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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                                to                                     .
 
Commission File No. 001-34807

vrnt-20200430_g1.jpg
Verint Systems Inc
(Exact Name of Registrant as Specified in its Charter) 
Delaware 11-3200514
(State or Other Jurisdiction of Incorporation or
Organization)
 (I.R.S. Employer Identification No.)
175 Broadhollow Road 
Melville,New York11747
(Address of Principal Executive Offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Common Stock, $.001 par value per shareVRNT(NASDAQ Global Select Market)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes
No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No ☑
 
There were 64,525,660 shares of the registrant’s common stock outstanding on May 15, 2020.




Verint Systems Inc. and Subsidiaries
Index to Form 10-Q
As of and For the Period Ended April 30, 2020
Page
 
  
 
 
 
 
 
 
  
  
  
 
 
i

Cautionary Note on Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include financial projections, statements of plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto. Forward-looking statements may appear throughout this report, including without limitation, Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are often identified by future or conditional words such as “will”, “plans”, “expects”, “intends”, “believes”, “seeks”, “estimates”, or “anticipates”, or by variations of such words or by similar expressions. There can be no assurance that forward-looking statements will be achieved. By their very nature, forward-looking statements involve known and unknown risks, uncertainties, assumptions, and other important factors that could cause our actual results or conditions to differ materially from those expressed or implied by such forward-looking statements. Important risks, uncertainties, assumptions, and other factors that could cause our actual results or conditions to differ materially from our forward-looking statements include, among others:
 
uncertainties regarding the impact of changes in macroeconomic and/or global conditions, including as a result of slowdowns, recessions, economic instability, political unrest, armed conflicts, natural disasters, or outbreaks of disease, such as the COVID-19 pandemic, as well as the resulting impact on information technology spending and government budgets, on our business;
risks that our customers delay, cancel, or refrain from placing orders, refrain from renewing subscriptions or service contracts, or are unable to honor contractual commitments or payment obligations due to liquidity issues or other challenges in their business, due to the COVID-19 pandemic or otherwise;
risks that continuing restrictions resulting from the COVID-19 pandemic or actions taken in response to the pandemic adversely impact our operations or our ability to fulfill orders, complete implementations, or recognize revenue;
risks associated with our ability to keep pace with technological advances and challenges and evolving industry standards; to adapt to changing market potential from area to area within our markets; and to successfully develop, launch, and drive demand for new, innovative, high-quality products that meet or exceed customer needs, while simultaneously preserving our legacy businesses and migrating away from areas of commoditization;
risks due to aggressive competition in all of our markets, including with respect to maintaining revenue, margins, and sufficient levels of investment in our business and operations;
risks created by the continued consolidation of our competitors or the introduction of large competitors in our markets with greater resources than we have;
risks associated with our ability to successfully compete for, consummate, and implement mergers and acquisitions, including risks associated with valuations, reputational considerations, capital constraints, costs and expenses, maintaining profitability levels, expansion into new areas, management distraction, post-acquisition integration activities, and potential asset impairments;
risks relating to our ability to properly manage investments in our business and operations, execute on growth initiatives, and enhance our existing operations and infrastructure, including the proper prioritization and allocation of limited financial and other resources;
risks associated with our ability to retain, recruit, and train qualified personnel in regions in which we operate, including in new markets and growth areas we may enter;
risks that we may be unable to establish and maintain relationships with key resellers, partners, and systems integrators and risks associated with our reliance on third-party suppliers, partners, or original equipment manufacturers (“OEMs”) for certain components, products, or services, including companies that may compete with us or work with our competitors;
risks associated with the mishandling or perceived mishandling of sensitive or confidential information, including information that may belong to our customers or other third parties, and with security vulnerabilities or lapses, including cyber-attacks, information technology system breaches, failures, or disruptions;
ii

