Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with “Business” in Part I, Item 1, and our consolidated financial statements and the related notes thereto included in Part II, Item 8 of this report. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and all of which could be affected by uncertainties and risks. Our actual results may differ materially from the results contemplated in these forward-looking statements as a result of many factors including, but not limited to, those described in “Risk Factors” in Part I, Item 1A of this report.
Overview
Our Business
Verint is a leader in customer experience (“CX”) automation. The world’s most iconic brands – including more than 80 of the Fortune 100 companies – use the Verint Open Platform and our team of AI-powered bots to deliver tangible AI business outcomes across the enterprise. Verint is uniquely positioned to help brands increase CX automation with our differentiated AI-powered Open Platform.
Verint is headquartered in Melville, New York, and has approximately 17 offices worldwide, in addition to a number of on-demand, flexible coworking spaces. We have approximately 3,800 employees plus a few hundred contractors around the globe.
Impact of Macroeconomic Developments
Our results of operations may be significantly influenced by general macroeconomic and geopolitical conditions, such as the war in Ukraine and the war/hostilities between Israel and Hamas or between Israel and Iran or its proxies, foreign currency fluctuations, elevated interest rates, continued concerns over inflation, recession risks, and existing and new domestic and foreign laws and regulations, all of which are beyond our control.
We believe that these global macroeconomic conditions have impacted customer and partner spending decisions and have resulted in increased costs. Future impacts on our business and financial results as a result of these conditions are not estimable at this time and depend, in part, on the extent to which these conditions improve or worsen.
See the “Risk Factors” in Part I, Item 1A of this report for further discussion of the possible impact of these general macroeconomic factors and risks on our business. For additional information on the impact of foreign currency exchange rates, see the “Foreign Currency Exchange Rates’ Impact on Results of Operations” section below.
Workplace Modifications
Beginning in the year ended January 31, 2022, we have operated under a hybrid work model where most employees work remotely on a full or part-time basis, utilizing co-working spaces in certain locations. In connection with this transition, we previously incurred costs to optimize our real estate footprint and migrate to a cloud-based infrastructure. These initiatives were substantially completed during the year ended January 31, 2024, and did not result in material changes in the year ended January 31, 2025.
Key Performance Metric and Trends
The Verint Open Platform is sold on a subscription basis and for the fiscal year ended January 31, 2025, approximately 80% of our revenue came from our subscription business which we measure using Subscription Annual Recurring Revenue (“ARR”).
The following table summarizes our ARR at the end of each annual period presented:
Year Ended January 31,
% Change
(in thousands)
Subscription ARR (1)
(1) Adjusted for the quality managed services divestiture, which closed January 31, 2024.
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Subscription ARR represents the annualized quarterly run-rate value of our active or signed subscription agreements at the end of the period and is comprised of the ARR calculated for our bundled and unbundled SaaS, support, and optional managed services contracts. Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , we are required to recognize a significant portion of our unbundled SaaS contracts at a point in time when the software is first made available to the customer, or at the beginning of the subscription term, despite the fact that our contracts typically call for billing these amounts annually or more frequently over the life of the subscription. This point-in-time recognition of a portion of our recurring revenue creates significant variability in the revenue recognized period to period based on the timing of the subscription start date and the subscription term and can create a significant difference between the timing of our revenue recognition and the actual customer billing under the contract. For unbundled SaaS contracts, the amount included is generally consistent with the amount that we invoice the customer annually for the term-based license transaction. In the case of acquired contracts that allow for early termination, ARR reflects the annualized amount of committed contracts in the first quarter and then will proportionally increase to the remaining amount of annualized ARR in the subsequent three quarters during the first year post acquisition. In cases where SaaS is offered to partners through usage-based contracts, we include the incremental value of usage contracts over a rolling four quarters.
We use ARR to measure the underlying performance of our subscription-based contracts as it normalizes the impact of seasonality, contract duration, and subscription mix (bundled versus unbundled), offering a more consistent view of our underlying business regardless of when revenue is recognized. ARR also provides a more consistent view of cash generation, as it better aligns with our billing cycles and future cash flow generation. ARR should be viewed independently of revenue, and does not represent our revenue under ASC 606 on an annualized basis, as it is an operating metric that is impacted by contract start and end dates and renewal rates. ARR is not intended to be a replacement for forecasts of revenue and does not include revenue reported as nonrecurring revenue in our consolidated statement of operations. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. Investors should consider our ARR operating measure only in conjunction with our GAAP financial results.
We believe there are three key market trends that are benefiting Verint today: enterprise adoption of AI and CX automation, a changing workforce, and elevated customer expectations.
• Enterprise Adoption of AI and CX Automation: We believe that AI is at or near the top of the list of investment priorities for most enterprises and customer engagement presents one of the best opportunities for brands to achieve significant ROI by investing in CX automation powered by AI. Brands today are challenged to delight their customers while facing limited budgets and resources. As a result, organizations are turning to AI-powered platforms specifically designed for the customer engagement domain to increase the level of their CX automation. Verint’s large team of AI-powered bots and open platform leverage the latest advancements in AI technology to address this market need.
• A Changing Workforce: Brands are facing unprecedented challenges in managing their changing workforce. Increasingly, brands are managing a hybrid workforce of agents and bots, with employees that may be working from anywhere. Providing flexibility for where employees work creates greater challenges in managing and coaching employee teams. And because of the limited resources that are available, brands must drive greater workforce efficiency. They need to find ways of using technology, like AI-powered bots, to augment their workforce. Brands also recognize the need to leverage data and automation to achieve greater efficiency. In addition, the importance of the employee experience continues to grow, and brands must evolve how they recruit, onboard, and retain employees. We believe that these trends benefit Verint as they create demand for new AI-powered solutions like ours that can keep pace with the future of work, including people and bots working together, increased automation, greater employee flexibility, and a greater focus on the voice of the employee.
• Elevated Customer Expectations: Customer expectations for faster, more consistent, and more contextual service and support continue to rise and meeting those expectations is becoming increasingly difficult with legacy technology. The proliferation of customer communication channels and the desire of customers to seamlessly shift between channels creates more complex customer journeys for brands to manage and support. Customers also expect brands to have a deep understanding of the customer’s relationship with that brand — an understanding that is unified across the enterprise, regardless of whether the customer touchpoint is in the contact center, on a website, through a mobile app, in the back-office, or in a branch. To develop that deep understanding of the customer relationship, leading brands recognize the need to use specialized, AI-powered solutions like ours to both fuse the data that has traditionally existed in silos across the enterprise and to analyze the data to inform and automate the customer experience.
Critical Accounting Policies and Estimates
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An appreciation of our critical accounting policies is necessary to understand our financial results. The accounting policies outlined below are considered to be critical because they can materially affect our operating results and financial condition, as these policies may require us to make difficult and subjective judgments regarding uncertainties. The accuracy of these estimates and the likelihood of future changes depend on a range of possible outcomes and a number of underlying variables, many of which are beyond our control, and therefore actual results could differ from these estimates under different assumptions or conditions.
Revenue Recognition
We derive and report our revenue in three categories: (a) recurring revenue, which includes bundled SaaS, unbundled SaaS, optional managed services including hosting services, and initial and renewal support revenue, (b) nonrecurring perpetual revenue, which primarily consists of perpetual licenses and hardware, and (c) nonrecurring professional services and other revenue, which consists primarily of installation services, business advisory consulting and training services, and patent license royalties. We account for a contract with a customer when it has written approval from both parties, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Software licenses sold by us are delivered electronically, and our products are shipped from our facilities, or drop-shipped directly from the vendor. We generate all of our revenue from contracts with customers. We generally invoice a customer upon delivery or commencement of the service period, or in accordance with specific contractual provisions. Payment terms and conditions vary by contract and customer, although terms generally include a requirement to pay within a range of 30 to 90 days after invoicing. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our goods and services, and not to provide financing to or from customers.
