STOCK-BASED COMPENSATION

6 Months Ended

Jul. 31, 2019

Share-based Payment Arrangement [Abstract]

New Stock-Based Compensation Plan

On June 20, 2019, our stockholders approved the Verint Systems Inc. 2019 Long-Term Stock Incentive Plan (the “2019 Plan”). Upon approval of the 2019 Plan on June 20, 2019, additional awards are no longer permitted under our prior stock-based compensation plan (the “2017 Amended Plan”). Awards outstanding at June 20, 2019 under the 2017 Amended Plan or other previous stock-based compensation plans were not impacted by the approval of the 2019 Plan.

The 2019 Plan authorizes our board of directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards, other stock-based awards, and performance compensation awards. Subject to adjustment as provided in the 2019 Plan, up to an aggregate of (i) 9,475,000 shares of our common stock plus (ii) the number of shares of our common stock available for issuance under the 2017 Amended Plan as of June 20, 2019, plus (iii) the number of shares of our common stock that become available for issuance as a result of awards made under the 2017 Amended Plan or the 2019 Plan that are forfeited, cancelled, exchanged, or that terminate or expire, may be issued or transferred in connection with awards under the 2019 Plan. Each stock option or stock-settled stock appreciation right granted under the 2019 Plan will reduce the available plan capacity by one share and each other award denominated in shares that is granted under the 2019 Plan will reduce the available plan capacity by 2.38 shares.

Stock-Based Compensation Expense

We recognized stock-based compensation expense in the following line items on the condensed consolidated statements of operations for the three and six months ended July 31, 2019 and 2018:



	Three Months Ended July 31,				Six Months Ended July 31,
(in thousands)	2019		2018		2019		2018
Cost of revenue - product	$	488	$	388	$	822	$	505
Cost of revenue - service and support	1,546		1,557		2,616		2,286
Research and development, net	3,347		3,039		5,937		4,548
Selling, general and administrative	15,170		12,471		28,279		26,575
Total stock-based compensation expense	$	20,551	$	17,455	$	37,654	$	33,914

The following table summarizes stock-based compensation expense by type of award for the three and six months ended July 31, 2019 and 2018:



	Three Months Ended July 31,				Six Months Ended July 31,
(in thousands)	2019		2018		2019		2018
Restricted stock units and restricted stock awards	$	17,966	$	15,098	$	32,856	$	29,992
Stock bonus program and bonus share program	2,574		2,330		4,749		3,879
Total equity-settled awards	20,540		17,428		37,605		33,871
Phantom stock units (cash-settled awards)	11		27		49		43
Total stock-based compensation expense	$	20,551	$	17,455	$	37,654	$	33,914

Awards under our stock bonus and bonus share programs are accounted for as liability-classified awards, because the obligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation, to be settled with a variable number of shares of our common stock, which for awards under our stock bonus program is determined using a discounted average price of our common stock.

Restricted Stock Units

We periodically award RSUs to our directors, officers, and other employees. These awards contain various vesting conditions and are subject to certain restrictions and forfeiture provisions prior to vesting. Some of these awards to executive officers and certain employees vest upon the achievement of specified performance goals or market conditions (performance stock units or “PSUs”).

The following table (“Award Activity Table”) summarizes activity for RSUs, PSUs, and other stock awards that reduce available Plan capacity under the Plans for the six months ended July 31, 2019 and 2018:



	Six Months Ended July 31,
	2019				2018
(in thousands, except per share data)	Shares or Units		Weighted-Average Grant Date Fair Value		Shares or Units		Weighted-Average Grant Date Fair Value
Beginning balance	2,777		$	41.05	2,808		$	41.18
Granted	1,554		$	60.75	1,527		$	42.32
Released	(1,349	)	$	40.36	(1,074	)	$	43.90
Forfeited	(139	)	$	42.56	(184	)	$	41.13
Ending balance	2,843		$	52.22	3,077		$	40.84

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

Our RSU awards may include a provision which allows the awards to be settled with cash payments upon vesting, rather than with delivery of common stock, at the discretion of our board of directors. As of July 31, 2019, for such awards that are outstanding, settlement with cash payments was not considered probable, and therefore these awards have been accounted for as equity-classified awards and are included in the table above.