risks that our products or services, or those of third-party suppliers, partners, or OEMs which we use in or with our offerings or otherwise rely on, including third-party hosting platforms, may contain defects, develop operational problems, or be vulnerable to cyber-attacks;
risks associated with our significant international operations, including, among others, in Israel, Europe, and Asia, exposure to regions subject to political or economic instability, fluctuations in foreign exchange rates, and challenges associated with a significant portion of our cash being held overseas;
risks associated with political factors related to our business or operations, including reputational risks associated with our security solutions and our ability to maintain security clearances where required, as well as risks associated with a significant amount of our business coming from domestic and foreign government customers;
risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we operate, including, among others, with respect to trade compliance, anti-corruption, information security, data privacy and protection, tax, labor, government contracts, relating to our own operations as well as to the use of our solutions by our customers;
challenges associated with selling sophisticated solutions, including with respect to assisting customers in understanding and realizing the benefits of our solutions, and developing, offering, implementing, and maintaining a broad and sophisticated solution portfolio;
challenges associated with pursuing larger sales opportunities, including with respect to longer sales cycles, transaction reductions, deferrals, or cancellations during the sales cycle; risk of customer concentration; challenges associated with our ability to accurately forecast when a sales opportunity will convert to an order, or to accurately forecast revenue and expenses;
challenges associated with our Customer Engagement segment cloud transition and our Cyber Intelligence segment software model transition, and risk of increased volatility of our operating results from period to period;
risks that our intellectual property rights may not be adequate to protect our business or assets or that others may make claims on our intellectual property, claim infringement on their intellectual property rights, or claim a violation of their license rights, including relative to free or open source components we may use;
risks that we may experience liquidity or working capital issues and related risks that financing sources may be unavailable to us on reasonable terms or at all;
risks associated with significant leverage resulting from our current debt position or our ability to incur additional debt, including with respect to liquidity considerations, covenant limitations and compliance, fluctuations in interest rates, dilution considerations (with respect to our convertible notes), and our ability to maintain our credit ratings;
risks arising as a result of contingent or other obligations or liabilities assumed in our acquisition of our former parent company, Comverse Technology, Inc. (“CTI”), or associated with formerly being consolidated with, and part of a consolidated tax group with, CTI, or as a result of the successor to CTI’s business operations, Mavenir Inc. (“Mavenir”), being unwilling or unable to provide us with certain indemnities to which we are entitled;
risks relating to the adequacy of our existing infrastructure, systems, processes, policies, procedures, internal controls, and personnel, and our ability to successfully implement and maintain enhancements to the foregoing, for our current and future operations and reporting needs, including related risks of financial statement omissions, misstatements, restatements, or filing delays;
risks associated with changing accounting principles or standards, tax laws and regulations, tax rates, and the continuing availability of expected tax benefits;
risks associated with market volatility in the prices of our common stock and convertible notes based on our performance, third-party publications or speculation, or other factors and risks associated with actions of activist stockholders;
risks associated with the issuance of preferred stock to an affiliate of Apax Partners, including with respect to completion of the second tranche of the investment and Apax's significant ownership position and potential that its interests will not be aligned with those of our common stockholders; and
iii

risks associated with the planned spin-off of our Cyber Intelligence Solutions business, including the possibility that the spin-off transaction may not be completed in the expected timeframe or at all, that it does not achieve the benefits anticipated, or that it negatively impacts our operations or stock price, including as a result of management distraction from our business.
These risks, uncertainties, assumptions, and challenges, as well as other factors, are discussed in greater detail in “Risk Factors” under Item 1A of our Annual Report on Form 10-K for the year ended January 31, 2020. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this report. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required under the federal securities laws. If we were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that we would make additional updates or corrections thereafter except as otherwise required under the federal securities laws.

