3.A. Reserved
3.B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable.
3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable.
3.D. RISK FACTORS
You should carefully consider the risks described below, together with all of the other information included in this Annual Report, in evaluating us and our shares. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this Annual Report.
Risks Associated with Macroeconomic and Global Conditions
Our business is impacted by changes in macroeconomic and/or global conditions and by the resulting impact on information technology spending and government budgets.
We generate the substantial majority of our revenue from sales to government agencies around the world, including national, regional and local government agencies. We expect that government contracts will continue to be a significant source of our revenue for the foreseeable future. Governmental budget allocations and demand for information technology, including solutions like ours, are significantly impacted by macroeconomic changes that governments may face. Such changes include global and regional conflicts, increasing inflation and interest rates, tariffs (and related retaliatory measures), tightening credit markets, disruptions in government funding processes such as U.S. government shutdowns, global health crises, supply challenges, changes in commodity or energy prices, and actual or threatened trade wars or restrictions on international trade. Historically, governmental agencies facing economic challenges, fiscal pressure, government shutdowns, reduced budgets, liquidity issues, restrictions on trade or other macroeconomic challenges have deferred purchase decisions or projects related to our solutions, been slow to convert awards or pilot deployments into contracts, canceled or reduced orders, and delayed or defaulted on payments to us. We expect governmental agencies facing similar challenges in the future to take similar actions. As a result, our business is subject to risks arising from adverse changes in domestic and global macroeconomic and other conditions. Such events have caused, and will likely continue to cause, governments around the world and other customers to delay, reduce or even cancel planned spending or projects, and may continue to impact our business and operations.
If governmental agencies reduce their spending with us, significantly delay projects, or significantly delay or fail to make payments to us, our business, results of operations, and financial condition may be materially adversely affected. This risk may be further elevated if such macroeconomic changes occur in a jurisdiction in which we have experienced significant customer concentration. See “Market and Strategy Risks — We have experienced significant customer concentration in recent periods, and our revenue levels would likely decline if any significant customer failed to purchase products or services from us at anticipated levels.”
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A significant portion of our business comes from government contracts, which exposes us to additional risks inherent in the government procurement process, potential adverse changes in the geopolitical environment, and limitations on investor visibility due to classification or contractual restrictions.
We provide products and services, directly and indirectly, to a variety of government entities around the world, including pursuant to contracts awarded to us under defense and homeland security-related programs. A majority of our revenue comes from sales to such governmental agencies, governmental authorities and government-owned companies.
Risks associated with licensing and selling products and services to government entities include more extended sales and collection cycles, varying governmental budgeting processes, adherence to complex procurement regulations, and other government-specific contractual requirements, including possible renegotiation or termination at the election of the government customer, including due to geopolitical events and macroeconomic conditions that are beyond our control. Additionally, sometimes procurement may be put on hold, for example during election periods, during actual or potential government shutdowns or due to other internal political developments, which can delay or prevent the conversion of identified opportunities or awards into signed contracts, further affecting revenue predictability. We may also be subject to offset requirements in our contracts with government entities that require us to spend money that we receive under the sale transaction, or to retain services that are needed in connection with our systems and products, in the country of the purchaser. This could reduce the economic value of the sales of our systems and products from our perspective. We may also be subject to audits, investigations or other proceedings relating to our government contracts and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government business, as well as harm to our reputation and financial results.
Our revenue from governmental entities is directly affected by those entities’ budgetary constraints and the priority allocated in their budgets to the procurement of our products. This risk is heightened during periods of global economic slowdown and during government shutdowns or other disruptions in government funding processes. Accordingly, governmental purchases of our systems, products and services may decline in the future if governmental purchasing agencies terminate, reduce or modify contracts.
Additionally, a significant portion of our government business is subject to security restrictions, either as a result of governmental classification requirements or contractual requirements, which, among other things, generally preclude us from disclosing certain information about these transactions, customarily including the identity of the customer and the solutions we are providing to the customer. As a result, our investors have less visibility into certain of our engagements which are subject to such restrictions than into our business or contracts with customers and companies that are not subject to such restrictions.
Because we have significant operations and business around the world, we are subject to geopolitical and other risks that could materially adversely affect our results.
We have significant operations and business around the world, including sales, research and development, manufacturing, customer services and support, and administrative services. The countries in which we have our most significant operations include Brazil, Bulgaria, Cyprus, Germany, India, Israel and Romania. We also generate significant revenue from customers in more than a dozen other countries, and smaller amounts of revenue from customers in many more countries, including a number of emerging markets. We intend to continue to grow our business internationally.
Our global operations are, and any future growth will be, subject to a variety of risks, many of which are beyond our control, including risks associated with, but not limited to:
•foreign currency fluctuations;
•political, security, and economic instability or corruption;
•geopolitical risks from war, natural disasters, pandemics or other events;
•tariffs and related retaliatory measures;
•government shutdowns;
•changes in international and local laws and regulations, including those related to trade compliance, anti-corruption, information security, data privacy and protection, AI, tax, labor, currency restrictions and other requirements;
•differences in tax regimes and potentially adverse tax consequences of operating in foreign countries;
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•product customization or localization issues;
•preferences for or policies and procedures that protect local suppliers;
•legal uncertainties regarding intellectual property rights or rights and obligations generally; and
•challenges or delays in collection of accounts receivable.
Any or all of these factors could materially adversely affect our business or results of operations.
Inflation, foreign currency fluctuations and related volatility in the global economy could negatively impact our results of operations.
In addition to reduced government spending, macroeconomic uncertainty, foreign exchange volatility, and adverse currency movements, which may result in reduced demand for our solutions, rising inflation and interest rates may result in increased costs. A significant portion of our expenses, primarily labor expenses, is denominated in New Israeli Shekels and Euro, while a substantial portion of our revenue is denominated in U.S. dollars. As a result, fluctuations in foreign currency exchange rates, particularly a weakening of the U.S. dollar against the New Israeli Shekel or Euro, may increase our expenses in U.S. dollar terms and adversely affect our results of operations.
The annual inflation rate in Israel was approximately 3% for the year ended December 31, 2025. If inflation rates in Israel and other places in which we operate or incur costs continue to increase or persist for a prolonged period of time, or if unfavorable foreign currency exchange rate movements continue, it may continue to affect our expenses, including, but not limited to, employee compensation expenses and benefits, and general administrative costs. In addition, sustained inflationary pressures or adverse currency fluctuations may limit our ability to effectively forecast costs, manage budgets, or maintain historical margin levels.
In the event of inflation increasing beyond expectations, higher interest rates or adverse foreign currency exchange rate movements, we may seek to increase the sales prices of our products and solutions in order to maintain satisfactory margins. Any attempts to offset cost increases with price increases may result in reduced sales, increase customer dissatisfaction or otherwise harm our reputation. Furthermore, our ability to mitigate the impact of currency fluctuations through hedging or other financial strategies may be limited and may not be effective, which could further adversely affect our financial condition and results of operations.
New tariffs and retaliatory measures may adversely affect the economy and reduce government spending, which could negatively impact our business.
Changes in trade policies, including the imposition of new tariffs, export controls, sanctions and other trade restrictions by the U.S. government or other governments, have had a significant impact on the domestic and global economy. Governments may implement tariffs on imported goods, leading to increased costs for businesses and consumers. Additionally, governments may respond with retaliatory tariffs and trade barriers, further disrupting global supply chains, increasing costs, and creating economic uncertainty.
Such trade policies could contribute to slower economic growth, higher inflation, and increased market volatility, which may, in turn, negatively impact government revenues and budgetary allocations. If economic conditions deteriorate as a result of new tariffs or retaliatory measures, government spending, particularly in areas relevant to our solutions, could be reduced. Any such reduction in government expenditures could materially and adversely affect our financial condition, results of operations, and prospects.
Furthermore, tariffs or other trade restrictions imposed in the U.S. or elsewhere could potentially affect our component and manufacturing costs, which may impact our pricing strategies and may also impact our gross margins. Such price adjustments might influence our competitive positioning in certain markets, particularly in comparison to competitors with different supply chain structures.
We cannot predict the nature, timing, or scope of future trade policies or restrictions, nor the extent of their economic impact. However, any significant reduction in government spending resulting from economic downturns related to trade tensions could negatively affect demand for our products and services, disrupt our supply chain, and adversely impact our overall business operations.
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The regulatory landscape may change the demand for our products and services.
The domestic and international regulatory landscape governing the sale and usage of our solutions is subject to constant change, often influenced by factors beyond our control or anticipation. Such factors may include a spectrum of elements, including the dynamic political climate, budgetary considerations, evolving international relations between countries and organizations, public sentiment, pressures from prominent institutional investors, politicians and public bodies, media and non-governmental organizations (NGOs), as well as various events in international affairs. Changes in the legislation, regulation or policies governing the sale and usage of our solutions, including changes in the interpretation of existing legislation, regulation and policies, could reduce the demand for our solutions or necessitate adjustments to product design and functionality, all in order to ensure continued compliance and competitiveness. Evolving export control regulations and related restrictions on transfers of technology and technical data across borders may affect our ability to offer certain solutions in some jurisdictions or may require us to adjust product features to comply with applicable regulatory requirements. For example, legislative requirements mandating telecommunication providers to facilitate the monitoring of communications by law enforcement, or governing the purchase and usage of security solutions similar to ours, can significantly impact the market demand for some of our solutions. Similarly, emerging data-protection, privacy and AI-governance frameworks may impose limits on data usage, require enhanced transparency, or restrict certain functionalities, which could influence customer requirements or product design. These frameworks are evolving rapidly across multiple jurisdictions and have already resulted in increased compliance requirements and operational constraints. Such regulations may also influence customer requirements for particular functionalities, performance standards, or adherence to technical specifications. The ability to successfully anticipate and adapt to these regulatory or policy shifts is critical to our continued success. Failure to do so, whether due to an inability to foresee regulatory or policy changes or an inability to promptly redesign our products to meet evolving standards, may have a material adverse effect on our operational results.
In recent years, the usage of solutions like ours and other tools and products for the collection, analysis and fusion of data and communication as well as advanced cyber tools have faced increased attention and in some cases scrutiny, including by some regulators, government officials, media and influential politicians. As a result, there has been, and there will likely be, additional legislation and regulatory initiatives, as well as calls for changes in policies, intended to impose new definitions and possibly limit or restrict the sale and usage of solutions that may also include some of our solutions. These initiatives and policy changes may result in reduced demand for some of our solutions or limitations in our business environment. There is no assurance that we will be able to timely identify legislation, regulation or policy changes or that if we identify such changes that we will be able to modify our solutions to meet any new requirements. Furthermore, we cannot ensure that demand for our solutions or our ability to pursue our business will not be impacted by such changes even if we will be able to modify the solutions to comply with any new requirements.