The following table summarizes PSU activity in isolation under the Plans for the six months ended July 31, 2019 and 2018 (these amounts are already included in the Award Activity Table above for 2019 and 2018):



	Six Months Ended July 31,
(in thousands)	2019		2018
Beginning balance	512		506
Granted	286		174
Released	(233	)	(72	)
Forfeited	(30	)	(83	)
Ending balance	535		525

Excluding PSUs, we granted 1,268,000 RSUs during the six months ended July 31, 2019.

As of July 31, 2019, there was approximately $114.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.0 years.

Stock Bonus Program

Our stock bonus program permits eligible employees to receive a portion of their earned bonuses, otherwise payable in cash, in the form of discounted shares of our common stock. Executive officers are eligible to participate in this program to the extent that shares remain available for awards following the enrollment of all other participants. Shares awarded to executive officers with respect to the discount feature of the program are subject to a one-year vesting period. This program is subject to annual funding approval by our board of directors and an annual cap on the number of shares that can be issued. Subject to these limitations, the number of shares to be issued under the program for a given year is determined using a 5-day trailing average price of our common stock when the awards are calculated, reduced by a discount determined by the board of directors each year (the “discount”). To the extent that this program is not funded in a given year or the number of shares of common stock needed to fully satisfy employee enrollment exceeds the annual cap, the applicable portion of the employee bonuses will generally revert to being paid in cash.

Awards under the stock bonus program for the performance period ended January 31, 2019 consisted of shares earned in respect of employee and officer incentive plans with a 15% discount and were issued during the three months ended July 31, 2019.

The following table summarizes activity under the stock bonus program during the six months ended July 31, 2019 and 2018 in isolation. There was no activity under the stock bonus program during the three months ended April 30, 2019. As noted above, shares issued in respect of the discount feature under the program reduce available plan capacity and are included in the Award Activity Table above. Other shares issued under the program do not reduce available plan capacity and are therefore excluded from the Award Activity Table above.



	Six Months Ended July 31,
(in thousands)	2019	2018
Shares in lieu of cash bonus - granted and released (not included in Award Activity Table above)	97	—
Shares in respect of discount (included in Award Activity Table above):
Granted	16	—
Released	13	—

In March 2019, our board of directors approved up to 150,000 shares of common stock, and a discount of 15%, for awards under our stock bonus program for the performance period ending January 31, 2020. In August 2019, our board of directors

changed this maximum number of shares to 200,000 based on strong enrollment and made a corresponding reduction of 50,000 shares in the number of shares available for issuance under our bonus share program for the performance period ending January 31, 2020.

Bonus Share Program

Under our bonus share program, we may provide discretionary bonuses to employees or pay earned bonuses that are outside the stock bonus program in the form of shares of common stock. Unlike the stock bonus program, there is no enrollment for this program and no discount feature. As noted above, shares issued under this program are included in the Award Activity Table above.

During the three months ended July 31, 2019, approximately 59,000 shares were awarded in respect of the bonus share program for the performance period ended January 31, 2019.

For bonuses in respect of the year ending January 31, 2020, our board of directors has approved the use of up to 300,000 shares of common stock under the bonus share program, reduced by any shares issued under the stock bonus program in respect of the same performance period. Assuming all 200,000 shares currently authorized for issuance under the stock bonus program for the performance period ending January 31, 2020 are issued, no more than 100,000 shares will be issued under the bonus share program for such performance period.

The combined accrued liabilities for the stock bonus program and the bonus share program were $4.5 million and $9.3 million at July 31, 2019 and January 31, 2019, respectively.