iv

Part I

Item 1.   Financial Statements





1

VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
April 30,January 31,
(in thousands, except share and per share data)20202020
Assets  
Current Assets:  
Cash and cash equivalents$556,671  $379,146  
Restricted cash and cash equivalents, and restricted bank time deposits46,451  43,860  
Short-term investments19,741  20,215  
Accounts receivable, net of allowance for doubtful accounts of $6.3 million and $5.3 million, respectively
308,304  382,435  
Contract assets, net62,249  64,961  
Inventories25,030  20,495  
Prepaid expenses and other current assets92,168  87,946  
  Total current assets1,110,614  999,058  
Property and equipment, net115,481  116,111  
Operating lease right-of-use assets97,878  102,149  
Goodwill1,452,434  1,469,211  
Intangible assets, net182,503  197,764  
Other assets135,798  131,765  
  Total assets$3,094,708  $3,016,058  
Liabilities and Stockholders' Equity  
Current Liabilities:  
Accounts payable$70,987  $71,604  
Accrued expenses and other current liabilities228,256  233,948  
Contract liabilities378,548  397,350  
  Total current liabilities677,791  702,902  
Long-term debt990,390  832,798  
Long-term contract liabilities40,566  40,565  
Operating lease liabilities87,340  90,372  
Other liabilities105,715  106,984  
  Total liabilities1,901,802  1,773,621  
Commitments and Contingencies
Stockholders' Equity:  
Preferred stock - $0.001 par value; authorized 2,207,000 shares at April 30, 2020 and January 31, 2020, respectively; none issued.
    
Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 68,930,000 and 68,529,000 shares; outstanding 64,526,000 and 64,738,000 shares at April 30, 2020 and January 31, 2020, respectively.
69  68  
Additional paid-in capital1,677,775  1,660,889  
Treasury stock, at cost - 4,404,000 and 3,791,000 shares at April 30, 2020 and January 31, 2020, respectively.
(208,124) (174,134) 
Accumulated deficit(112,544) (105,590) 
Accumulated other comprehensive loss(178,774) (151,865) 
Total Verint Systems Inc. stockholders' equity1,178,402  1,229,368  
Noncontrolling interests14,504  13,069  
  Total stockholders' equity1,192,906  1,242,437  
  Total liabilities and stockholders' equity$3,094,708  $3,016,058  

See notes to condensed consolidated financial statements.
2

VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended
April 30,
(in thousands, except per share data)20202019
Revenue:  
Product$77,284  $104,224  
Service and support210,011  211,035  
  Total revenue287,295  315,259  
Cost of revenue:  
Product21,318  28,120  
Service and support76,399  79,361  
Amortization of acquired technology4,609  6,707  
  Total cost of revenue102,326  114,188  
Gross profit184,969  201,071  
Operating expenses:  
Research and development, net59,079  57,169  
Selling, general and administrative111,651  121,721  
Amortization of other acquired intangible assets8,065  7,713  
  Total operating expenses178,795  186,603  
Operating income6,174  14,468  
Other income (expense), net:  
Interest income1,017  1,426  
Interest expense(10,698) (9,934) 
Other expense, net(2,230) (790) 
  Total other expense, net(11,911) (9,298) 
(Loss) income before (benefit) provision for income taxes(5,737) 5,170  
(Benefit) provision for income taxes(1,762) 1,409  
Net (loss) income(3,975) 3,761  
Net income attributable to noncontrolling interests2,039  2,185  
Net (loss) income attributable to Verint Systems Inc.$(6,014) $1,576  
Net (loss) income per common share attributable to Verint Systems Inc.:  
Basic$(0.09) $0.02  
Diluted$(0.09) $0.02  
Weighted-average common shares outstanding:  
Basic64,376  65,438  
Diluted64,376  67,088  
 
See notes to condensed consolidated financial statements.




3

VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited) 
 Three Months Ended
April 30,
(in thousands)20202019
Net (loss) income$(3,975) $3,761  
Other comprehensive loss, net of reclassification adjustments:  
Foreign currency translation adjustments(20,999) (3,962) 
Net (decrease) increase from foreign exchange contracts designated as hedges(873) 1,281  
Net decrease from interest rate swap designated as a hedge(6,944) (2,017) 
Benefit from income taxes on net increase (decrease) from foreign exchange contracts and interest rate swap designated as hedges1,548  294  
Other comprehensive loss(27,268) (4,404) 
Comprehensive loss(31,243) (643) 
Comprehensive income attributable to noncontrolling interests1,680  2,079  
Comprehensive loss attributable to Verint Systems Inc.$(32,923) $(2,722) 
 