Our business, financial condition and results of operations may be materially and adversely affected by any negative impact on the global economy resulting from ongoing global or regional conflicts or any other geopolitical tensions.
Ongoing and emerging global conflicts, including the Russia-Ukraine conflict, tensions between China and Taiwan and more recently, the expansion of military activity by Israel, in coordination with the U.S., against Iran, including strikes targeting Iran's nuclear and ballistic missile capabilities, as part of “Operation Epic Fury,” a joint U.S.–Israel initiative, as well as heightened geopolitical tension, have led to and could continue to cause significant market disruptions. Such developments have included episodes of direct military engagement, retaliatory actions across the Middle East, interruptions to commercial shipping, and increased exposure of critical energy infrastructure and key maritime corridors, including the Strait of Hormuz, to heightened risk. These disruptions may include volatility in commodity prices, uncertainty in credit and capital markets, restrictions on international trade as a result of export restrictions, sanctions, and currency control measures, as well as supply chain interruptions. Additionally, coordinated sanctions, trade restrictions, and economic measures imposed by various governments in response to geopolitical events could further impact global financial stability and economic growth. Specifically, since the commencement of Russia’s military actions against Ukraine a sustained and coordinated regime of export restrictions and sanctions has been imposed by the United States, the European Union, the United Kingdom, and numerous other countries against Russia and Belarus. Furthermore, Russian authorities have imposed significant currency control measures, other sanctions and imposed other economic and financial restrictions. Additional or escalated geopolitical tensions or conflicts could result in further sanctions, export restrictions, or other countermeasures, any of which could negatively impact the global economy and financial markets and could adversely affect our business.
While we do not trade with any Russian or Belarusian governmental agencies or with any of the entities which are the target of sanctions, any of the above-mentioned factors could adversely affect our business, prospects, financial condition, and operating results and/or exacerbate other risks highlighted in this Annual Report. Disruptive impacts of conflicts and tensions, especially in countries where we have significant operations or facilities, may require us to reevaluate our operations there and/or otherwise harm our business. In addition, armed conflicts and geopolitical instability, including in the Middle East, may prompt governments to redirect resources toward defense or emergency needs, which could lead to postponements, reductions
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or cancellations of spending on technology initiatives, and may cause customers or partners to delay or scale back investment and purchasing decisions.
Disruptions to the global supply chain have adversely affected our financial results and may negatively impact government spending.
The global supply chain remains susceptible to significant disruptions due to ongoing challenges of electronic components and labor shortages and other macroeconomic factors. These disruptions, which have persisted since 2022, continued throughout 2025 and are expected to continue into 2026. In addition, heightened geopolitical tensions and regional conflicts have contributed to increased instability in global trade and logistics, including attacks on maritime shipments in key shipping routes, posing a risk to our global supply chain. These disruptions have already contributed to increased costs, delivery delays, adversely impacting our financial results, and similar or more severe disruptions in the future - including electronic components and other products upon which we rely, extended lead times, and increased cost of freight, insurance, purchased materials and manufacturing labor- could further negatively affect our business. If the impacts of the supply chain disruptions are more severe than we expect, particularly with respect to components for which we rely on a limited number of suppliers, it could result in even longer lead times and further increased costs, all of which could materially adversely affect our business, financial condition and results of operations. In addition, governments may reduce their budgets or defer purchase decisions until supply chain disruptions lessen.
Furthermore, actions we take to mitigate supply chain risks, such as increasing inventory levels or qualifying alternative suppliers, may require additional working capital and could result in higher carrying costs or excess or obsolete inventory. Supply chain disruptions may also limit our ability to meet contractual delivery requirements, which could expose us to penalties or contract cancellations. In addition to supplier-specific risks, broader shifts in global technology supply and demand, including increased investment in advanced computing infrastructure and concentrated manufacturing, have led to periodic shortages, longer lead times, and higher costs for servers, networking equipment, storage, and silicon-based technologies, potentially constraining availability and increasing procurement costs.
These rising procurement costs, particularly for essential IT hardware and infrastructure, may have a direct impact on our financial performance. We may not be able to pass these increased hardware costs to our customers for our existing commitments, which could lead to significant margin compression. Furthermore, while we may attempt to implement price increases for future contracts, expansions or renewals, there is no assurance that customers will have sufficient budget or will accept such increases, or that any such increases will adequately offset the rising costs of infrastructure.
Additionally, government customers may delay, reduce, or cancel procurement programs due to supply chain uncertainty, budget constraints, or shifting priorities, which could negatively impact our revenues and backlog.
Conditions in Israel, including Israel’s conflicts with Iran and other hostile actors in the region, as well as political and economic instability, may adversely affect our operations and limit our ability to produce, market and sell our products, which would lead to a decrease in revenues.
We are headquartered and have significant operations in Israel. The majority of our management, employees and consultants, including employees of our service providers, are located in Israel. Our business and operations are directly affected by economic, political, geopolitical and military conditions in Israel.
Since its establishment in 1948, the State of Israel has been subject to ongoing security concerns and challenges, as well as armed conflicts with its neighbors. Although Israel has entered into various agreements with such countries and groups, there has been an increase in unrest and terrorist activity, which began in September 2000 and continued with varying levels of severity throughout 2025, including the war following the October 7, 2023 Hamas attacks on Israel’s southern border, which expanded into a broader regional escalation involving Iran and Iran‑backed groups, including Hezbollah, militias in Syria and Iraq, and the Houthis in Yemen.
During 2024 and 2025, Israel and Iran engaged in episodic direct hostilities, and in February 2026 Israel and the United States commenced a joint operation against Iran, which has resulted in Iranian missile and drone attacks against Israel, U.S. targets and other countries in the region. As of the date of this Annual Report, these developments are ongoing and their outcome and impact remain uncertain. Notwithstanding any ceasefires that are entered into, there is no certainty that any such ceasefire will be sustained and hostilities may resume or even escalate. Future developments are unpredictable in the region. Actual or perceived political or security instability in Israel, or changes in the political environment, could adversely affect the Israeli economy and, in turn, our business, financial condition, results of operations and prospects.
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Regional hostilities have also included threats to international maritime routes and energy supply chains, including the potential disruption of shipping through the Strait of Hormuz, which could negatively affect global and Israeli economic conditions.
Hostilities and regional tensions have caused and may continue to cause damage to private and public facilities, infrastructure, utilities and telecommunication networks, and may disrupt our operations and supply chains. Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of certain direct damages caused by terrorist attacks or acts of war, we cannot assure you that such government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.
In connection with armed conflicts and security events, Israeli military reservists may be called up for service, including for extended periods. Some of our employees have been and may in the future be called up for active military duty, and their absence may materially and adversely affect our ability to conduct our operations.
In addition, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business. A campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also adversely impact our business.
Political conditions within Israel may also affect our operations. The Israeli government has pursued, and may continue to pursue, changes to Israel’s judicial system, which has contributed to uncertainty and could lead to political instability or civil unrest. Any such developments could adversely affect the business environment in Israel and our business and operations.
Risk of Disruption from Regional or Global Health Crises
Regional or global health crises, and the measures taken to mitigate their effects, have disrupted in the past and may disrupt in the future our operations and financial performance. These events can disrupt supply chains, reduce customer demand for our products and services, and impact the availability of our workforce. Additionally, government responses to such health crises may lead to changes in budgetary priorities, potentially affecting our customers' spending and procurement decisions. Such disruptions could materially and adversely affect our business, financial condition, and results of operations.
Market and Strategy Risks
Large orders or contracts, customer concentration, and other factors have significantly impacted and may significantly impact in the future our results from period to period.
It is customary for us to receive large orders from time to time, either as part of a new contract or under an existing contract. We also have long-standing relationships with certain customers, resellers and partners that have historically accounted for a significant amount of our annual revenue. Any decision of said customers, resellers or partners, to stop or significantly reduce their business with us, for commercial, geopolitical or any other reason, may cause a significant decrease of our revenue and periodic variations in results of operations. A single customer or reseller, or a small number of customers, have historically and may in the future represent a substantial portion of our revenue in such periods, either in the form of a single order or in the form of multiple separate orders. A significant order during one period is usually not followed by further significant orders from the same customer in subsequent periods, and may not be followed by similarly-sized orders from other customers. As a result, our revenue and operating results are subject to substantial periodic variations, especially from quarter to quarter, in the event of receipt of one or more significant orders, a deferral or loss of one or more significant orders, a delay in a large implementation, or a deterioration in our relationship with a significant customer.
Since our quarterly performance may vary significantly, our results of operations for any quarter or fiscal year are not necessarily indicative of the results that we might achieve for any subsequent period. Accordingly, quarter-to-quarter and year-to-year comparisons of our operating results may not be meaningful. In addition, we have an order backlog that is generally composed of orders that are fulfilled within a period of three to thirty six months after receipt, which makes revenue in any quarter substantially dependent upon orders received in prior quarters. The extended time frame and uncertainty associated with many of our sales opportunities also makes it difficult for us to accurately forecast our revenues (and attendant budgeting and guidance decisions) and increases the volatility of our operating results from period to period. Our ability to forecast and the volatility of our operating results is also impacted by the fact that pricing, margins, and other deal terms have in the past and may in the future vary substantially from transaction to transaction, especially across product lines and regions. The terms of our transactions, including with respect to pricing, future deliverables, and termination clauses, and dependency of our customers readiness for deployment also impact the timing of our ability to recognize revenue. Because these transaction-
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specific factors are difficult to predict in advance, this also complicates the forecasting of revenue and creates challenges in managing our revenue mix.
As with other software-focused companies, a large amount of our quarterly business tends to come in the last few weeks, or even the last few days, of each quarter. This trend has complicated in the past and may in the future complicate the process of accurately predicting revenue and other operating results, particularly on a quarterly basis. Our business is subject to seasonal factors that may also cause our results to fluctuate from quarter to quarter. See “Item 4B. Information on the Company—Business Overview—Seasonality”. This has impacted and may also impact in the future our ability to accurately predict our earnings, which could in turn adversely affect the trading price of our ordinary shares. For more information, see “Risks Related to our Ordinary Shares—If we do not meet the expectations of securities analysts, if they do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our ordinary shares, or, alternatively, if we do not meet our own earnings guidance, the price of our ordinary shares could decline”.