Our revenue recognition policies require us to make significant judgments and estimates. In applying our revenue recognition policy, we must determine which portions of our revenue are recognized at a point in time (generally hardware, perpetual license, and unbundled SaaS revenue, except for the related support) and which portions must be deferred and recognized over time (generally bundled SaaS, professional services, and support revenue). We analyze various factors including, but not limited to, the selling price of undelivered services when sold on a stand-alone basis, our pricing policies, the creditworthiness of our customers, and contractual terms and conditions in helping us to make such judgments about revenue recognition. Changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a given period.
Our contracts with customers often include promises to transfer multiple licenses, products and services to a customer. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined. For bundled SaaS arrangements, we determine whether the services performed during the initial phases of an arrangement, such as setup activities, are distinct. In most cases, we consider our bundled SaaS deliverable to represent a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). We record contract liabilities attributable to certain process transition and setup activities where such activities do not represent separate performance obligations. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software. The transaction price is generally in the form of a fixed fee at contract inception, and excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer.
We allocate the transaction price to each distinct performance obligation based on the estimated standalone selling price (“SSP”) for each performance obligation. Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable, such as when we do not sell the software license, product or service separately, we estimate the SSP of each performance obligation based on either a cost-plus-margin approach or an adjusted market assessment approach. We typically have more than one SSP for our licenses, products and services due to the stratification of those licenses, products and services by customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.
We then look to how control transfers to the customer in order to determine the timing of revenue recognition. Revenue related to bundled SaaS, professional services and customer education services is typically recognized over time as the services are performed. We recognize support revenue, which includes software updates on a when-and-if-available basis, telephone support, and bug fixes or patches, over the term of the customer support agreement, which is typically one year for perpetual licenses support and one to three years for unbundled SaaS support. Unbundled SaaS and perpetual license revenue is typically
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recognized when the software is delivered and/or made available for download as this is the point the user of the software can direct the use of and obtain substantially all of the remaining benefits from the functional IP. We do not recognize software revenue related to the renewal of software licenses earlier than the beginning of the renewal period. In situations where arrangements include customer acceptance provisions, revenue is recognized when we can objectively verify the software complies with the specifications underlying acceptance and the customer has control of the software. Revenue for hardware is recognized at a point in time, generally upon shipment or delivery. Our patent license royalties are recognized as revenue in the period when the products containing our IP are sold by the licensees to their customers with any difference between actual results and estimated amounts adjusted in the following period.
Our contracts with customers are generally noncancellable and without any refund-type provisions, and credits and incentives granted have been minimal in both amount and frequency. Shipping and handling activities that are billed to customers and occur after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of revenue. Historically, these expenses have not been material.
Accounting for Business Combinations
We account for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. For acquired businesses, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed as of the acquisition date. The excess of the fair value of purchase consideration over the fair values of the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our consolidated statements of operations. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Accounting for business combinations requires our management to make significant estimates and assumptions at the acquisition date, including, among other things, future expected cash flows, discount rates, expected costs to reproduce an asset, contingent consideration arrangements, and pre-acquisition contingencies. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, these estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Goodwill and Other Acquired Intangible Assets
We test goodwill for impairment at the reporting unit level, which can be an operating segment or one level below an operating segment, on an annual basis as of November 1, or more frequently if changes in facts and circumstances indicate that impairment in the value of goodwill may exist. We are a pure-play customer engagement company that operates as a single reporting unit.
In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we elect to bypass a qualitative assessment, or if our qualitative assessment indicates that goodwill impairment is more likely than not, we perform quantitative impairment testing. If our quantitative testing determines that the carrying value of the reporting unit exceeds its fair value, goodwill impairment is recognized in an amount equal to that excess, limited to the total goodwill allocated to the reporting unit.
When we decide to perform a qualitative assessment, we assess and make judgments regarding a variety of factors which potentially impact the fair value of the reporting unit, including general economic conditions, industry and market-specific conditions, customer behavior, cost factors, our financial performance and trends, our strategies and business plans, capital requirements, management and personnel issues, and our stock price, among others. We then consider the totality of these and other factors, placing more weight on the events and circumstances that are judged to most affect the reporting unit’s fair value or the carrying amount of its net assets, to reach a qualitative conclusion regarding whether it is more likely than not that the fair value of the reporting unit exceeds its carrying amount.
When we perform quantitative impairment testing, we utilize one or more of three primary approaches to assess fair value: (a) an income-based approach, using projected discounted cash flows, (b) a market-based approach, using valuation multiples of comparable companies, and (c) a transaction-based approach, using valuation multiples for recent acquisitions of similar businesses made in the marketplace.
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Our estimate of fair value of our reporting unit is based on a number of subjective factors, including: (a) appropriate consideration of valuation approaches (income approach, comparable public company approach, and comparable transaction approach), (b) estimates of future growth rates, (c) estimates of our future cost structure, (d) discount rates for our estimated cash flows, (e) selection of peer group companies for the comparable public company and the comparable transaction approaches, (f) required levels of working capital, (g) assumed terminal value, and (h) time horizon of cash flow forecasts.
The determination of reporting units also requires judgment. We assess whether a reporting unit exists within a reportable segment by identifying the unit, determining whether the unit qualifies as a business under GAAP, and assessing the availability and regular review by segment management of discrete financial information for the unit.
We review intangible assets that have finite useful lives and other long-lived assets when an event occurs indicating the potential for impairment. If any indicators are present, we perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the assets in question to their carrying amounts. If the undiscounted cash flows used in the test for recoverability are less than the long-lived asset’s carrying amount, we determine the fair value of the long-lived asset and recognize an impairment loss if the carrying amount of the long-lived asset exceeds its fair value. The impairment loss recognized is the amount by which the carrying amount of the long-lived asset exceeds its fair value. In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of our finite-lived intangible assets. If we modify the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized over the revised estimated useful life.
For all our goodwill and other intangible asset impairment reviews, the assumptions and estimates used in the process are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the assumptions, judgments, and estimates we have used in our assessments are reasonable and appropriate, a material change in any of our assumptions or external factors could lead to future goodwill or other intangible asset impairment charges.
Based upon our November 1, 2024 quantitative goodwill impairment review of our reporting unit, we concluded that the estimated fair value of our reporting unit significantly exceeded its carrying value. Our reporting unit carried goodwill of $1,386.7 million at January 31, 2025.
Income Taxes
We account for income taxes under the asset and liability method, which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our assets and liabilities, and are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates are not anticipated.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our income tax provision involves the application of complex tax laws and requires significant judgment and estimates.
We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and we establish a valuation allowance when it is more likely than not that all or a portion of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more likely than not realizable, we establish a valuation allowance.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more likely than not sustainable, based solely on their technical merits, upon examination, and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that we believe is more likely than not realizable. 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
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liability or as a reduction of deferred tax assets. Our policy is to include interest (expense and/or income) and penalties related to unrecognized income tax benefits as a component of the provision for income taxes.
Accounting for Stock-Based Compensation
We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of the award. During the three-year period ended January 31, 2025, restricted stock units were our predominant stock-based payment award. The fair value of these awards is equivalent to the quoted closing price of our common stock on the grant date.