See notes to condensed consolidated financial statements.
4


VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

 Verint Systems Inc. Stockholders’ Equity  
 Common StockAdditional Paid-in Capital  
Accumulated Other Comprehensive Loss
Total Verint Systems Inc. Stockholders’ Equity Total Stockholders’ Equity
(in thousands) SharesPar
Value
Treasury
Stock
Accumulated
Deficit
Non-controlling
Interests
Balances as of January 31, 201965,333  $67  $1,586,266  $(57,598) $(134,274) $(145,225) $1,249,236  $11,568  $1,260,804  
Net income  —        1,576    1,576  2,185  3,761  
Other comprehensive loss  —          (4,298) (4,298) (106) (4,404) 
Stock-based compensation - equity-classified awards  —    14,890        14,890    14,890  
Common stock issued for stock awards and stock bonuses  448                  
Treasury stock acquired  (8)     (474)     (474)   (474) 
Balances as of April 30, 201965,773  $67  $1,601,156  $(58,072) $(132,698) $(149,523) $1,260,930  $13,647  $1,274,577  
Balances as of January 31, 202064,738  $68  $1,660,889  $(174,134) $(105,590) $(151,865) $1,229,368  $13,069  $1,242,437  
Net (loss) income —        (6,014)   (6,014) 2,039  (3,975) 
Other comprehensive loss  —          (26,909) (26,909) (359) (27,268) 
Stock-based compensation - equity-classified awards  —    15,029        15,029    15,029  
Common stock issued, or to be issued, for stock awards and stock bonuses  399  1  1,845        1,846    1,846  
Exercises of stock options  2    12        12    12  
Treasury stock acquired  (613)     (33,990)     (33,990)   (33,990) 
Distribution to noncontrolling interest  —              (245) (245) 
Cumulative effect of adoption of ASU No. 2016-13  —        (940)   (940)   (940) 
Balances as of April 30, 202064,526  $69  $1,677,775  $(208,124) $(112,544) $(178,774) $1,178,402  $14,504  $1,192,906  


See notes to condensed consolidated financial statements.
5

VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months Ended
April 30,
(in thousands) 20202019
Cash flows from operating activities:  
Net (loss) income$(3,975) $3,761  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:  
Depreciation and amortization23,931  22,954  
Stock-based compensation, excluding cash-settled awards14,192  17,065  
Amortization of discount on convertible notes3,226  3,061  
Non-cash gains on derivative financial instruments, net(1,014) (549) 
Other non-cash items, net(3,537) 2,646  
Changes in operating assets and liabilities, net of effects of business combinations:  
Accounts receivable70,087  58,900  
Contract assets2,094  (39) 
Inventories(5,118) (3,118) 
Prepaid expenses and other assets(11,630) 5,268  
Accounts payable and accrued expenses564  8,487  
Contract liabilities(14,776) (24,648) 
Other, net1,934  (725) 
Net cash provided by operating activities75,978  93,063  
Cash flows from investing activities:
Cash paid for business combinations, including adjustments, net of cash acquired  (20,210) 
Purchases of property and equipment(8,835) (8,331) 
Purchases of investments(15,198) (9,995) 
Maturities and sales of investments15,648  2,965  
Cash paid for capitalized software development costs(3,146) (2,819) 
Change in restricted bank time deposits, and other investing activities, net20,824  2,941  
Net cash provided by (used in) investing activities9,293  (35,449) 
Cash flows from financing activities:
Proceeds from borrowings, net of original issuance discount155,000    
Repayments of borrowings and other financing obligations(1,898) (1,584) 
Purchases of treasury stock(36,836) (474) 
Distribution paid to noncontrolling interest(245)   
Payments of deferred purchase price and contingent consideration for business combinations (financing portion) and other financing activities(1,282) (11,674) 
Net cash provided by (used in) financing activities114,739  (13,732) 
Foreign currency effects on cash, cash equivalents, restricted cash, and restricted cash equivalents(3,106) (853) 
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents196,904  43,029  
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period411,657  412,699  
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period$608,561  $455,728  
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period to the condensed consolidated balance sheets:
Cash and cash equivalents$556,671  $412,024  
Restricted cash and cash equivalents included in restricted cash and cash equivalents, and restricted bank time deposits38,004  39,373  
Restricted cash and cash equivalents included in other assets13,886  4,331  
Total cash, cash equivalents, restricted cash, and restricted cash equivalents$608,561  $455,728  

See notes to condensed consolidated financial statements.
6

VERINT SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements


1.    BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Description of Business
 
Unless the context otherwise requires, the terms “Verint”, “we”, “us”, and “our” in these notes to condensed consolidated financial statements refer to Verint Systems Inc. and its consolidated subsidiaries.
 