We have experienced significant customer concentration in recent periods, and our revenue levels would likely decline if any significant customer failed to purchase product or services from us at anticipated levels.
For the year ended January 31, 2026, we had one significant government customer that represented approximately 18% of our total revenue. For the years ended January 31, 2025 and 2024, we had two significant government customers that jointly represented approximately 30%, and 28%, respectively, of our total revenue. We define a customer as an organization from which we have recognized revenue in a reporting period. In situations where we sell to a governmental organization that acts on behalf of multiple agencies or departments, we treat that organization as the customer for reporting purposes notwithstanding that each of the underlying agencies or departments is generally making its own independent purchasing decisions. Our contracts with government customers, or when the end user is a government customer, contain customary terms and conditions for government contracts of this kind, including a right for the customer to terminate the applicable contract with or without cause upon notice. The loss of one or more of these contracts (which are separately terminable) could have a material adverse impact on our operation results, especially in the short-term. In the past, orders from our largest customers have fluctuated from time to time based on our customers’ needs or other factors outside of our control. To the extent that any of these customers terminates its relationship with us or fails to purchase products or services from us at the anticipated levels, it may negatively impact our results of operations. Furthermore, we often sell our products and solutions in certain jurisdictions through resellers. A single reseller, or a small number of resellers, have historically and may in the future represent a substantial portion of our revenue in a given period. If any such reseller terminates its engagement with us, or will alternatively work on an exclusive basis with any of our competitors, it could negatively impact our results of operations, especially in the short-term. See “Risks Related to Our Business and Operations—If we are unable to establish and maintain our relationships with third parties that market and sell our products, our business and ability to grow could be materially adversely affected.”
The industry in which we operate is characterized by rapid technological changes, evolving industry standards and challenges, and changing market potential, and if we cannot anticipate and react to such changes our results may suffer.
The markets for our products are characterized by rapidly-changing technologies and evolving industry standards and challenges. The introduction of products embodying new technologies, new delivery platforms, the commoditization of older technologies, and the emergence of new industry standards and technological hurdles can exert pricing pressure on existing products and services and/or render them unmarketable or obsolete.
In addition, changes such as the increasing use of artificial intelligence (AI), including generative AI (GenAI), the increasing complexity and sophistication of security threats, the exponential growth in data and prevalence of encrypted communications have created significantly greater challenges for our customers and for our solutions to address.
In recent years we have enhanced our solutions by using AI, including GenAI. Continuing to embed AI models seamlessly into our solutions may present challenges, resulting in delays or limitations in product development. Ensuring the successful incorporation of these advanced technologies requires overcoming obstacles related to algorithmic bias, discrimination, hallucinations, deployment, transparency and staying aligned with evolving regulatory frameworks. Our ability to continue to navigate these challenges and further integrate AI and GenAI seamlessly into our solutions will have a significant impact on our competitiveness and the value we provide to customers.
Moreover, the market potential and growth rates of the markets we serve are not uniform and are evolving. It is critical to our success that we are able to anticipate and respond to changes in technology and industry standards and new customer challenges by consistently developing new, innovative, high-quality products and services that meet the changing challenges and needs of our customers. We must also successfully identify, enter, and appropriately prioritize areas of growing market potential, including by launching, successfully executing, and driving demand for new and enhanced solutions and services, while simultaneously preserving our legacy businesses and migrating away from areas of commoditization. We must also develop and maintain the expertise of our employees as the needs of the market and our solutions evolve. If we are unable to execute on these strategic priorities, we may lose market share or experience slower growth, and our profitability and other results of operations may be materially adversely affected.
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Intense competition in our markets and competitors with greater resources than us may limit our market share, profitability, and growth.
We face aggressive competition from numerous and varied competitors in all of our markets, making it difficult to maintain market share, remain profitable, invest and grow. We are also encountering new competitors as we expand into new markets or as new competitors expand into ours. Our competitors may be able to more quickly develop or adapt to new or emerging technologies, better respond to changes in customer needs or preferences, better identify and enter into new areas of growth, or devote greater resources to the development, promotion and sale of their products. Additionally, our competitive landscape is becoming increasingly intricate with the rapid evolution of AI technologies. In this dynamic environment, competitors may exploit disruptions, and leverage shortened development cycles to swiftly introduce innovations that could pose a significant threat to our market position. The accelerated pace of AI development may compel our customers to quickly adapt to technological progress introduced by our competitors. A delayed response to shifts in customer needs, preferences or technological trends could erode our competitive edge. This could impact our market share and/or our ability to remain profitable, invest strategically and sustain long-term growth. Some of our competitors have, in relation to us, longer operating histories, larger customer bases, longer standing relationships with customers, superior brand recognition, superior margins, and significantly greater financial or other resources, especially in new markets we may enter. Consolidation among our competitors may also improve their competitive position. We also face competition from solutions developed internally by our customers or partners. For more information, see “Item 4B. Information on the Company—Business Overview—Competition.” To the extent that we cannot compete effectively, our market share and results of operations would be materially adversely affected.
Because price and related terms are key considerations for many of our customers, we may have to accept less-favorable payment terms, lower the prices of our products and services, and/or reduce our cost structure, including reducing headcount or investment in research and development, in order to remain competitive. If we are forced to take these kinds of actions to remain competitive in the short-term, such actions may adversely impact our ability to execute and compete in the long-term.
If we are unable to develop enhancements to our products, increase adoption and usage of our products, and introduce new products and capabilities that achieve market acceptance, our business, financial condition and results of operations may be adversely affected.
Our ability to attract new customers, retain existing customers, and increase revenue from existing customers depends on numerous factors, including our ability to enhance and improve our existing products and drive ongoing adoption and usage of our products, and introduce new products and capabilities. In particular, if we are not able to develop technology that is able to keep pace with new and increasingly complex criminal and fraudulent activities which technology would result in an increased success rate of our customers’ analytical investigations or shortens the time frames for such investigations, we may not be able to achieve a return on investment that satisfies our customers, which could negatively impact renewals, expansions and customer retention. The success of any enhancements, including our ability to continue to leverage advancements in AI and GenAI, and the introduction of new products depends on several factors, including timely completion, adequate quality testing, introduction to the market, market acceptance and adaptability to changes in the investigative technology landscape. Any products we develop may not be introduced in a timely or cost-effective manner (or at all), may contain errors or defects, or may not achieve the broad market acceptance necessary to generate sufficient revenue. If we are unable to successfully enhance our existing products, including through the implementation of AI and GenAI into our solutions, to meet our customers’ requirements, increase adoption and usage of our products, or develop new products, our business, financial condition and results of operations may be adversely affected.
Our continued implementation and use of artificial intelligence may have an adverse effect on our business.
We use AI, GenAI and machine learning technologies throughout our solutions, including to develop or assist in the development of our own software code. As with many technological innovations, there are significant risks and challenges involved in developing, maintaining and deploying these technologies and there can be no assurance that the usage of such technologies will always enhance our products or services or be beneficial to our business. The use of third-party AI tools to develop or assist in the development of our software code may expose us to additional risks, including but not limited to: (i) uncertainties regarding the ownership and enforceability of intellectual property rights in AI-generated code; (ii) potential inadvertent incorporation of open-source or third-party licensed code, which may impose unanticipated obligations or restrictions on our products; (iii) increased risk of introducing security vulnerabilities or defects into our software; and (iv) the potential inadvertent disclosure, retention or misuse of our proprietary information, trade secrets, or customers’ confidential information in connection with the use of AI tools, model training, or related workflows. Any of these risks could adversely affect our ability to protect our proprietary technology, expose us to legal claims, or result in additional costs and operational disruptions.
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Further, changes and ongoing development in how we use AI and machine learning technologies and how we train our models, in particular if those AI or machine learning models are (i) incorrectly designed or implemented; (ii) trained or reliant on incomplete, inadequate, inaccurate, biased or otherwise poor quality data; (iii) trained on data from sources for which we do not have a clear legal basis for use, or which may not comply with applicable laws, regulations or contractual obligations (including data protection, privacy and intellectual property laws); and/or (iv) adversely impacted by unforeseen defects, technical challenges, cybersecurity threats or material performance issues, the performance of our solutions, as well as our reputation and the reputations of our customers and partners, could suffer or we could incur liability through the violation of laws or contracts to which we are a party or through civil claims.
The market for AI and machine learning technologies is rapidly evolving and remains unproven in many industries, including our own. We are in varying stages of development in relation to our products or services which utilize proprietary and third party AI and machine learning technologies, and we may not be successful in our ongoing development of these technologies in the face of novel and evolving technical, reputational and market factors. Our failure to successfully develop and commercialize our products or services which utilize proprietary machine learning and AI technologies could adversely affect our business.
In addition, the increasing availability of AI and machine learning technologies may lower barriers to developing or adopting certain capabilities, which could, over time, influence elements of competition and customer expectations.
Furthermore, the market for AI and machine learning is subject to rapidly evolving regulatory frameworks. Various government bodies worldwide have introduced or are considering new laws to govern these technologies, for example, the EU Artificial Intelligence Act (EU AI Act.) Our compliance with these regulations may pose challenges and significant costs, potentially impacting our operations and financial performance. We continue to monitor changes and developments in the AI regulatory landscape, as well as their applicability to us and any impact such changes and developments may have on our business.
Reputational and political factors related to our business or operations may adversely affect us.
We have experienced, and may continue to experience, reputational harm from negative publicity as a result of allegations regarding the misuse of our solutions by countries and organizations that are perceived as violating human rights.
The sale, and the alleged sale, of our solutions to countries or customers that are viewed as having poor human rights or democracy records or that have allegedly misused our solutions has resulted and could further result in negative publicity and reputational harm, even where such activities or transactions are permissible under applicable laws or were not conducted by our solutions. In particular, in 2021, Meta Platforms, Inc. (“Meta”) announced publicly that it had removed accounts that it claimed were associated with us and that it alleged were used to gather information on individuals contrary to its terms of service. In addition, we have been, and may continue to be, associated with other companies in our industry and in other industries that engage with countries or customers viewed as having poor human rights or democratic records or with companies that apply techniques that are viewed negatively, which has harmed and may continue to harm our reputation. We are subject to heightened scrutiny and criticism by public opinion commentators, privacy advocates, NGOs, politicians, media outlets and others, who have made allegations relating to human rights infringement by certain customers using our solutions, which allegations have adversely affected our reputation. Media attention to our industry has increased over time and may continue to increase in the future. Given the nature of our business and the sensitivity of our products, we often cannot respond to adverse publicity, which has and can exacerbate the risk of reputational damage. Investors may perceive our inability to address negative coverage as a lack of proactive measures to promote responsible use of our products, despite our ongoing efforts in that direction. This may also have an adverse effect on our reputation in the public sphere, potentially leading to misunderstandings about our commitment to ethical governance and responsible business practices.