We also award performance-based restricted stock units to executive officers and certain employees that vest upon the achievement of specified performance goals or market conditions. The recognition of the compensation costs of the performance-based awards with performance goals requires an assessment of the probability that the specified performance criteria will be achieved. At each reporting date, we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the award, if necessary. For the performance-based awards with market conditions, the condition is incorporated into the grant date fair value valuation of the award and compensation costs are recognized even if the market condition is not satisfied.
Awards are generally subject to multi-year vesting periods. We recognize compensation expense for awards on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods, reduced by estimated forfeitures. Changes in assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognized. The assumptions we use in calculating the fair value of stock-based payment awards represent our best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
Results of Operations
The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended January 31, 2025 and 2024. Discussions regarding our financial condition and results of operations for the year ended January 31, 2024 compared to the year ended January 31, 2023 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
Seasonality and Cyclicality
Our business exhibits seasonal and cyclical patterns common in the software and technology industry. We typically experience our highest revenue and operating income in the fourth quarter and lowest in the first quarter of each fiscal year, excluding the impact of unusual or nonrecurring items. Order volume tends to peak in the final month of each quarter, with particular concentration in the latter weeks. We attribute these patterns primarily to customer budget cycles and spending patterns, as well as the structure of our sales team’s incentive compensation plans. While these seasonal and cyclical trends are consistent with broader industry patterns, these patterns should not be considered reliable predictors of our future performance.
Subscription Mix
Our revenue recognition practices vary based on our delivery models. For bundled SaaS subscriptions, we recognize revenue ratably over the contract term, creating a more predictable revenue stream from these arrangements. Much of our reported bundled SaaS revenue in any period stems from customer agreements initiated in prior periods. In contrast, a substantial portion of our unbundled SaaS revenue is recognized upfront upon delivery of the license keys, or when the license term commences, if later, which can create significant period-to-period variability in our reported revenue. This timing difference means increases or decreases in new bundled SaaS sales may not immediately impact reported revenue, while unbundled SaaS contracts create more immediate revenue effects. The timing of multi-year unbundled SaaS renewals can create additional revenue variability. When customers renew unbundled SaaS subscriptions for multiple years, we recognize significantly more revenue upfront compared to one-year renewals. Consequently, periods with higher concentrations of multi-year unbundled SaaS renewals will show elevated revenue recognition, while subsequent periods may reflect comparative decreases even with consistent underlying business performance. Despite these timing differences in revenue recognition, our cash flow patterns remain relatively consistent. Customer billings for both bundled and unbundled SaaS offerings typically follow similar annual billing cycles. To provide investors with greater visibility into our business performance beyond these timing differences, we focus on ARR as a key performance metric as defined above.
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Quality Managed Services Divestiture
On January 31, 2024, we completed the sale of a services business for manual quality managed services. Today, our platform includes an AI-powered solution for automating the quality monitoring process. We expect our customers to adopt AI over time and believe that a people-centric managed services offering is no longer core to our offering. During the three months ended January 31, 2024, we recognized a pre-tax loss on the sale of $9.7 million, which was recorded as part of selling, general, and administrative expenses in our consolidated statement of operations, and included $0.8 million of cumulative foreign translation loss that was released from accumulated other comprehensive loss. The divested services business generated $25.2 million and $33.2 million of revenue during the years ended January 31, 2024 and 2023, respectively, and several hundred employees dedicated to this managed services business were transferred or terminated as part of the transaction.
Overview of Operating Results
The following table sets forth a summary of certain key financial information for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
(in thousands, except per share data)
Revenue
Operating income
Net income (loss) attributable to Verint Systems Inc. common shares
Net income (loss) per common share attributable to Verint Systems Inc.:
Basic
Diluted
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Our revenue decreased approximately $1.2 million from $910.4 million in the year ended January 31, 2024 to $909.2 million in the year ended January 31, 2025. The decrease consisted of an $18.7 million decrease in nonrecurring professional services and other revenue, partially offset by an $8.9 million increase in recurring revenue and an $8.6 million increase in nonrecurring perpetual revenue. For additional details on our revenue by category, see “—Revenue”.
Revenue in the Americas, in Europe, the Middle East and Africa (“EMEA”), and in the Asia-Pacific (“APAC”) regions represented approximately 72%, 18%, and 10% of our total revenue, respectively, in the year ended January 31, 2025, compared to approximately 71%, 19%, and 10%, respectively, in the year ended January 31, 2024. Further details of changes in revenue are provided below.
Operating income was $106.4 million in the year ended January 31, 2025, compared to $68.2 million in the year ended January 31, 2024. This increase in operating income was primarily due to a $14.8 million increase in gross profit and a $23.4 million decrease in operating expenses. The decrease in operating expenses consisted of a $26.3 million decrease in selling, general and administrative expenses and a $12.6 million decrease in amortization of other acquired intangible assets, partially offset by a $15.5 million increase in net research and development expenses. Further details of changes in operating income are provided below.
Net income attributable to Verint Systems Inc. common shares was $65.0 million and diluted net income per common share was $1.04 in the year ended January 31, 2025, compared to net income attributable to Verint Systems Inc. common shares of $17.8 million and diluted net income per common share of $0.28 in the year ended January 31, 2024. The increase in net income attributable to Verint Systems Inc. common shares and diluted net income per common share in the year ended January 31, 2025 was primarily due to a $38.2 million increase in operating income, as described above, a $6.4 million decrease in our provision for income taxes, a $3.5 million decrease in dividends on preferred stock, and a $0.2 million decrease in net income attributable to our noncontrolling interest, partially offset by a $1.1 million increase in total other expense. Further details of these changes are provided below.
As of January 31, 2025, we employed approximately 3,800 employees plus a few hundred contractors, as compared to approximately 3,700 employees plus a few hundred contractors at January 31, 2024.
Foreign Currency Exchange Rates’ Impact on Results of Operations
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A portion of our business is conducted in currencies other than the U.S. dollar, and therefore our revenue, cost of revenue, and operating expenses are affected by fluctuations in applicable foreign currency exchange rates.
When comparing average exchange rates for the year ended January 31, 2025 to average exchange rates for the year ended January 31, 2024, the U.S. dollar weakened relative to the British pound sterling, and strengthened relative to the Israeli shekel, resulting in an overall increase in our revenue and decrease in our expenses on a U.S. dollar-denominated basis. For the year ended January 31, 2025, had foreign currency exchange rates remained unchanged from rates in effect for the year ended January 31, 2024, our revenue would have been approximately $0.6 million lower and our cost of revenue and operating expenses on a combined basis would have been approximately $0.5 million higher, which would have resulted in a $1.1 million decrease in our operating income.
Revenue
We derive and report our revenue in three categories: (a) recurring revenue, which includes bundled SaaS, unbundled SaaS, optional managed services including hosting services, and initial and renewal support revenue, (b) nonrecurring perpetual revenue, which primarily consists of perpetual licenses and hardware, and (c) nonrecurring professional services and other revenue, which consists primarily of installation services, business advisory consulting and training services, and patent royalties.