Verint is a global leader in Actionable Intelligence solutions. In a world of massive information growth, our solutions empower organizations with crucial, actionable insights and enable decision makers to anticipate, respond, and take action. Today, over 10,000 organizations in more than 180 countries, including over 85 percent of the Fortune 100, use Verint’s Actionable Intelligence solutions, deployed in the cloud and on-premises, to make more informed, timely, and effective decisions.

Our Actionable Intelligence leadership is powered by innovative, enterprise-class software built with artificial intelligence, analytics, automation, and deep domain expertise established by working closely with some of the most sophisticated and forward-thinking organizations in the world. We believe we have one of the industry's strongest research and development (“R&D”) teams focused on actionable intelligence consisting of approximately one-third of our approximately 6,300 professionals. Our innovative solutions are backed-up by a strong IP portfolio with over 1,000 patents and patent applications worldwide across areas including data capture, artificial intelligence, machine learning, unstructured data analytics, predictive analytics and automation.

On December 4, 2019, we announced our intention to separate into two independent publicly traded companies: one which will consist of our Customer Engagement Solutions business, and one which will consist of our Cyber Intelligence Solutions business. We expect to implement the separation through a pro-rata distribution of common stock of a new entity that will hold the Cyber Intelligence Solutions business to our stockholders (the “Spin-Off”) that is intended to be tax-free to our stockholders for U.S. federal income tax purposes. We currently expect to complete the Spin-Off shortly after the end of this fiscal year ending January 31, 2021, though this timeline may be impacted by the current business environment brought on by the COVID-19 pandemic. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Recent Developments” under Item 2 of this report for a more detailed discussion of the planned Spin-Off.

On December 4, 2019, we also announced that Valor Parent LP (the “Apax Investor”), an affiliate of Apax Partners (“Apax”) would make an investment in us in an amount of up to $400 million. Under the terms of the Investment Agreement, dated as of December 4, 2019 (the “Investment Agreement”), the Apax Investor initially purchased $200 million of our Series A convertible preferred stock, which closed on May 7, 2020. Please refer to Note 16, “Subsequent Events” for additional information regarding the closing of the initial tranche. Shortly following the Spin-Off, the Apax Investor will purchase, subject to certain conditions, up to $200 million of Series B convertible preferred stock in the Company, as the entity holding the Customer Engagement Solutions business. Following the closing of the Series A investment, Apax’s ownership in us on an as-converted basis is approximately 5.5%. Following completion of the Spin-Off and assuming the issuance of the Series B preferred stock, Apax’s ownership in us on an as-converted basis will be between 11.5% and 15%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Overview” under Item 2 of this report for a more detailed discussion of the planned Apax investment.

Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of selling and support partners.

Impact of COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak has reached all of the regions in which we do business, and governmental authorities around the world have implemented numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, shutdowns, limitations or closures of non-essential businesses, and social distancing requirements. Companies around the world, including us, our customers, partners, and vendors, have implemented actions in response, including among others, office closings, site restrictions, and employee travel restrictions. The global spread of COVID-19 and actions taken in response have negatively affected us, our customers, partners, and vendors and caused significant economic and business disruption the extent and duration of which is not currently known. In response to these challenges, we quickly adjusted our operations to work from home and we believe our business continuity plan is working well.
7

We are monitoring and assessing the impact of the COVID-19 pandemic daily, including recommendations and orders issued by government and public health authorities. We continue to work to help our customers meet their business continuity needs and help keep the world safe during this difficult time and are managing our operations with a view to resuming normal business activity as soon as possible.

See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Recent Developments” of this report for a more detailed discussion of the impact of COVID-19 on our business.

Preparation of Condensed Consolidated Financial Statements

The condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and on the same basis as the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 31, 2020 filed with the U.S. Securities and Exchange Commission (“SEC”), except for the recently adopted accounting pronouncements described below. The condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the periods ended April 30, 2020 and 2019, and the condensed consolidated balance sheet as of April 30, 2020, are not audited but reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair presentation of the results for the periods shown. The condensed consolidated balance sheet as of January 31, 2020 is derived from the audited consolidated financial statements presented in our Annual Report on Form 10-K for the year ended January 31, 2020. Certain information and disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and disclosures required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended January 31, 2020 filed with the SEC. The results for interim periods are not necessarily indicative of a full year’s results.