We have implemented policies, guidelines and measures that are aimed at supporting our goal of having our solutions used solely in a manner that serves their intended purpose and to mitigate the risk of any misuse. See “Item 4.B. Business Overview – Internal Oversight.” Although we take very seriously the risk that our solutions will be exploited or misused, there can be no assurance that such mitigating measures will be successful or that customers will not misuse our solutions.
Furthermore, such heightened scrutiny and allegations have resulted, and may in the future result, in investigations into our solutions and business and the imposition of restrictions on our business as well as deter potential customers. The risk of these adverse impacts has resulted and may continue to result in lost business opportunities that impact our results of operations and may also deter or restrict investors. In addition, if we continue to experience reputational harm, it may negatively impact our ability to recruit and retain qualified personnel. These risks may grow as we grow our business and our brand.
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Sales processes for sophisticated solutions and a broad solution portfolio like ours present significant challenges and may be unpredictable.
We offer our customers a broad solution portfolio and many of our solutions are sophisticated and may represent a significant investment for our customers. As a result, our sales cycles can range in duration from a few months to 3 years and may require, for example, discussions about budget and which potential solution is most suitable for the customer. As the length or complexity of a sales process increases, so does the risk of successfully closing the sale. Larger sales are often made by competitive bid, which also increases the time and uncertainty associated with such opportunities. Because of the long approval process that typically accompanies strategic initiatives or capital expenditures by our customers, our sales process is often delayed, with little or no control over any delays encountered by us. Customers may also require education on the value and functionality of our solutions as part of the sales process, further extending the time frame and uncertainty of the process.
Longer sales cycles, competitive bid processes, and the need to educate customers mean that:
•There is greater risk of customers deferring, scaling back, or canceling sales as a result of, among other things, their receipt of a competitive proposal, changes in budgets and purchasing priorities, extensive internal approval processes, or the introduction or anticipated introduction of new or enhanced products by us or our competitors during the process.
•We may make a significant investment of time and money in opportunities that do not come to fruition, which investments may not be usable or recoverable in future sales.
•We may be required to bid on a project in advance of the completion of its design or be required to begin working on a project in advance of finalizing a sale, in either case, increasing the risk of unforeseen technological difficulties or cost overruns.
•We face greater downside risks if we do not correctly and efficiently deploy limited personnel and financial resources and convert such sales opportunities into orders.
Larger solution sales also require greater expertise in sales execution and transaction implementation than more basic product sales, including in establishing and maintaining appropriate contacts and relationships with customers and partners, product development, project management and implementation, staffing, integration, services, and support. Our ability to develop, sell, implement, and support larger solutions and a broad solution portfolio is a competitive differentiator for us, which provides for solution diversification and more opportunities for growth, but also requires greater investment for us and presents challenges, including, among others, challenges associated with competition for limited internal resources, complex customer requirements, and project deadlines. After the completion of a sale, our customers or partners may need assistance from us in generating maximum value from the functionality of our solutions, in realizing their benefits, or in implementation generally. If we are unable to assist our customers and partners in realizing the benefits they expect from our solutions and products, demand for our solutions and products may decline and our operating results may suffer. Any failure to develop high-quality solutions and to provide high-quality services and support could adversely affect our reputation, our ability to sell our service offerings to existing and prospective customers, and our operating results.
We have been subject to claims by third parties that our solutions infringe their terms of use or other proprietary rights and may in the future become subject to similar or other claims that, regardless of merit, could disrupt our business, harm our reputation and adversely affect our results of operations or financial condition.
Our solutions fuse and analyze data collected from various sources, including from commercial web sources and social media platforms. Such sources and platforms have alleged and may allege in the future that our solutions and techniques for capturing and collecting data and information from such sources violate their terms of use or other proprietary rights of such sources or of their users. For example, in December 2021, Meta issued a report alleging that certain solutions offered by us that interface with Facebook and Instagram violate Meta’s terms of use. Concurrently with the issuance of the foregoing report, Meta announced that it had removed accounts that it claimed were associated with our solutions and requested we cease data collection from its social media platforms. We made modifications to certain features of our solutions that we believe addressed Meta’s concerns. While these modifications impacted the manner our customers can use these solutions, as of the date of this report neither such allegations nor the modification to our practices in light of such allegations have had a material impact on our business, including without limitation results of operations and financial condition. However any allegations that our solutions and techniques infringe the terms of use or rights of third parties has resulted in and may result in future legal claims against us or our customers and such claims may damage our reputation, adversely impact our customer relationships and create liability for us. See “Reputational and political factors related to our business or operations may adversely affect us.” We generally agree in our customer contracts to indemnify customers for expenses or liabilities they incur as a result of third-party
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intellectual property infringement claims associated with our solutions, and the resolution of these claims, irrespective of whether a court ultimately determines that our solutions and techniques infringed another party’s intellectual property rights, may be time-consuming, disruptive to our business and very costly. In addition, in connection with an infringement dispute, or claims of infringement, we may be required to, or may voluntarily decide to cease using or developing certain features or solutions that we offer to our customers. These circumstances could adversely affect our ability to generate revenues as well as require us to incur significant expenses to develop alternative or modified solutions for our customers.
Regulatory constraints may limit our ability to offer and sell some of our products and services and to compete with competitors that are not subject to the same regulations.
The technologies that we develop, and that we rely upon in our products, are subject to regulations including export and trade restrictions. See “Regulatory Risks - We are subject to complex, evolving regulatory requirements that may be difficult and expensive to comply with and that could negatively impact our business.” Due to such regulations and restrictions, our international sales and marketing, as well as our international procurement of skilled human resources, technology and components, depend largely on export and marketing license approvals from governmental agencies in Israel and in other countries. If we fail to obtain approvals in the future, or if approvals previously obtained are revoked or expire or are not renewed due to factors such as changes in political conditions, government policies or the imposition of sanctions, or if existing or future approvals are conditioned upon requirements that we are unable to meet or fulfill, then our ability to market and sell our products and services to customers outside the country in which they are developed and our ability to obtain goods and services essential to our business could be interrupted, resulting in a material adverse effect on our business, revenues, assets, liabilities and results of operations. In the past, certain of our licenses to market, export or provide services to certain countries or regions were revoked or suspended for reasons beyond our control, including due to political and geopolitical reasons. We cannot assure you that in the future material licenses or approvals will not be revoked or suspended.
Moreover, as an additional measure to mitigate the risk that our solutions will be exploited in a manner that may violate human rights, we have in the past and may in the future, opt to abstain from onboarding new customers, renewing licenses or extending additional services to existing customers as part of voluntarily imposed guidelines or business decisions, even though such guidelines or decisions are not mandated by law or regulation. Furthermore, we may refrain from engaging in business activities in particular countries or with potential customers for similar reasons. The export and trade regulations and requirements we and our solutions are subject to as well as voluntarily imposed guidelines place us at an economic disadvantage compared to some of our competitors that are not subject to the same regulatory constraints or self-imposed guidelines, and can cause us to lose market share or experience slower growth compared to our competitors. For more information regarding the mitigating measures we have taken, see “Item 4.B. Business Overview - Internal Oversight .”
If we cannot retain and recruit qualified personnel, our ability to operate and grow our business may be impaired.
We depend on the continued services of our management and employees to run and grow our business. To remain successful and to grow, we need to retain existing employees and attract new qualified employees, including in new markets and growth areas we may enter, such as employees in the technology sectors. The market for qualified personnel is competitive in the geographies in which we operate and may be limited, especially in areas of emerging technology. We may be at a disadvantage to larger companies with greater brand recognition or financial resources, or to start-ups or other emerging companies in trending market sectors. Larger companies with which we compete have expended and will likely continue to expend more resources than we do on employee recruitment and are often better able to offer more favorable compensation and incentive packages than we are. In addition, all of our executive officers and key personnel are at-will employees and may terminate their employment relationship with us at any time. The loss of the services of our key personnel and any of our other executive officers, and our inability to find suitable replacements in a timely fashion, could result in a decline in sales, delays in product development, and harm to our business and operations.
Furthermore, if we experience high turnover of our product and development personnel, a lack of managerial resources to guide our research and development, or a lack of other research and development resources, we may miss or fail to execute on new product development and strategic opportunities and consequently lose potential and actual market share. The success of our business is largely dependent on our product and development teams developing and executing on a product roadmap that allows us to retain and increase the spending of our existing customers and attract new customers. A failure to continue offering the same caliber of solutions due to a loss of key personnel could therefore adversely affect our business and results of operations.
We seek to retain and motivate existing personnel through our compensation practices, company culture and career development opportunities. However, efforts we engage in to establish operations in new geographies where additional talent may be available, potentially at a lower cost, may be unsuccessful or fail to result in the desired cost savings. If we are unable to attract and retain qualified personnel when and where they are needed, our ability to operate and grow our business could be
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impaired. Moreover, if we are not able to properly balance investment in personnel with sales, our profitability may be adversely affected.
Moreover, prolonged economic downturns may require us to undertake further optimization and cost saving initiatives, including streamlining our organization and adjusting the size and structure of our workforce. We have implemented in the past, and may implement in the future, certain cost reduction efforts to reduce material spend and operating expenses, including a reduction in workforce. Any reduction in workforce may yield unintended consequences and costs, such as attrition beyond the intended reduction in force, the distraction of employees and reduced employee morale, which could, in turn, adversely impact productivity, including through a loss of continuity, loss of accumulated knowledge or inefficiency during transitional periods. Any of these impacts could also adversely affect our reputation as an employer, make it more difficult for us to hire new employees in the future and increase the risk that we may not achieve the anticipated benefits from the restructuring.
Competition for highly skilled technical and other personnel may result in failure to attract, recruit, retain and develop qualified employees, which could impact our business, financial condition and results of operations.