The following table sets forth revenue by category for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
% Change
(in thousands)
Recurring revenue:
Bundled SaaS revenue
Unbundled SaaS revenue
Total SaaS revenue
Optional managed services revenue
Support revenue
Total recurring revenue
Nonrecurring perpetual revenue
Nonrecurring professional services and other revenue
Total revenue
Recurring Revenue
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Recurring revenue increased approximately $8.9 million, or 1%, from $699.2 million in the year ended January 31, 2024 to $708.1 million in the year ended January 31, 2025. The increase consisted of a $67.8 million increase in SaaS revenue, partially offset by a $33.2 million decrease in support revenue and a $25.7 million decrease in optional managed services revenue. The increase in SaaS revenue was due to increases in both bundled and unbundled SaaS revenue. The increase in bundled SaaS revenue was primarily due to new customer contracts and existing customers expanding their use of our cloud platform and demand for our AI-powered solutions. The increase in unbundled SaaS revenue was primarily due to increased renewal and expansion transactions and an increase in multi-year contracts. The decrease in support revenue was primarily due to customers migrating to our bundled and unbundled SaaS solutions and customer attrition. Approximately 50% of the support revenue decline was directly attributable to these SaaS transitions. We anticipate a more moderate pace of support conversions going forward as we have largely completed transitioning our customer base from a perpetual license model to recurring SaaS subscriptions. The decrease in optional managed services revenue was primarily due to the divestiture of a manual quality managed services business on January 31, 2024. The divested services business generated $25.2 million of revenue during the year ended January 31, 2024, with no corresponding revenue in the current period.
We expect our revenue mix to continue to shift to our SaaS offerings, which is consistent with our cloud-first strategy and a general market shift from on-premises solutions to SaaS offerings, with an increasing portion of the mix coming from our bundled SaaS offerings (including our AI-powered solutions) over time.
Nonrecurring Perpetual Revenue
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Year Ended January 31, 2025 compared to Year Ended January 31, 2024 . Nonrecurring perpetual revenue increased approximately $8.6 million, or 9%, from $99.9 million in the year ended January 31, 2024 to $108.5 million in the year ended January 31, 2025. The increase in perpetual revenue was primarily due to an increase in demand for our offerings that include hardware with embedded software, partially offset by the continued shift in spending by our customers towards our SaaS solutions.
Year Ended January 31, 2024 compared to Year Ended January 31, 2023 . Nonrecurring perpetual revenue decreased approximately $16.7 million, or 14%, from $116.6 million in the year ended January 31, 2023 to $99.9 million in the year ended January 31, 2024. The decrease in perpetual revenue was primarily due to the continued shift in spending by our customers towards our SaaS solutions and a slight decrease in demand for our offerings that include hardware with embedded software.
Nonrecurring Professional Services and Other Revenue
Year Ended January 31, 2025 compared to Year Ended January 31, 2024 . Nonrecurring professional services and other revenue decreased approximately $18.7 million, or 17%, from $111.3 million in the year ended January 31, 2024 to $92.6 million in the year ended January 31, 2025. The decrease in professional services and other revenue was primarily driven by a decrease in patent royalty revenue due to reaching a settlement in the prior year with a licensee related to previously underreported royalties, and a decrease in implementation services as a result of the overall shift in our business to a recurring SaaS subscription model.
Year Ended January 31, 2024 compared to Year Ended January 31, 2023 . Nonrecurring professional services and other revenue increased approximately $11.2 million, or 11%, from $100.1 million in the year ended January 31, 2023 to $111.3 million in the year ended January 31, 2024. The increase in professional services and other revenue was primarily driven by an increase in patent royalty revenue in the year ended January 31, 2024 due to a settlement with a licensee related to previously underreported royalties, partially offset by a decrease in implementation services.
Cost of Revenue
The following table sets forth the cost of revenue by recurring, nonrecurring perpetual, and nonrecurring professional services and other, as well as amortization of acquired technology for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
% Change
(in thousands)
Cost of recurring revenue
Cost of nonrecurring perpetual revenue
Cost of nonrecurring professional services and other revenue
Amortization of acquired technology
Total cost of revenue
Cost of Recurring Revenue
Cost of recurring revenue primarily consists of employee compensation and related expenses for our cloud operations and support teams, contractor costs, cloud infrastructure and data center costs, travel expenses relating to optional managed services and support, and royalties due to third parties for software components that are embedded in our cloud-based solutions. Cost of recurring revenue also includes amortization of capitalized software development costs, stock-based compensation expenses, facility costs, and other allocated overhead expenses.
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Cost of recurring revenue decreased approximately $12.8 million, or 8% from $162.9 million in the year ended January 31, 2024 to $150.1 million in the year ended January 31, 2025. The decrease was primarily due to a reduction in service and support costs due to lower personnel costs as a result of the divestiture mentioned above, and the write-off of certain third-party software licenses in the prior year, partially offset by an increase in the cost of third-party cloud infrastructure and data center costs in order to support our growing SaaS customer base. We expect our cost of recurring revenue to increase on an absolute basis in future periods as we continue to invest in our cloud operations to support our growing cloud customer base and enhance the security of our solutions. Our recurring revenue gross margins increased from 77% in the year ended January 31, 2024 to 79% in the year ended January 31, 2025, primarily due to a
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favorable change in offering mix as SaaS revenue carries higher gross margins than our optional managed services and support revenue, and a decrease in recurring costs.
Cost of Nonrecurring Perpetual Revenue
Cost of nonrecurring perpetual revenue primarily consists of hardware material costs, employee compensation and related expenses, freight and shipping costs, and royalties due to third parties for software components that are embedded in our on-premises software solutions. Cost of nonrecurring perpetual revenue also includes amortization of capitalized software development costs, and employee compensation and related expenses associated with our global operations, facility costs, and other allocated overhead expenses.
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Cost of nonrecurring perpetual revenue increased approximately $3.9 million, or 12%, from $32.1 million in the year ended January 31, 2024 to $36.0 million in the year ended January 31, 2025. The increase was primarily driven by an increase in hardware costs and related shipping and handling costs as a result of an increase in demand for our offerings that include hardware with embedded software. Our nonrecurring perpetual gross margins decreased from 68% in the year ended January 31, 2024 to 67% in the year ended January 31, 2025, primarily due to a change in product mix, with lower perpetual license revenue driven by the continued shift in spending by our customers towards our SaaS offerings.
Year Ended January 31, 2024 compared to Year Ended January 31, 2023. Cost of nonrecurring perpetual revenue decreased approximately $6.4 million, or 16%, from $38.5 million in the year ended January 31, 2023 to $32.1 million in the year ended January 31, 2024. The decrease was primarily driven by a decrease in third-party hardware delivered and related shipping and handling costs, and a decrease in the cost of certain hardware components. Our nonrecurring perpetual gross margins increased from 67% in the year ended January 31, 2023 to 68% in the year ended January 31, 2024, primarily due to nonrecurring perpetual costs decreasing at a slightly faster rate than nonrecurring perpetual revenue.
Cost of Nonrecurring Professional Services and Other Revenue
Cost of nonrecurring professional services and other revenue primarily consists of employee compensation and related expenses, contractor costs, and travel expenses relating to installation, training and consulting services. Cost of nonrecurring professional services and other revenue also includes employee compensation and related expenses associated with our global operations, facility costs, and other allocated overhead expenses.
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Cost of nonrecurring professional services and other revenue decreased approximately $6.7 million, or 9%, from $75.0 million in the year ended January 31, 2024 to $68.3 million in the year ended January 31, 2025. The decrease was primarily driven by a decrease in employee compensation and related expenses due to a decrease in headcount supporting our nonrecurring professional services and other revenue offerings, partially offset by an increase in stock-based compensation expense due to an increase in the grant date fair value of employee equity awards. Our nonrecurring professional services and other gross margins decreased from 33% in the year ended January 31, 2024 to 26% in the year ended January 31, 2025, primarily due to a decrease in patent royalty revenue as described above.