Principles of Consolidation
 
The accompanying condensed 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. Noncontrolling interests in less than wholly owned subsidiaries are reflected within stockholders’ equity on our condensed consolidated balance sheet, but separately from our stockholders’ equity. We hold an option to acquire the noncontrolling interests in two majority owned subsidiaries and we account for the option as an in-substance investment in the noncontrolling common stock of each such subsidiary. We include the fair value of the option within other liabilities and do not recognize noncontrolling interests in these subsidiaries.

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

We include the results of operations of acquired companies from the date of acquisition. All significant intercompany transactions and balances are eliminated.
 
Use of Estimates
 
The preparation of financial statements in conformity with 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. 

In light of the currently unknown extent and duration of the COVID-19 pandemic, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply to certain of our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of April 30, 2020 and through the date of this report. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Significant Accounting Policies

8

There have been no material changes in our significant accounting policies during the three months ended April 30, 2020, as compared to the significant accounting policies described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 31, 2020.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. This new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company's financial instruments within the scope of this guidance primarily includes accounts receivable and contract assets. On February 1, 2020, we adopted the new standard under the modified retrospective approach, such that comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of ASU No. 2016-13 resulted in a $1.1 million increase in our allowance for expected credit losses related to accounts receivable and contract assets, a $0.2 million increase to deferred tax assets, and an impact of $0.9 million to our accumulated deficit. The new accounting standard did not have a material impact on our condensed consolidated financial statements, including accounting policies, given our limited historical write-off activity.

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

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

New Accounting Pronouncements Not Yet Effective

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


2.    REVENUE RECOGNITION

We derive our revenue primarily from the licensing of our software products and related services and support based on when control of the software passes to our customers or the services are provided, in an amount that reflects the consideration we expect to be entitled to in exchange for such goods or services. Revenue is reported net of applicable sales and use tax, value-added tax and other transaction taxes imposed on the related transaction, including mandatory government charges that are passed through to our customers.

We determine revenue recognition through the following five steps:

Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, performance obligations are satisfied.

9

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.

Disaggregation of Revenue

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

For our Customer Engagement segment:

Recurring revenue primarily consists of cloud revenue and initial and renewal support revenue.
Cloud revenue consists primarily of software as a service (“SaaS”) revenue with some optional managed services revenue.
SaaS revenue consists predominately of bundled SaaS (software with standard managed services) with some unbundled SaaS (software licensing rights sold separately from managed services and accounted for as term-based licenses). Unbundled SaaS can be deployed in the cloud either by us or a cloud partner.
Bundled SaaS revenue is recognized over time and unbundled SaaS revenue is recognized at a point in time. Unbundled SaaS contracts are eligible for renewal after the initial fixed term, which in most cases is between a one- and three-year time frame.
Nonrecurring revenue primarily consists of our perpetual licenses, consulting, implementation and installation services, and training.

For our Cyber Intelligence segment:

Recurring revenue primarily consists of initial and renewal support, subscription software licenses, and SaaS in certain limited transactions.
Nonrecurring revenue primarily consists of our perpetual licenses, long-term projects including software customizations that are recognized over time as control transfers to the customer using a percentage-of-completion (“POC”) method, consulting, implementation and installation services, training, and hardware.

Three Months Ended
April 30, 2020
Three Months Ended
April 30, 2019
(in thousands)Customer EngagementCyber IntelligenceTotalCustomer EngagementCyber IntelligenceTotal
Revenue:
Product $33,997  $43,287  $77,284  $54,002  $50,222  $104,224  
Service and support151,868  58,143  210,011  153,093  57,942  211,035  
Total revenue$185,865  $101,430  $287,295  $207,095  $108,164  $315,259  
Revenue by recurrence:
Recurring revenue$129,070  $56,038  $185,108  $123,358  $46,817  $170,175  
Nonrecurring revenue56,795