Our principal research and development and product delivery are conducted at our headquarters in Israel and in our offices in Brazil, Bulgaria, Cyprus, India and Romania, in addition to significant elements of our general and administrative activities conducted in Israel, and we face competition for suitably skilled employees in these countries. In prior years we have faced, and in the future we may face, challenges in competing for qualified personnel with companies that have greater resources than we do, and we may not succeed in recruiting additional experienced or professional personnel, retaining personnel or effectively replacing current personnel who may depart with qualified or effective successors.
In addition, as a result of the competition for qualified human resources, the high-tech markets in Brazil, Bulgaria, Cyprus, India, Israel and Romania have also experienced and may continue to experience wage inflation. Accordingly, our efforts to attract, retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. Furthermore, in making employment decisions, particularly in the high-tech industry, job candidates often consider the value of the equity they are to receive in connection with their employment. Employees may be more likely to leave us if the shares they own or the shares underlying their equity incentive awards have significantly decreased in value. Share price declines may reduce the employees’ motivation to continue to work for us and could heighten the risk of employee attrition. As a result of such decrease in value of the employees’ equity, we may be required to pay additional salaries in order to attract qualified personnel, which may significantly increase our salary costs.
While we utilize non-competition agreements with our employees as a means of improving our employee retention, those agreements may not be effective towards that goal. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these agreements under applicable law, and it may be difficult for us to restrict our competitors from benefiting from the expertise our former employees developed while working for us.
In light of the foregoing, there can be no assurance that qualified employees will remain in our employ or that we will be able to attract and retain qualified personnel in the future. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations, and might cause a delay in our ability to meet our customer commitments.
Risks Related to Our Business and Operations
Our future success depends on our ability to manage investments in our business and operations properly, execute on growth or strategic initiatives, and enhance our existing operations and infrastructure.
A key element of our long-term strategy is to continue to invest in and grow our business and operations, both organically and potentially through acquisitions. Investments in, among other things, new markets, new products, solutions and technologies, research and development, infrastructure and systems, geographic expansion, and headcount are critical components for achieving this strategy. In particular, we believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. In addition, as part of our growth strategy, we are continuing to strengthen our presence in the United States, including by establishing and expanding strategic partnerships with partners who have access to, or sell into, government agencies. However, there can be no assurance that our U.S. expansion efforts will be successful, and failure to execute on this growth initiative may have a material adverse effect on our business, results of operations, and strategic trajectory. More broadly, such investments and efforts present challenges and risks and may not be successful (financially or otherwise), especially in new areas or new markets in which we have little or no experience, and even if successful, may negatively impact our profitability in the short-term. To be successful in such efforts, we must be able to properly allocate limited investment funds and other resources, prioritize among technologies opportunities, projects and implementations, balance the extent and timing of investments with the associated impact on profitability, balance
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our focus between new areas or new markets and the operation and servicing of our legacy businesses and customers, capture efficiencies and economies of scale, and compete in the new areas or new markets, or with the new solutions, in which we have invested.
Our success also depends on our ability to execute or continue to execute on other growth or strategic initiatives we are pursuing, including maintaining our software model. For example, in addition to the other factors described in this section, our profitability objectives are highly dependent on our ability to continue to shift our product mix towards software and away from professional services and hardware resales and to maintain a more productized proprietary software offering.
Additionally, as part of our ongoing efforts to enhance our sales strategy, we have implemented changes to our sales team structure and sales processes. The transition to this strategy requires substantial management attention and company resources and may cause temporary disruption to our sales activities, including a potential decrease in sales productivity during the transition period, and internal implementation challenges.
Our success also depends on our ability to effectively and efficiently enhance our existing operations. Our existing infrastructure, systems, security, processes and personnel may not be adequate for our current or future needs. System upgrades or new implementations can be complex, time-consuming, and expensive and we cannot assure you that we will not experience problems during or following such implementations, including, among others, potential disruptions in our operations or financial reporting.
If we are unable to properly manage our investments, execute on growth initiatives, including our planned expansion into the U.S., and enhance our existing operations and infrastructure, our results of operations and market share may be materially adversely affected.
Acquisitions, strategic investments, partnerships, alliances or divestitures could be difficult to identify, cause post integration challenges, divert the attention of management, disrupt our business, dilute shareholder value, not achieve their intended benefits, and adversely affect our business, financial condition and results of operations.
From time to time, we may seek to acquire or invest in businesses, joint ventures, products and capabilities, or technologies that we believe could complement or expand our products and solutions or otherwise offer growth opportunities. Any such acquisition or investment may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and capabilities, personnel, or operations of the acquired companies, particularly if we are unable to retain the key personnel of the acquired company. These transactions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Additionally, we have limited experience with significant or complex acquisitions. Any such transactions that we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in substantial impairment charges and dilution of our shareholders’ value. Depending on the size, structure and financing of any such transaction, we may also experience increased leverage, reduced liquidity, constraints on our financial flexibility, heightened regulatory or customer approval requirements, and greater exposure to integration‑related execution risks.
In addition, from time to time we may pursue divestitures of certain of our businesses or assets as part of our optimization strategy. For example, in December 2022, we sold our Situational Intelligence Solutions (SIS) business. We may make divestments based on, among other considerations, management’s evaluation of, or changes in, business strategies and performance and valuation of divested businesses or assets. These divestment activities include inherent risks, including potential losses, if the disposed businesses or investments are disposed of at lower than anticipated valuation levels or on other unfavorable terms, as well as a risk of potential post-closing claims for indemnification or breach of transition services obligations. Moreover, divestitures may require us to separate integrated assets and personnel from our retained businesses and devote our resources to transitioning assets and services to purchasers, disrupting our ongoing business and distracting management. Any losses due to our divestment of businesses or disposal of assets could adversely affect our financial performance and may affect the market price of our shares.
Changes in our security clearances may adversely impact our sales or may impose restrictions on how we operate.
We and some of our subsidiaries maintain security clearances in Israel and other countries in connection with the development, marketing, sale and/or support of our solutions. These clearances are reviewed from time to time by these countries and could be deactivated, including for reasons that are beyond our control. If we lose our security clearances in a particular country, we may be unable to sell our solutions for secure projects in that country and might also experience greater challenges in selling such solutions even for non-secure projects in that country. These security clearances also impose restrictions on how we conduct our business and the information we are allowed to share with our investors and our non-Israeli
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board members. Even if we are able to obtain and maintain applicable security clearances, government customers may decline to purchase our solutions if they were not developed or manufactured in that country or if they were developed or manufactured in other countries that are considered disfavored by such country.
If we fail to manage our offering of a subscription-based model, our revenues and results of operation may be harmed.
For the past few years we have been offering certain of our solutions on a subscription model basis, and since early 2025, we have increased our efforts in transitioning our customers to this model as part of our go-to-market strategy. We estimate that, due to the nature of our solutions and the governmental organizations’ planning and purchasing behavior, governmental organizations’ adoption of a subscription-based model for our solutions will be at a more moderate pace and less predictable compared to other industries that have already transitioned to a subscription-based model. This transition may cause us to incur incremental operational, technical, legal and other costs, and may also result in lower revenue growth pace, fluctuation in gross margin, reduction in our free cash flow and higher churn rates over time. In addition, as we increasingly offer our solutions on a subscription basis, our results may depend in part on our ability to maintain customer relationships, support ongoing adoption and usage of our solutions, and continue to deliver value to customers over time. Our subscription arrangements generally require renewals and potential expansions, and there can be no assurance that customers will renew or expand their subscriptions at expected levels, which could negatively affect our revenues and results of operations.
For certain products, components, or services, we rely on third-party suppliers, manufacturers, and partners, the failure or disruption in the supply by any of which may negatively impact our sales and adversely affect our results.
Although we generally use standard parts and components in our products, we do rely on non-affiliated suppliers and OEM partners for certain non-standard products or components which may be critical to our products, including both hardware and software, and on manufacturers of assemblies that are incorporated into our products. We also purchase technology, license intellectual property rights, and oversee third-party development and localization of certain products or components, in some cases, by or from companies that may compete with us or work with our competitors. While we endeavor to use larger, more established suppliers, manufacturers, and partners wherever possible, in some cases, these providers may be smaller, less established companies, particularly in the case of new or unique technologies that we have not developed internally.
If any of these suppliers, manufacturers or partners experience financial, operational, manufacturing or quality assurance difficulties, cease production or sale, or there is any other disruption in our supply, including as a result of the acquisition of a supplier or partner by a competitor or global supply chain disruptions, we will be required to locate alternative sources of supply or manufacturing, to internally develop the applicable technologies, to redesign our products, and/or to remove certain features from our products, any of which would be likely to increase expenses, create delivery delays, and negatively impact our sales. In addition, delays in the delivery of our products, including as a result of global supply chain disruptions, may result in delays in our collections, which in turn may negatively impact our financial results and our cash flow planning. Although we endeavor to establish contractual protections with key providers, including source code escrows (where needed), warranties, and indemnities, we may not be successful in obtaining adequate protections, these agreements may be short-term in duration, and the counterparties may be unwilling or unable to stand behind such protections. Moreover, these types of contractual protections offer limited practical benefits to us in the event our relationship with a key provider is interrupted.
We also rely on third parties to provide certain services to us and to our customers, including hosting partners and providers of other cloud-based services. We make contractual commitments to customers on the basis of these relationships and, in some cases, also entrust these providers with both our own sensitive data as well as the sensitive data of our customers. If these third-party providers do not perform as expected or encounter service disruptions, cyber-attacks, data breaches or other difficulties, we or our customers may be materially and adversely affected, including, among other things, by facing increased costs, potential liability to customers, end customers, or other third parties, regulatory issues and reputational harm. If it is necessary to migrate these services to other providers as a result of poor performance, security issues or considerations, or other financial or operational factors, it could result in service disruptions to our customers and significant time, expense, or exposure to us, any of which could materially adversely affect our business.
If we are unable to establish and maintain our relationships with third parties that market and sell our products, our business and ability to grow could be materially adversely affected.
A significant portion of our sales is made through partners, including distributors, resellers, sales representatives and system integrators. To remain successful, we must maintain our existing relationships as well as identify and establish new relationships with such parties. We must often compete with other suppliers for these relationships and our competitors often seek to establish exclusive relationships with these sales channels or to otherwise restrict others in partnering with them. Our
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ability to establish and maintain these relationships is based on, among other things, factors that are similar to those on which we compete for end customers, including features, functionality, ease of use, installation and maintenance, and price. Even if we are able to secure such relationships on terms we find acceptable, there is no assurance that we will be able to realize the benefits we anticipate. Some of our partners may also compete with us or have affiliates that compete with us, or may also partner with our competitors or offer our products and those of our competitors as alternatives when presenting proposals to end customers. Our ability to achieve our revenue goals and growth depends to a significant extent on maintaining, enabling, and adding to these sales channels, and if we are unable to do so, our business and ability to grow could be materially adversely affected.