Year Ended January 31, 2024 compared to Year Ended January 31, 2023. Cost of nonrecurring professional services and other revenue decreased approximately $6.0 million, or 7%, from $81.0 million in the year ended January 31, 2023 to $75.0 million in the year ended January 31, 2024. The decrease was primarily driven by a decrease in employee compensation and related expenses due to a decrease in headcount supporting our nonrecurring professional services and other revenue offerings, and a decrease in contractor costs. Our nonrecurring professional services and other gross margins increased from 19% in the year ended January 31, 2023 to 33% in the year ended January 31, 2024, primarily due to an increase in patent royalty revenue as described above.
Amortization of Acquired Technology
Amortization of acquired technology consists of the amortization of technology assets acquired in connection with business combinations.
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Amortization of acquired technology decreased approximately $0.3 million, or 5%, from $7.1 million in the year ended January 31, 2024 to $6.8 million in the year ended January 31, 2025. The decrease was attributable to acquired technology intangible assets from historical business combinations becoming fully amortized during the year ended January 31, 2025, partially offset by amortization expense associated with acquired technology intangible assets from recent business combinations.
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Further discussion regarding our business combinations appears in Note 5, “Business Combinations, Asset Acquisitions, and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this report.
Research and Development, Net
Research and development expenses, net (“R&D”) consist primarily of personnel and subcontracting expenses, facility costs, and other allocated overhead, net of certain software development costs that are capitalized and benefits derived from participation in government-sponsored programs in certain jurisdictions for the support of research and development activities conducted in those locations. Software development costs are capitalized upon the establishment of technological feasibility and continue to be capitalized through the general release of the related software product.
The following table sets forth R&D for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
% Change
(in thousands)
Research and development, net
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. R&D increased approximately $15.5 million, or 12%, from $133.8 million in the year ended January 31, 2024 to $149.3 million in the year ended January 31, 2025. This increase was primarily attributable to a $10.4 million increase in employee compensation and related expenses due primarily to increased investment in R&D headcount, a $5.0 million increase in cloud-based R&D infrastructure costs primarily attributable to a shift from on-premises to cloud R&D labs for development teams supporting R&D and product development, and a $2.9 million increase in stock-based compensation expense due to an increase in the grant date fair value of employee equity awards, partially offset by a $3.7 million increase in the capitalization of software development costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) consist primarily of personnel costs and related expenses, professional fees, changes in the fair values of our obligations under contingent consideration arrangements, sales and marketing expenses, including travel costs, sales commissions and sales referral fees, facility costs, communication expenses, and other administrative expenses.
The following table sets forth SG&A for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
% Change
(in thousands)
Selling, general and administrative
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. SG&A decreased approximately $26.3 million, or 6%, from $405.9 million in the year ended January 31, 2024 to $379.6 million in the year ended January 31, 2025. This decrease was primarily due to a $17.8 million decrease in IT costs and asset impairment charges related to a cloud-based IT infrastructure realignment project that was substantially completed during the year ended January 31, 2024, a $9.7 million loss on the sale of a services business for manual quality managed services in the prior year, a $7.6 million decrease in professional services expense primarily due to reaching settlement in the prior year regarding certain legal matters discussed in Note 16, “Commitments and Contingencies” to our consolidated financial statements included under Part II, Item 8 of this report, and a $6.3 million decrease in accelerated facility costs and asset impairment charges due to the early termination or abandonment of certain office leases in the prior year. These decreases in SG&A were partially offset by a $5.6 million increase in stock-based compensation expense due to an increase in the grant date fair value of employee equity awards, a $1.9 million increase in the cost of third-party software components in order to support our hybrid work environment, and a $1.6 million increase in contractor costs. SG&A was also impacted by a $5.5 million charge due to a change in the fair value of our obligations under contingent consideration arrangements, from a net benefit of $3.0 million in the year ended January 31, 2024 to a net charge of $2.5 million during the year ended January 31, 2025, as a result of revised outlooks for achieving the performance targets under certain contingent consideration arrangements.
Amortization of Other Acquired Intangible Assets
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Amortization of other acquired intangible assets consists of the amortization of customer-related intangible assets acquired in connection with business combinations.
The following table sets forth the amortization of other acquired intangible assets for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
% Change
(in thousands)
Amortization of other acquired intangible assets
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Amortization of other acquired intangible assets decreased approximately $12.6 million, or 50%, from $25.4 million in the year ended January 31, 2024 to $12.8 million in the year ended January 31, 2025. The decrease was attributable to acquired customer-related intangible assets from historical business combinations becoming fully amortized during the year ended January 31, 2025, partially offset by amortization expense associated with acquired intangible assets from recent business combinations.
Further discussion regarding our business combinations appears in Note 5, “Business Combinations, Asset Acquisitions, and Divestitures” to our consolidated financial statements included in Part II, Item 8 of this report.
Other Expense, Net
The following table sets forth total other expense, net for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
% Change
(in thousands)
Interest income
Interest expense
Other (expense) income:
Foreign currency (losses) gains, net
Other, net
Total other (expense) income, net
Total other expense, net
* Percentage is not meaningful.
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Total other expense, net, increased by $1.1 million from $6.9 million in the year ended January 31, 2024 to $8.0 million in the year ended January 31, 2025.
Interest income decreased from $6.9 million in the year ended January 31, 2024 to $6.6 million in the year ended January 31, 2025 due to lower average balances in money market fund investments, which are included in cash and cash equivalents.
Interest expense decreased to $10.1 million in the year ended January 31, 2025 from $10.3 million in the year ended January 31, 2024 primarily due to $0.2 million of combined deferred debt issuance costs and unamortized discount associated with the Term Loan that were written off and were included within interest expense on our consolidated statement of operations during the year ended January 31, 2024. Further discussion regarding our borrowings appears under “Financing Arrangements” below and in Note 7, “Long-term Debt” to our consolidated financial statements included under Part II, Item 8 of this report.
We recorded $5.9 million of net foreign currency losses during the year ended January 31, 2025, and $0.4 million of net foreign currency losses during the year ended January 31, 2024. Our foreign currency losses in the current period resulted primarily from fluctuations associated with the exchange rate movement of the U.S. dollar against the British pound sterling and the Brazilian real, as well as the collection of a long-standing foreign withholding tax receivable.
Other, net improved from an expense of $3.1 million in the year ended January 31, 2024 to income of $1.4 million in the year ended January 31, 2025 primarily due to the prior period including the reversal of a tax indemnification asset associated with the Spin-Off following the resolution of an uncertain tax position.
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Provision for Income Taxes
The following table sets forth our provision for income taxes from continuing operations for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
(in thousands)
Provision for income taxes
Year Ended January 31, 2025 compared to Year Ended January 31, 2024. Our effective income tax rate was 15.5% for the year ended January 31, 2025, compared to an effective income tax rate of 35.3% for the year ended January 31, 2024. For the year ended January 31, 2025, our effective income tax rate was lower than the U.S. federal statutory income tax rate of 21.0% primarily due to the benefit of domestic tax credits which offset the U.S. taxation of certain foreign earnings, the reduction in reserves for unrecognized tax benefits and related interest due to the lapse of a statute of limitations, and lower statutory rates in certain foreign jurisdictions.
For the year ended January 31, 2024, our effective income tax rate was higher than the U.S. federal statutory income tax rate of 21.0% primarily due to the U.S. taxation of certain foreign income and the effect of changes in valuation allowances which were partially offset by the benefits of tax credits. The effective rate is further impacted by the mix and levels of income and losses among taxing jurisdictions, changes in valuation allowances, and changes in unrecognized income tax benefits.
The Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The European Union and many other member states have committed to adopting Pillar 2 which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024. Certain jurisdictions in which we operate have enacted Pillar 2 legislation and others are considering changes to their tax laws to adopt the Pillar 2 global minimum tax. We continue to monitor developments and evaluate the impacts of new rules as they are published, including eligibility to qualify for safe harbor rules. During the year ended January 31, 2025, Verint entities recorded $0.3 million of Pillar 2 related taxes.
Liquidity and Capital Resources
Overview
Our primary recurring source of cash is the collection of proceeds from the sale of products and services to our customers, including cash periodically collected in advance of delivery or performance.
On May 7, 2020, the Apax Investor purchased $200.0 million of our Series A Preferred Stock with an initial conversion price of $53.50 per share. Following the Cognyte Spin-Off, the Series A Preferred Stock conversion price was adjusted to $36.38 per share. In connection with the completion of the Spin-Off, on April 6, 2021, the Apax Investor purchased $200.0 million of our Series B Preferred Stock, convertible at a conversion price of $50.25 per share. As of January 31, 2025, Apax’s ownership in us on an as-converted basis was approximately 13.5%.
Each series of Preferred Stock paid dividends at an annual rate of 5.2% until May 7, 2024, and thereafter pays at a rate of 4.0%, subject to adjustment under certain circumstances. Dividends will be cumulative and payable semiannually in arrears in cash. All dividends that are not paid in cash will remain accumulated dividends with respect to each share of Preferred Stock. We used the proceeds from the Apax investment to repay outstanding indebtedness, to fund a portion of our stock repurchase programs (as described below under “Liquidity and Capital Resources Requirements”), and/or for general corporate purposes. Please refer to Note 9, “Convertible Preferred Stock”, to our consolidated financial statements included in Part II, Item 8 of this report for more information regarding the Apax convertible preferred stock investment.
Our primary recurring use of cash is payment of our operating costs, which consist primarily of employee-related expenses, such as compensation and benefits, as well as general operating expenses for cloud operations, marketing, facilities and overhead costs, and capital expenditures. We also utilize cash for debt service, securities repurchases, dividends on the Preferred Stock, and business acquisitions. Cash generated from operations, along with our existing cash, cash equivalents, and short-term investments, are our primary sources of operating liquidity.
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We have historically expanded our business in part by investing in strategic growth initiatives, including acquisitions of products, technologies, and businesses. We may finance such acquisitions using cash, debt, stock, or a combination of the foregoing, however, we have used cash as consideration for substantially all of our historical business combinations and asset acquisitions, including approximately $59.0 million and $4.0 million of net cash expended for business combinations and asset acquisitions during the years ended January 31, 2025 and 2024, respectively. Please refer to Note 5, “Business Combinations, Asset Acquisitions, and Divestitures”, to our consolidated financial statements included in Part II, Item 8 of this report for more information regarding our recent business combinations and asset acquisitions.
We continually examine our options with respect to terms and sources of existing and future short-term and long-term capital resources to enhance our operating results and to ensure that we retain financial flexibility, and may from time to time elect to raise capital through the issuance of additional equity or the incurrence of additional debt. We anticipate refinancing the majority, if not all, of the debt under our 2021 Notes within the next year. This refinancing may include utilizing our Revolving Credit Facility to repay some or all of the 2021 Notes.
A portion of our operating income is earned outside the United States. Cash, cash equivalents, short-term investments, and restricted cash, restricted cash equivalents, and restricted bank time deposits (excluding any long-term portions) held by our subsidiaries outside of the United States were $156.2 million and $143.1 million as of January 31, 2025 and 2024, respectively, and are generally used to fund the subsidiaries’ operating requirements and to invest in growth initiatives, including business acquisitions.
We currently intend to continue to indefinitely reinvest a portion of the earnings of our foreign subsidiaries, which, as a result of the 2017 Tax Cuts and Jobs Act, may now be repatriated without incurring additional U.S. federal income taxes.
Should other circumstances arise whereby we require more capital in the United States than is generated by our domestic operations, or should we otherwise consider it in our best interests, we could repatriate future earnings from foreign jurisdictions, which could result in higher effective tax rates. As noted above, we currently intend to indefinitely reinvest a portion of the earnings of our foreign subsidiaries to finance foreign activities. Except to the extent that earnings of our foreign subsidiaries have been subject to U.S. taxation as of January 31, 2025, and withholding taxes of $4.2 million accrued as of January 31, 2025 with respect to certain identified cash that may be repatriated to the United States, we have not provided tax on the outside basis difference of foreign subsidiaries nor have we provided for any additional withholding or other tax that may be applicable should a future distribution be made from any unremitted earnings of foreign subsidiaries. Due to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate the total amount of income and withholding taxes that would have to be provided on such earnings.
The following table summarizes our total cash, cash equivalents, restricted cash, cash equivalents, and bank time deposits, and short-term investments, as well as our total debt, as of January 31, 2025 and 2024:
January 31,
(in thousands)
Cash and cash equivalents
Restricted cash and cash equivalents, and restricted bank time deposits (excluding long term portions)
Short-term investments
Total cash, cash equivalents, restricted cash and cash equivalents, restricted bank time deposits, and short-term investments
Total debt, including current portions
Capital Allocation Framework
As noted above, after cash utilization required for working capital, capital expenditures, required debt service, and dividends on the Preferred Stock, we expect that our primary usage of cash will be for business combinations, repayment or repurchases of outstanding indebtedness, and/or securities repurchases under repurchase programs that may be in place from time to time (subject to the terms of our Credit Agreement) . Please see the “Liquidity and Capital Resources Requirements” section below for further information about our recent stock repurchase program.
Consolidated Cash Flow Activity
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The following table summarizes selected items from our consolidated statements of cash flows for the years ended January 31, 2025, 2024, and 2023:
Year Ended January 31,
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of foreign currency exchange rate changes on cash and cash equivalents
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents
Our financing activities used $99.7 million of net cash and our investing activities used $84.0 million of net cash during the year ended January 31, 2025, which was partially offset by $157.4 million of cash generated from operating activities. Further discussion of these items appears below.
Net Cash Provided by Operating Activities
Net cash provided by operating activities is driven primarily by our net income or loss, as adjusted for non-cash items and working capital changes. Operating activities generated $157.4 million of net cash during the year ended January 31, 2025, compared to $150.6 million generated during the year ended January 31, 2024. Our operating cash flow in the current year increased due to higher net income adjusted for non-cash expenses as a result of higher operating income, and lower operating lease payments, partially offset by higher net income tax payments during the year ended January 31, 2025 as compared to the prior year.
Operating activities generated $150.6 million of net cash during the year ended January 31, 2024, compared to $139.8 million generated during the year ended January 31, 2023. Our operating cash flow in the year ended January 31, 2024 increased due higher operating income, and lower operating lease payments, as a result of the early termination of several leased offices in the prior year, partially offset by an unfavorable impact on operating cash flow from changes in operating assets and liabilities compared to the prior period.
Our cash flow from operating activities can fluctuate from period to period due to several factors, including the timing of our billings and collections, the timing and amounts of interest, income tax and other payments, and our operating results.
Net Cash Used in Investing Activities
During the year ended January 31, 2025, our investing activities used $84.0 million of net cash, consisting primarily of $59.0 million of net cash utilized for business combinations and asset acquisitions, $27.6 million of payments for property, equipment, and capitalized software development, and $0.7 million of net purchases of short-term investments, partially offset by $3.2 million of net proceeds from the divestiture of our manual quality managed services business, which occurred during the three months ended January 31, 2024.
