45.20	2,649		$	54.57

With respect to our stock bonus program, activity presented in the table above only includes shares earned and released in consideration of the discount provided under that program. Consistent with the provisions of the Plans under which such shares are issued, other shares issued under the stock bonus program are not included in the table above because they do not reduce available plan capacity (since such shares are deemed to be purchased by the grantee at fair value in lieu of receiving an earned cash bonus). Activity presented in the table above includes all shares awarded and released under the bonus share program. Further details appear below under “Stock Bonus Program” and “Bonus Share Program”.

The following table summarizes PSU activity in isolation under the Plans for the years ended January 31, 2018, 2017, and 2016 (these amounts are already included in the Award Activity Table above):



	Year Ended January 31,
(in thousands)	2018		2017		2016
Beginning balance	438		332		497
Granted	204		312		195
Released	(50	)	(159	)	(239	)
Forfeited	(86	)	(47	)	(121	)
Ending balance	506		438		332

Excluding PSUs, we granted 1,600,000 RSUs during the year ended January 31, 2018.

As of January 31, 2018, unrecognized compensation expense related to unvested RSUs and PSUs expected to vest subsequent to January 31, 2018 was approximately $63.6 million, with remaining weighted-average vesting periods of approximately 1.6 years, over which such expense is expected to be recognized. The unrecognized compensation expense does not include compensation expense of up to $1.1 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 and PSUs vested during the years ended January 31, 2018, 2017, and 2016 were $64.5 million, $68.7 million, and $52.2 million, respectively.

Stock Options

We did not grant stock options during the years ended January 31, 2018, 2017, and 2016, and activity from stock options awarded in prior periods was not material during these years.

Phantom Stock Units

We have periodically issued phantom stock units to certain employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting.

Phantom stock unit activity for the years ended January 31, 2018, 2017, and 2016 was not significant.

Stock Bonus Program

Our stock bonus program permits eligible employees to receive a portion of their earned bonuses, otherwise payable in cash, in the form of discounted shares of our common stock. Executive officers are eligible to participate in this program to the extent that shares 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.

The following table summarizes activity under the stock bonus program for the years ended January 31, 2018, 2017, and 2016 in isolation. As noted above, shares issued in respect of the discount feature under the program reduce available plan capacity and are included in the Award Activity Table above. Other shares issued under the program do not reduce available plan capacity and are therefore excluded from the Award Activity Table above.



	Year Ended January 31,
(in thousands)	2018	2017	2016
Shares in lieu of earned cash bonus - granted and released	21	25	43
Shares in respect of discount:
Granted	—	—	7
Released	—	—	5

Awards under the stock bonus program for the performance period ended January 31, 2018 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, 2019.

In March 2018, 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, 2019. Executive officers will be permitted to participate in this program for the year ending January 31, 2019, 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

Under our bonus share program, we may provide discretionary year-end bonuses to employees or pay earned bonuses that are outside the stock bonus program in the form of shares of common stock. Unlike the stock bonus program, there is no enrollment for this program and no discount feature. Similar to the accounting for the stock bonus program, obligations for these bonuses are accounted for as liabilities, because the obligations are based predominantly on fixed monetary amounts that are generally known, to be settled with a variable number of shares of common stock.

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.

During the year ended January 31, 2018, approximately 293,000 shares of common stock were awarded and released under the bonus share program in respect of the performance period ended January 31, 2017.

For bonuses in respect of the year ended January 31, 2018, our board of directors has approved the use of up to 300,000 shares of common stock under this program, reduced by any shares used under the stock bonus program in respect of the performance period ended January 31, 2018.

For bonuses in respect of the year ending January 31, 2019, our board of directors has approved the use of up to 300,000 shares of common stock under this program, reduced by any shares used under the stock bonus program in respect of the performance period ending January 31, 2019.

The combined accrued liabilities for the stock bonus program and the bonus share program were $9.2 million and $10.0 million at January 31, 2018 and 2017, 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 $2.5 million, $2.6 million, and $2.2 million for the years ended January 31, 2018, 2017, and 2016, 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, 2018, 2017, and 2016 were $7.1 million, $6.4 million, and $7.2 million, respectively.