Privacy and Information Security Risks
We may be subject to information technology system breaches, failures, or disruptions that could harm our operations, financial condition or reputation.
We rely extensively on information technology systems to operate and manage our business and to process, maintain and safeguard information, including information related to our customers, partners, and personnel. This information may be processed and maintained on our internal information technology systems or in some cases on systems hosted by third-party service providers. These systems, whether internal or external, may be subject to breaches, failures or disruptions as a result of, among other things, cyber-attacks, computer viruses, physical security breaches, natural disasters, accidents, power disruptions, telecommunications failures, new system implementations, or acts of terrorism or war. In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in frequency and sophistication in recent years. Moreover, geopolitical tensions, particularly the conflicts with Hamas, Hezbollah and Iran, have contributed to a surge in cyber-attacks targeting Israeli companies and products globally, posing a threat to critical infrastructure. We have experienced, and expect to continue to experience, actual and attempted cyber-attacks on our IT networks and systems, such as through phishing scams and ransomware. Although none of these actual or attempted cyber-attacks has yet had a material adverse impact on our operations, financial condition or reputation, we cannot guarantee that such incidents will not have such an impact in the future. For example, the rising adoption of AI and GenAI in daily operations and products poses data privacy and cybersecurity risks. Threats include potential data leaks, social engineering attacks, and decision-making based on manipulated information. Growing regulatory requirements for information security and data protection add to the challenge. Moreover, attackers leverage AI as a tool and exploit vulnerabilities in AI systems. In addition, from time to time, hackers publish past breaches or historical data related to us that was obtained through historical breaches. While we are continually working to maintain secure and reliable systems, our security, redundancy, and business continuity efforts may be ineffective or inadequate. We must continuously improve our design and coordination of security controls across our business groups and geographies. Despite our efforts, it is possible that our security systems, controls, and other procedures that we follow or those employed by our third-party service providers, may not prevent breaches, failures, or disruptions. Such breaches, failures, or disruptions have in the past and could in the future subject us to the loss, compromise, destruction or disclosure of sensitive or confidential information, including personal data, or intellectual property, either of our own information or intellectual property or that of our customers (including end customers) or other third parties that may have been in our custody or in the custody of our third-party service providers, financial costs or losses from remedial actions, litigation, regulatory issues, liabilities to customers or other third parties, damage to our reputation, delays in our ability to process orders, delays in our ability to provide products and services to customers, including SaaS or other hosted or managed services offerings, research and development or production downtimes, or delays or errors in financial reporting. Information system breaches or failures at one of our partners, including hosting providers or those who support other cloud-based offerings, may also result in similar adverse consequences. Any of the foregoing could harm our competitive position, result in a loss of customer confidence, and materially and adversely affect our results of operations or financial condition.
Cybersecurity and compliance with personal data rights pose economic, operational and reputational risks. If we are unable to implement the technological and digital projects required to support our future growth and profitability in compliance with applicable rules and regulations, our business and results of operations may be materially adversely affected. We carry data protection liability insurance against cyber-attacks, with limits we deem adequate to offset all or some of the costs we may incur as a result of damage to our computers, equipment and networks and resulting disruption of our operations. However, the devotion of additional resources to the security of our information technology systems in the future could significantly increase the cost of doing business or otherwise adversely impact our financial results.
The Company operates in a hybrid working model, with a significant number of our employees working remotely and accessing our IT systems and networks remotely. Such hybrid model may further increase our vulnerability to cybercrimes and cyber-attacks and increase the stress on our technology infrastructure and systems. Although we maintain data protection liability insurance, this insurance may not be sufficient to cover all of our losses from any future breaches or failures of our IT systems, networks and services.
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Our solutions may contain defects or may be vulnerable to cyber-attacks, which could expose us to both financial and non-financial damages.
Our solutions may contain defects or may develop operational problems. This risk is amplified by our more sophisticated solutions. New products and new product versions, service models such as hosting, SaaS, managed services, and the incorporation of third-party products or services into our solutions, also give rise to the risk of defects, errors or vulnerabilities. These defects, errors or vulnerabilities may relate to the operation or the security of our products or services, including third-party components or services. If we do not discover and remedy such defects, errors, vulnerabilities or other operational or security problems until a product has been released to customers or partners, we may incur significant costs to correct such problems and/or become liable for substantial damages for product liability claims or other liabilities. Furthermore, real or perceived errors, failures, or bugs in our solutions, or dissatisfaction with our solutions and outcomes, could result in customer terminations.
Our solutions, including our SaaS offerings, may be vulnerable to cyber-attacks even if they do not contain defects. If there is a successful cyber-attack on one of our products or services, even absent a defect or error, it may also result in questions regarding the integrity of our products or services generally, which could cause adverse publicity and impair their market acceptance and could have a material adverse effect on our reputation, results or financial condition.
The mishandling or the perceived mishandling of sensitive information could harm our business.
Some of our products are used by customers to compile and analyze highly sensitive or confidential information and data, including information or data used in intelligence gathering or law enforcement activities as well as personal data information. While our customers’ use of our products does not by itself necessarily provide us access to the customer’s sensitive or confidential information or data (or the information or data our customers may collect), we may, and our partners may, receive or come into contact with such information or data, including personal data, when we are asked to perform services or support for our customers. In certain cloud, hosted, or managed service deployments, we or our partners may also process data for our customers in our or third‑party cloud environments, which may increase our exposure to risks associated with data handling, security incidents, or the perception of such risks.
Additionally, from time to time, we or our partners also receive or come into contact with such information or data in connection with our software-as-a-service (“SaaS”) or other hosted or managed services offerings. As customers are also increasingly focused on the security of our products and services and we continuously work to address these concerns, including by using encryption, access rights, and other customary security features, which vary based on the solution in question and customer requirements. We have implemented policies and procedures, and we use information technology systems, to help ensure the proper handling of such information and data, including background screening of certain services personnel (when allowed by applicable law), non-disclosure agreements with employees and partners, access rules, and controls on our information technology systems. We also evaluate the information security of potential partners and vendors as part of our selection process and use commercially reasonable efforts to negotiate adequate protections from such third parties in our contracts. However, these policies, procedures, systems, and measures are designed to mitigate the risks associated with handling or processing sensitive data and cannot always safeguard against all risks.
There is a potential risk that we may be named as a defendant in claims made by companies in the social media sphere or by providers of communication services alleging any one of a number of claims, due to our products having been used to obtain valuable information from users of, or participants in, those services. There is a related risk of regulatory enforcement against us due to complaints of that kind. There have also been recent claims against companies in our field of operations for supposed damages caused by government collection of information through the use of products similar to ours. In addition, we may be subject to governmental requests for information, or consumers may sue and file claims against our customers (for non-compliance with laws and regulations (e.g., not obtaining proper consent)), and we may be added to those claims or required to provide information in connection therewith.
The improper handling of sensitive data, or even the perception of such mishandling (whether or not valid), or other security lapses or breaches affecting us, our partners, our customers and / or our products or services, could reduce demand for our products or services or otherwise expose us to financial or reputational harm or legal liability.
Regulatory Risks
Increasing regulatory focus on data privacy issues and expanding laws in these areas may result in increased compliance costs, impact our business models, and expose us to increased liability.
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As a global company, we are subject to privacy and data security laws, and regulations in different jurisdictions. These laws and regulations may vary across jurisdictions and are subject to evolving and differing interpretations. Government regulators, privacy advocates, media and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result in additional compliance obligations, costs, new interpretations of existing laws and regulations, new restrictions or requirements, increased regulatory proceedings or litigation and increased exposure for significant fines, penalties or commercial liabilities, as well as reputational damage.
Globally, laws such as the European Union’s General Data Protection Regulation (“EU GDPR”) in Europe, state laws in the United States on privacy , such as the California Consumer Privacy Act ("CCPA"), as amended by the California Privacy Rights Act ("CPRA"), as well as industry self-regulatory codes, create new compliance obligations and expand the scope of potential liability, either jointly or severally with our customers and suppliers. Additional U.S. states have implemented, or are in the process of implementing, similar new laws or regulations, and some observers have noted that these regulations could mark the beginning of a trend towards more stringent United States federal privacy legislation, which could increase our potential liability and compliance efforts. While we have invested in readiness to comply with applicable laws and requirements, these new and emerging laws, regulations and codes may require us to implement additional steps to comply with regulatory requirements, affect our ability to reach current and prospective customers, to respond to both enterprise and individual customer requests under the laws (such as individual rights of access, correction, and deletion of their personal information), and to implement our business models effectively. These new laws may also impact our products and services as well as our innovation in new and emerging technologies. These requirements, among others, may impact demand for our offerings and force us to bear the burden of more onerous obligations in our contracts or otherwise increase our exposure to customers, regulators, or other third parties. Furthermore, the uncertain and shifting regulatory environment may cause concerns regarding data privacy and may create privacy concerns, which could inhibit sales of our services and limit adoption of our platform. Specifically, in Europe, the supervisory authorities in member states possess some flexibility in implementing European directives and specific facets of the GDPR, resulting in divergent national regulations. Notably, European supervisory bodies have been particularly proactive in enforcing data protection regulations. In addition, the U.S. has recently seen an increase in litigation based on the California Invasion of Privacy Act (“CIPA”) in regard to tracking tools such as cookies and similar technologies. This trend exposes companies to potential statutory damages, class action lawsuits, and reputational harm.
Additionally, the Israeli Privacy Protection Law, 1981 (“PPL”), along with its regulations such as the Israeli Privacy Protection Regulations (Data Security) 2017 (“Security Regulations”), mandates strict requirements for processing, transferring and securing personal information. A significant amendment to the PPL, known as Amendment 13, was approved by the Israeli Parliament in August 2024 and became effective from August 14, 2025. This amendment notably enhances the investigative powers of the Privacy Protection Authority and increases the potential monetary sanctions for violations, which could reach millions of NIS in certain cases. Compliance with Amendment 13 may necessitate substantial changes to our data processing practices and could involve significant costs. Non-compliance with the PPL may lead to enforcement actions, litigation, including class actions, and substantial fines and penalties.