During the year ended January 31, 2024, our investing activities used $37.4 million of net cash, consisting primarily of $25.7 million of payments for property, equipment, and capitalized software development costs, $6.5 million of cash divested with the sale of a services business for manual quality managed services, $4.0 million of net cash utilized for business combinations and asset acquisitions, and a $1.7 million investment in a privately-held company, partially offset by $0.3 million decrease in restricted bank time deposits and $0.2 million of proceeds from the divestiture of an insignificant product line that we inherited as part of a legacy acquisition.
We had no significant commitments for capital expenditures at January 31, 2025.
Net Cash Used in Financing Activities
For the year ended January 31, 2025, our financing activities used $99.7 million of net cash primarily due to $72.3 million of payments to repurchase common stock, $20.1 million of payments of Preferred Stock dividends, $4.2 million for the financing portion of payments under contingent consideration arrangements related to prior business combinations, $2.1 million of finance lease payments and other financing obligations, a $1.0 million distribution to a noncontrolling shareholder of one of our subsidiaries, and $0.2 million paid for debt-related issuance fees, partially offset by $0.2 million of cash received related to the sale of an insignificant product line in March 2023.
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For the year ended January 31, 2024, our financing activities used $153.4 million of net cash, primarily due to $124.3 million of payments to repurchase common stock, $100.0 million of repayments of borrowings under our Term Loan, $20.8 million of payments of Preferred Stock dividends, $4.2 million for the financing portion of payments under contingent consideration arrangements related to prior business combinations, $3.1 million of finance lease payments and other financing obligations, a $0.8 million distribution to a noncontrolling shareholder of one of our subsidiaries, and $0.2 million paid for debt-related issuance fees, partially offset by $100.0 million of proceeds from borrowings under our Revolving Credit Facility.
Liquidity and Capital Resources Requirements
On March 25, 2025, we entered into the Fifth Amendment to the Credit Agreement, which extends the maturity date of our Revolving Credit Facility to March 25, 2030, subject to certain conditions described below and increases the aggregate borrowing commitments from $300.0 million to $500.0 million. Based on past performance and current expectations, we believe that our cash, cash equivalents, and short-term investments, together with cash generated from operations and access to our Revolving Credit Facility, will be sufficient to meet anticipated operating costs, required payments of principal and interest, dividends on Preferred Stock, working capital needs, ordinary course capital expenditures, research and development spending, and other commitments for at least the next 12 months from the issuance of our consolidated financial statements. Currently, we have no plans to pay any cash dividends on our common stock, which are subject to certain restrictions under our Credit Agreement.
Our liquidity could be negatively impacted by a decrease in demand for our products and services, including the impact of changes in customer buying behavior due to circumstances over which we have no control, including, but not limited to, the effects of general economic conditions or geopolitical developments. If we decide to make additional business acquisitions or otherwise require additional funds, we may need to raise additional capital, which could involve the issuance of additional equity or debt securities or an increase in our borrowings under our credit facility. We anticipate refinancing the majority, if not all, of the debt under our 2021 Notes within the next year.
Repurchases of Common Stock
On December 7, 2022, we announced that our board of directors had authorized a stock repurchase program for the period from December 12, 2022 until January 31, 2025, whereby we may repurchase shares of common stock in an amount not to exceed, in the aggregate, $200.0 million, which was completed during the six months ended July 31, 2024.
On September 4, 2024, we announced that our board of directors had authorized a new stock repurchase program for the period from August 29, 2024 until August 29, 2026, whereby we may repurchase shares of common stock not to exceed, in the aggregate, $200.0 million.
During the year ended January 31, 2023, we repurchased approximately 649,000 shares of our common stock for a cost of $23.5 million under the prior stock repurchase program.
During the year ended January 31, 2024 , we repurchased approximately 4,124,000 shares of our common stock for a cost of $124.4 million, including excise tax of $0.8 million under the prior stock repurchase program, as well as approximately 1,000 shares to facilitate income tax withholding or tax payments.
During the year ended January 31, 2025, we repurchased approximately 1,701,000 shares of our common stock for a cost of $52.9 million under the prior stock repurchase program, approximately 689,000 shares of common stock for a cost of $18.7 million under the new stock repurchase program, and approximately 25,000 shares for a cost of $0.7 million to facilitate income tax withholding or tax payments.
Our share repurchases in excess of issuances are subject to a 1% excise tax enacted by the IRA. We recognized excise tax of $0.2 million as part of the cost basis of shares acquired in the consolidated statements of stockholders’ equity during the year ended January 31, 2025.
Repurchases were funded, and are expected to continue to be funded, with available cash in the United States.
Financing Arrangements
2021 Notes
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On April 9, 2021, we issued $315.0 million in aggregate principal amount of our 2021 Notes, which mature on April 15, 2026, unless earlier converted by the holders pursuant to their terms. The 2021 Notes are unsecured and pay interest in cash semiannually in arrears at a rate of 0.25% per annum.
We used a portion of the net proceeds from the issuance of the 2021 Notes to pay the costs of the capped call transactions described below. We also used a portion of the net proceeds from the issuance of the 2021 Notes, together with the net proceeds from the April 6, 2021 issuance of $200.0 million of Series B Preferred Stock, to repay a portion of the outstanding indebtedness under our Credit Agreement described below, to terminate an interest rate swap agreement, and to repurchase shares of our common stock. The remainder is being used for working capital and other general corporate purposes.
The 2021 Notes are convertible into shares of our common stock at an initial conversion rate of 16.1092 shares per $1,000 principal amount of 2021 Notes, which represents an initial conversion price of approximately $62.08 per share, subject to adjustment upon the occurrence of certain events, and subject to customary anti-dilution adjustments. Prior to January 15, 2026, the 2021 Notes are convertible only upon the occurrence of certain events and during certain periods, and will be convertible thereafter at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2021 Notes. Upon conversion of the 2021 Notes, holders will receive cash up to the aggregate principal amount, with any remainder to be settled with cash or common stock, or a combination thereof, at our election. As of January 31, 2025, the 2021 Notes were not convertible.
Based on the closing market price of our common stock on January 31, 2025, the if-converted value of the 2021 Notes was less than their aggregate principal amount.
Capped Calls
In connection with the issuance of the 2021 Notes, on April 6, 2021 and April 8, 2021, we entered into capped call transactions (the “Capped Calls”) with certain counterparties. The Capped Calls are generally intended to reduce the potential dilution to our common stock upon any conversion of the 2021 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2021 Notes, in the event that at the time of conversion our common stock price exceeds the conversion price, with such reduction and/or offset subject to a cap.
The Capped Calls exercise price is equal to the $62.08 initial conversion price of each of the 2021 Notes, and the cap price is $100.00, each subject to certain adjustments under the terms of the Capped Calls. The Capped Calls have the economic effect of increasing the conversion price of the 2021 Notes from $62.08 per share to $100.00 per share. Our exercise rights under the Capped Calls generally trigger upon conversion of the 2021 Notes, and the Capped Calls terminate upon maturity of the 2021 Notes, or the first day the 2021 Notes are no longer outstanding. As of January 31, 2025, no Capped Calls have been exercised.
Pursuant to their terms, the Capped Calls qualify for classification within stockholders’ equity, and their fair value is not remeasured and adjusted, as long as they continue to qualify for stockholders’ equity classification. We paid approximately $41.1 million for the Capped Calls, including applicable transaction costs, which was recorded as a reduction to additional paid-in capital.