Transferring personal information across international borders is becoming increasingly complex. For example, European data transfers outside the European Economic Area are highly regulated. The mechanisms that we and many other companies rely upon for data transfers, including standard contract clauses, are a standard form of contract approved by the European Commission as a transfer mechanism for personal data, and may be contested or invalidated. Another option to transfer personal data subject to the GDPR to third countries is to transfer the data to countries declared adequate by the European Commission (including Israel), without the need for implementing further safeguards. If the mechanisms for transferring personal information from certain countries or areas, including Europe, should be found invalid or if other countries implement more restrictive regulations for cross-border data transfers (or do not permit data to leave the country of origin), such developments could harm our business, financial condition and results of operations. The costs of compliance with, and other burdens imposed by, these laws, regulations, standards, and obligations, or any inability to adequately address privacy, data protection, cross-border transfers, data localization requirements or information security-related concerns, even if unfounded, may limit the use and adoption of our solutions, reduce overall demand for our solutions, make it more difficult to meet expectations from or commitments to customers, impact our reputation, or slow the pace at which we close sales transactions, any of which could harm our business, financial condition, and results of operations.
Furthermore, on September 12, 2025, most provisions of the EU Data Act became applicable. The EU Data Act establishes general conditions for data sharing between businesses and introduces measures intended to promote fairness and competition in the European cloud services market. The regulation also seeks to protect companies from unfair contractual terms related to data sharing imposed by dominant market participants and grants customers the right to switch data processing service providers. As a result, we may be required to implement new data management protocols, invest in technological development and adapt our products, and review or amend our contractual arrangements with customers and partners. Furthermore, The EU Data Act could impact our business offerings, revenue recognition, products, and services, and may create new technical, legal, contractual, data, and system requirements.
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There have also been privacy bills enacted in other countries around the world which have introduced new or expanded privacy requirements and we expect that privacy legislation will continue to evolve in the coming years. Therefore, it is difficult to determine whether and how such existing laws and regulations will apply to and impact the internet and our business.
Our failure to comply with the anti-corruption, trade compliance, anti-money-laundering and terror finance and economic sanctions laws and regulations of the United States and applicable international jurisdictions could materially adversely affect our reputation and results of operations.
We must comply with anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including among others the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), the U.K. Bribery Act 2010 (the “Bribery Act”), Chapter 9 (sub-chapter 5) of the Israeli Penal Law, 57373-1977 and the Israeli Prohibition on Money Laundering Law, 5760–2000 (collectively, the “Israeli Anti-Corruption Laws”), and the Brazilian Anti-Corruption Act. These laws and regulations apply to companies, individual directors, officers, employees and business partners acting on our behalf and prohibit us and our officers, directors, employees and business partners acting on our behalf, including joint venture partners and agents, from corruptly offering, promising, authorizing or providing anything of value to public officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The Bribery Act also prohibits non-governmental “commercial” bribery and accepting bribes. As part of our business, we constantly deal with governments and state-owned business enterprises, the employees and representatives of which may be considered public officials for purposes of anti-corruption laws, including, among others the FCPA, the Bribery Act and the Israeli Anti-Corruption Laws. In addition, some of the jurisdictions in which we operate are considered to lack a developed legal system and have elevated levels of corruption.
Our business must also be conducted in compliance with applicable economic and trade sanctions laws and regulations, such as those administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council, the European Union, the State of Israel and other relevant sanctions authorities. In the past, changes in these laws and regulations impaired our ability to enter into contracts with certain customers or to perform our obligations under certain existing contracts. We cannot assure you that in the future these regulations will not change in a way that will materially impair our ability to enter into new contracts with customers, or to perform our obligations under existing material contracts, or in a way that will impose restrictions on the way we operate our business or on the customers we engage with.
Our global operations expose us to the risk of violating, or being accused of violating, anti-corruption laws, anti-money-laundering laws and economic and trade sanctions laws and regulations, which may expose us to reputational harm. In addition, our failure to comply with these laws and regulations may expose us to significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive. Despite our compliance efforts and activities, we cannot assure compliance by our employees or business partners for which we may be held responsible, and any such violation could materially adversely affect our business, financial condition and results of operations. See “Item 4B. Information on the Company—Business Overview—Government Regulations—Anti-Corruption, Anti-Money Laundering and Sanctions.”
We are subject to complex, evolving regulatory requirements that may be difficult and expensive to comply with and that could negatively impact our business.
Our business and operations are subject to a variety of regulatory requirements in the countries in which we operate or offer our solutions, including, among other things, with respect to trade compliance, anti-corruption, information security, data privacy and protection, tax, labor, trade restrictions and government contracts. For more information regarding the government regulations to which we are subject, see “Item 4.B. Business Overview — Government Regulations.” Compliance with these regulatory requirements may be onerous, time-consuming, and expensive, especially where these requirements are inconsistent from jurisdiction to jurisdiction, or where the jurisdictional reach of certain requirements is not clearly defined or seeks to reach across national borders. Regulatory requirements in one jurisdiction may make it difficult or impossible to do business in another jurisdiction. In addition, such complex regulations are subject to constant changes and developments and the interpretations thereof may change due to political and other considerations which are beyond our control. See “Risks Associated with Macroeconomic and Global Conditions.” We may also be unsuccessful in obtaining permits, licenses, or other authorizations required to operate our business, such as for the marketing or sale or import or export of our products and services.
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While we endeavor to implement policies, procedures, and systems reasonably designed to achieve compliance with these regulatory requirements, we cannot assure you that the implementation of these policies, procedures, or systems will result in compliance with applicable rules and regulations or that we or our personnel will not violate these policies and procedures . Violations of these laws or regulations may harm our reputation and deter government agencies and other existing or potential customers or partners from purchasing our solutions. Furthermore, non-compliance with applicable laws or regulations could result in fines, damages, criminal sanctions against us, our officers, or our employees, restrictions on the conduct of our business, and damage to our reputation.
Moreover, regulatory requirements are subject to constant updates, modifications and revisions as well as different interpretations by the authorities adopting, implementing or enforcing such requirements which result in uncertainty as well as difficulties in planning ahead of time. In particular, trade restrictions may be imposed or amended for political, economic, or national security reasons beyond our control. These restrictions, which can be introduced with little to no advance notice, may result in certain products or solutions becoming ineligible for sale in specific jurisdictions. The unpredictable nature of such trade restrictions requires us to remain highly adaptable, often necessitating swift operational adjustments that may be complex and costly. For example, changes in export control regulations, restrictions on sales to certain countries or entities, or new licensing requirements could limit our ability to access key markets, disrupt our supply chain, and adversely affect our revenue and growth prospects. Additionally, as geopolitical tensions continue to influence international trade policies, we face an increased risk of encountering regulatory barriers that could affect our global operations.
The increased public awareness in potential human rights violations by governments and organizations using advanced cyber tools, and the resulting heightened scrutiny by the public opinion, privacy NGOs, privacy advocates, the media and others, resulted and may continue to result in regulatory and policy changes from time to time. In recent years, and in line with broader geopolitical trends, the Israeli Ministry of Defense has introduced several adjustments to the oversight of dual-use and defense exports. In certain areas, the regulator has tightened control by imposing additional requirements and limitations for obtaining marketing and export licenses. In parallel, it has recently announced a reform aimed at reducing regulatory burden and improving clarity and reliance for exporters.
Adapting our practices, policies and procedures to this ever-changing regulatory environment involves allocation of resources and time and requires our regulatory compliance teams to be on the watch for any actual or potential changes, and may have an impact on our ability to pursue business opportunities and anticipate future results.
Due to the nature of our products, we are also subject to security classification of certain information under relevant legislation and regulations, and we may therefore be limited from time to time as to the information that we may disclose to the public.
Increased attention to, and evolving expectations for, environmental, social, and governance (“ESG”) initiatives could increase our costs, harm our reputation, or otherwise adversely impact our business.
Companies across industries are facing increasing scrutiny from a variety of stakeholders related to their ESG and sustainability practices. Expectations regarding voluntary ESG initiatives and disclosures and consumer demand for alternative forms of energy may result in increased costs (including but not limited to increased costs related to compliance, stakeholder engagement, contracting and insurance), changes in demand for certain products, enhanced compliance or disclosure obligations, or other adverse impacts to our business, financial condition, or results of operations.
While we may at times engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) or commitments to improve the ESG profile of our company and/or products, such initiatives or achievements of such commitments may be costly and may not have the desired effect. For example, expectations around our management of ESG matters continue to evolve rapidly, in many instances due to factors that are out of our control. In addition, we may commit to certain initiatives or goals but not ultimately achieve such commitments or goals due to factors that are within or outside of our control. Moreover, actions or statements that we may take based on expectations, assumptions, or third-party information that we currently believe to be reasonable may subsequently be determined to be erroneous or be subject to misinterpretation. Even if this is not the case, our current actions may subsequently be determined to be insufficient by various stakeholders, and we may be subject to investor or regulator engagement on our ESG initiatives and disclosures, even if such initiatives are currently voluntary.
Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and scores to assess companies’ ESG profiles in making investment or voting decisions. Unfavorable ESG ratings could lead to increased negative investor sentiment towards us or our industry, which could negatively impact our share price as well as our access to and cost of capital. To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete effectively to attract and retain employees or customers, which may adversely impact our operations.
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Intellectual Property Risks
Our intellectual property may not be adequately protected.
Our success depends to a significant degree on the legal protection of our software and other proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality and non-disclosure agreements with employees and third parties, to establish and protect our proprietary rights. For more information, see “Item 4. Information on the Company—4.B. Business Overview— Intellectual Property Rights.” While much of our intellectual property is protected by patents or patent applications, we have not and cannot protect all of our intellectual property with patents or other registrations. There can be no assurance that patents we have applied for will be issued on the basis of our patent applications or that, if such patents are issued, they will be, or that our existing patents are, sufficiently broad enough to protect our technologies, products, or services. Moreover, we may in the future determine that we require additional patents in order to protect our software and processes, and we may be unable to obtain patent protection for the technology covered in our applications or such patent protection may not be obtained quickly enough to meet our business needs. The patent prosecution process is expensive, time-consuming, and complex, and thus we also may not be able to prepare, file, prosecute, maintain, and enforce all necessary or desirable patent applications at a reasonable cost or in a timely manner.