Credit Agreement
On June 29, 2017, we entered into a credit agreement with certain lenders and terminated a prior credit agreement. The credit agreement was amended in 2018, 2020, 2021, and 2023, as further described below (as amended, the “Credit Agreement”).
The Credit Agreement provides for $725.0 million of senior secured credit facilities, comprised of a $425.0 million term loan that was fully repaid, and a $300.0 million revolving credit facility maturing on April 9, 2026 (the “Revolving Credit Facility”). The Revolving Credit Facility replaced our prior $300.0 million revolving credit facility, and is subject to increase and reduction from time to time according to the terms of the Credit Agreement.
During the three months ended April 30, 2021, in addition to our regular quarterly $1.1 million principal payment, we repaid $309.0 million of our Term Loan, reducing the outstanding balance to $100.0 million. On April 27, 2023, we repaid the remaining $100.0 million outstanding principal balance in full using proceeds from our Revolving Credit Facility, plus $0.5 million of accrued interest. As a result, $0.2 million of deferred debt issuance costs associated with the Term Loan were written off and included within interest expense on our consolidated statement of operations for the year ended January 31, 2024.
As of January 31, 2025, borrowings under the Revolving Credit Facility were $100.0 million, which is included in current maturities of long-term debt on our consolidated balance sheet, with an interest rate of 5.93%. Borrowings outstanding under
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the Revolving Credit Facility were $100.0 million at January 31, 2024, which was included in long-term debt on our consolidated balance sheet. For borrowings under the Revolving Credit Facility, the applicable margin is determined by reference to our Consolidated Total Debt to Consolidated EBITDA (each as defined in the Credit Agreement) leverage ratio (the “Leverage Ratio”). In addition, we are required to pay a commitment fee with respect to unused availability under the Revolving Credit Facility at rates per annum determined by reference to our Leverage Ratio.
On March 25, 2025, we entered into an amendment to the Credit Agreement (the “Fifth Amendment”), which extends the maturity date of our Revolving Credit Facility to March 25, 2030, subject to certain conditions as discussed below, and increases the aggregate borrowing commitments from $300.0 million to $500.0 million. Effective March 25, 2025, borrowings under the Credit Agreement bear interest, at our option, at either: (i) the ABR, plus the applicable margin therefor or (ii) Term Secured Overnight Financing Rate (“Term SOFR”) plus the applicable margin. The applicable margin is determined based on our Leverage Ratio and ranges from 0.50% to 1.25% for ABR borrowings and from 1.50% to 2.25% for Term SOFR borrowings. As provided in the Fifth Amendment, the Revolving Credit Facility matures on March 25, 2030, provided that from and after January 7, 2026, the maturity date of the Revolving Credit Facility will be accelerated if we do not satisfy a minimum level of liquidity equal to (x) the principal amount outstanding under the 2021 Notes plus (y) $100.0 million (taking into account undrawn capacity under the expanded Revolving Credit Facility) at any time that more than $35.0 million in principal amount remains outstanding (and not cash collateralized) under the 2021 Notes.
The Credit Agreement contains certain customary affirmative and negative covenants for credit facilities of this type. The Credit Agreement also contains a financial covenant that, solely with respect to the Revolving Credit Facility, generally requires us to maintain a Leverage Ratio of no greater than 4.5 to 1. The Credit Agreement further provides that, upon consummation of a Permitted Acquisition (as defined in the Credit Agreement) for consideration in an aggregate amount equal to or greater than $100.0 million, we may increase the Leverage Ratio to 5.0 to 1 during the quarter in which the Permitted Acquisition is consummated or, at our election, the immediately following fiscal quarter, and for each of the three succeeding fiscal quarters, subject to the restrictions described in the Credit Agreement. At January 31, 2025, our Leverage Ratio was approximately 1.1 to 1. The limitations imposed by the covenants are subject to certain exceptions as detailed in the Credit Agreement.
Our obligations under the Credit Agreement are guaranteed by each of our direct and indirect existing and future material domestic wholly owned restricted subsidiaries and are secured by a security interest in substantially all of our assets and the assets of the guarantor subsidiaries, subject to certain exceptions.
The Credit Agreement provides for events of default with corresponding grace periods that we believe are customary for credit facilities of this type. Upon an event of default, all of our obligations owed under the Credit Agreement may be declared immediately due and payable, and the lenders’ commitments to make loans under the Credit Agreement may be terminated.
Contractual Obligations
Our principal commitments primarily consist of current and long-term debt, dividends on Preferred Stock, leases for office space and open non-cancellable purchase orders. As of January 31, 2025, our total operating lease liabilities were $35.0 million, of which $5.9 million is included within accrued expenses and other current liabilities (current portions), and $29.1 million is included as operating lease liabilities (long-term portions), on our consolidated balance sheets.
As of January 31, 2025, our unconditional purchase obligations totaled approximately $127.5 million, the majority of which is due over the next 36 months. Our purchase obligations are primarily commitments to vendors for the procurement of goods and services in the ordinary course of business, commitments with contract manufacturers, and data center hosting services. Agreements to purchase goods or services that have cancellation provisions with no penalties are excluded from these purchase obligations.
It is not our business practice to enter into off-balance sheet arrangements. However, in the normal course of business, we enter into contracts in which we make representations and warranties that guarantee the performance of our products and services and provide indemnifications of varying scopes to customers against claims of intellectual property infringement made by third parties arising from the use of our products. We also have contractual indemnification agreements with our directors, officers, and certain senior executives. Historically, there have been no significant losses related to such guarantees or indemnification provisions.
Our consolidated balance sheet at January 31, 2025 included $68.5 million of non-current tax reserves (including interest and penalties of $8.9 million), net of related benefits for uncertain tax positions. We do not expect to make any significant payments for these uncertain tax positions within the next 12 months.
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For additional information regarding our long-term debt, Preferred Stock, and our commitments and contingencies, see Note 7, “Long-Term Debt”, Note 9, “Convertible Preferred Stock”, Note 15, “Leases”, and Note 16, “Commitments and Contingencies” in the notes to our consolidated financial statements included in Part II, Item 8 of this report.
Contingent Payments Associated with Business Combinations and Asset Acquisitions
In connection with certain of our business combinations, we have agreed to make contingent cash payments to the former owners of the acquired companies based upon the achievement of performance targets following the acquisition dates.
For the year ended January 31, 2025, we made $5.3 million of payments under contingent consideration arrangements. As of January 31, 2025, potential future cash payments under contingent consideration arrangements totaled $52.6 million, the estimated fair value of which was $22.0 million, of which $12.9 million was recorded within accrued expenses and other current liabilities, and $9.1 million was recorded within other liabilities. The performance periods associated with these potential payments extend through October 2027.
In July 2023, we entered into an agreement to acquire source code that qualified as an asset acquisition and provides for additional consideration contingent upon achieving certain performance targets for the years ending January 31, 2025 and 2026 of up to $5.0 million, plus the opportunity to receive additional payments from us based on any revenue we receive from sales of products based on the acquired technology in adjacent markets. During the year ended January 31, 2025, we made a $0.3 million noncontingent prepayment against the first period earn-out, and accrued the remaining $1.7 million of the minimum guaranteed contingent consideration upon achieving certain milestones by certain dates.
Refer to Note 5, “Business Combinations, Asset Acquisitions, and Divestitures” to our consolidated financial statements included under Part II, Item 8 of this report for further details.
Recent Accounting Pronouncements
See also Note 1, “Summary of Significant Accounting Policies” to our consolidated financial statements included in Part II, Item 8 of this report for additional information about recent accounting pronouncements recently adopted and those not yet effective.
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