Any of our intellectual property rights, including patents and trademarks, may be challenged, narrowed, invalidated, held unenforceable or circumvented in litigation or other proceedings, including, where applicable, through opposition, cancellation, re-examination, inter partes review, post-grant review, interference, nullification and derivation proceedings, and equivalent proceedings in foreign jurisdictions, and such intellectual property or other proprietary rights may be lost or no longer provide us with meaningful competitive advantages. Such proceedings may result in substantial cost and require significant time from our management, even if the eventual outcome is favorable to us.
Third parties may legitimately and independently develop products, services, and technology similar to or duplicative of our platform. In addition to protection under intellectual property laws, we rely primarily upon trade secret protection and non-disclosure provisions in agreements with employees, customers and other third parties having access to our confidential information and generally limit access to and distribution of our proprietary information. Despite our efforts, third parties may attempt to disclose, obtain, copy, reverse engineer, or use our intellectual property or other proprietary information or technology without our authorization, and our efforts to protect our intellectual property and other proprietary rights may not prevent such unauthorized disclosure or use, misappropriation, infringement, reverse engineering or other violation of our intellectual property or other proprietary rights.
Furthermore, non-disclosure and no reverse engineering provisions can be difficult to enforce, and even if successfully enforced, may not be entirely effective. The violation of our agreements by disclosing or allowing the use of our proprietary information or technology without a license or authorization may pose risks to our business. We cannot guarantee that any of the measures we have taken will prevent infringement, misappropriation, reverse engineering or other violation of our technology or other intellectual property or proprietary rights.
Preventing unauthorized use or infringement of our intellectual property rights is difficult even in jurisdictions with well-established legal protections for intellectual property. It may be even more difficult to protect our intellectual property in other jurisdictions where legal protections for intellectual property rights are less established. If we are unable to adequately protect our intellectual property against unauthorized third-party use or infringement, our competitive position could be materially and adversely affected.
Competitors and other companies could adopt trademarks and service marks that are similar to ours or try to prevent us from registering or using our trademarks, consequently impeding our ability to build brand identity and possibly leading to customer confusion.
We use machine learning and artificial intelligence (AI) technologies in our business, products, services and tools. The intellectual property ownership and license rights, including patents and copyright, surrounding AI technologies have not been fully addressed by courts or laws or regulations in countries around the world, but some courts that have reviewed these issues to date have taken the position that inventions made by AI are not patentable, and works of authorship created without substantial human input are not subject to copyright protection, and the use or adoption of third-party AI technologies into our products and services may result in exposure to claims of infringement or misappropriation of others’ intellectual property. There are several lawsuits pending in the U.S. where creators of content are challenging the use of their content for purposes of training AI models.
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Our products or other intellectual property may infringe or may be alleged to infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions for us and may require us to indemnify our customers and resellers for any damages they suffer.
The technology industry is characterized by frequent allegations of intellectual property infringement. In the past, third parties have asserted that certain of our products or other technology have infringed on their intellectual property rights and similar claims may be made in the future. Any allegation of infringement against us could be time consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause product shipment delays, or force us to enter into royalty or license agreements. If patent holders or other holders of intellectual property initiate legal proceedings against us, either with respect to our own intellectual property or intellectual property we license from third parties, we may be forced into protracted and costly litigation, regardless of the merits of these claims. We may not be successful in defending such litigation, in part due to the complex technical issues and inherent uncertainties in intellectual property litigation, and may not be able to procure any required royalty or license agreements on terms acceptable to us, or at all. Competitors and other companies could adopt trademarks that are similar to ours or try to prevent us from using our trademarks, consequently impeding our ability to build brand identity and possibly leading to customer confusion. Third parties may also assert infringement claims against our customers or partners. Subject to certain limitations, we generally indemnify our customers and partners with respect to infringement by our products on the proprietary rights of third parties, which, in some cases, may not be limited to a specified maximum amount and for which we may not have sufficient insurance coverage or adequate indemnification in the case of intellectual property licensed from a third party. If any of these claims succeed, we may be forced to pay damages, be required to obtain licenses for the products our customers or partners use or sell, or incur significant expenses in developing non-infringing alternatives. If we cannot obtain necessary licenses on commercially reasonable terms, our customers may be forced to stop using or, in the case of resellers and other partners, stop selling our products.
We may rely upon certain technology, software or intellectual property rights we license from third parties, but third parties may terminate our licenses to use such third party technology, software or intellectual property rights. Loss of such licenses could have a material impact on our ability to offer our products, software and services to others.
Use of free or open source software could expose our products to unintended restrictions and could materially adversely affect our business.
Some of our products contain free or open source software (together, “open source software”) and we anticipate making use of open source software in the future. Open source software is generally covered by license agreements that permit the user to use, copy, modify and distribute the software without cost, provided that the users and modifiers abide by certain licensing requirements. However, the original developers of the open source software generally provide no warranties on such software or protections in the event the open source software has defects or security vulnerabilities or infringes a third party’s intellectual property rights. Although we endeavor to monitor the use of open source software in our product development, we cannot assure you that past, present or future products, including products inherited in acquisitions, will not contain open source software elements that impose unfavorable licensing restrictions or other requirements on our products, including the need to seek licenses from third parties, to re-engineer affected products, to discontinue sales of affected products, or to release all or portions of the source code of affected products. Any of these developments could materially adversely affect our business.
Certain Israeli governmental grants that we received for certain of our research and development activities in Israel may restrict our ability to transfer manufacturing operations or technology outside of Israel without obtaining a pre-approval from the relevant authorities and, in certain circumstances, payment of significant amounts to the authorities.
Our Israeli-based research and development efforts have been financed in part through grants that we have received from the National Technological Innovation Authority (the “Innovation Authority”), which formerly operated as the Office of the Chief Scientist of the Ministry of Economy of the State of Israel.
We must comply with the requirements of the Israeli Encouragement of Research, Development and Technological Innovation in Industry Law, 5744-1984 (the “Innovation Law”), which is formerly known as the Encouragement of Industrial Research and Development Law, 5744-1984, and related regulations, with respect to those grants.
When a company develops know-how, technology or products using grants provided by the Innovation Authority, the terms of these grants and the Innovation Law restrict the transfer of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside of Israel, including:
•Transfer of know-how outside of Israel. Any transfer of the know-how that was developed with the funding of the Innovation Authority, outside of Israel, requires prior approval of the Innovation Authority, and the payment of a redemption fee.
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•Local manufacturing obligation. The terms of the grants under the Innovation Law require that the manufacturing of products resulting from Innovation Authority-funded programs be carried out in Israel, unless a prior written approval of the Innovation Authority is obtained (except for a transfer of up to 10% of the production rights, for which a notification to the Innovation Authority is sufficient).
•Certain reporting obligations. We, as any recipient of a grant or a benefit under the Innovation Law, are required to file reports on the progress of activities for which the grant was provided. In addition, we are required to notify the Innovation Authority of certain events detailed in the Innovation Law with respect to a grant recipient.
Therefore, if aspects of our technologies are deemed to have been developed with Innovation Authority funding, the discretionary approval of an Innovation Authority committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those approvals. Furthermore, the Innovation Authority may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel.
The transfer of Innovation Authority-supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred technology or know-how, the amount of Innovation Authority support, the time of completion of the Innovation Authority-supported research project and other factors. The total amount of our obligation to the Innovation Authority upon the occurrence of any such event will also include interest that has accrued annually on the grants. The consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with Innovation Authority funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the Innovation Authority.
Risks Related to Our Finances and Capital Structure
Our credit facilities exposes us to leverage risks and subjects us to covenants which may adversely affect our operations. In addition, financing sources may not be available to us.
We have two revolving credit facilities that are valid until January, 2028 and provide for up to $65.0 million in total borrowing. Although as of January 31, 2026, we had no outstanding indebtedness under these facilities, we might be required from time to time to draw down some of or the entire amount available. A high level of debt could have material consequences on our future operations, including:
•reducing the availability of our cash flows to fund working capital, capital expenditures, project development, and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
•resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in all or a significant portion of our debt becoming immediately due and payable;
•limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and
•placing us at a competitive disadvantage compared with our competitors that have less debt or have lower leverage ratios.
Our ability to meet payment and other obligations under such debt instruments will depend on our ability to generate significant cash flows, which, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flows from operations, or that future borrowings will be available to us under such facility or any future credit facilities or otherwise, in an amount sufficient to enable us to meet our payment obligations under such a debt facility and to fund other liquidity needs. If we are unable to generate sufficient cash flows to service any such debt obligations or if we experience liquidity or working capital issues generally, we may need to refinance or restructure such debt or seek to raise additional capital. There can be no assurance that we would be successful in any such refinancing or restructuring effort or that financing sources would be available to us on reasonable terms or at all.
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We may require additional capital to support our operations or the growth of our business, and this capital might not be available on acceptable terms, if at all.
We might require substantial additional financing in order to operate our business, execute our growth strategy and respond to challenges or unforeseen circumstances. Such financing might not be available on commercially reasonable terms, if at all, including as a result of increasing inflation and interest rates. If we are unable to obtain such financing, on commercially reasonable terms, or at all, we will not be able to, among other things:
•execute our growth strategy;
•develop new features, integrations, capabilities, and enhancements;
•continue to expand our product development, sales, and marketing organizations;
•respond to competitive pressures or unanticipated working capital requirements; or
•pursue acquisition opportunities.
To the extent that we raise capital through the sale of equity or convertible debt securities, our shareholders’ ownership interest will be diluted. Our share repurchase programs use a portion of our available capital, including cash, and may reduce funds available for other business purposes. While we believe we have sufficient capital to execute such programs while maintaining adequate liquidity for operations, market conditions or unforeseen circumstances could require us to discontinue or limit our repurchase programs and/or seek additional financing. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures, or declaring dividends. Debt financing could also have significant negative consequences for our business, results of operations and financial condition, including, among others, increasing our vulnerability to adverse economic and industry conditions, limiting our ability to obtain additional financing, requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, limiting our flexibility in planning for, or reacting to, changes in our business, and placing us at a possible competitive disadvantage compared to less leveraged competitors or competitors that may have better access to capital resources. In addition, a portion of our business is conducted through our subsidiaries, including a joint venture that is not wholly owned by us. Such subsidiaries are separate and distinct legal entities. Therefore, our ability to generate cash is dependent on the earnings, cash flows, financial condition and the distribution of funds (whether by dividend, distribution or loan) from our subsidiaries. None of our subsidiaries is obligated to make funds available to us, other than pursuant to certain intercompany agreements. The distribution of dividends by such subsidiaries may be subject to restrictions on the payment of dividends in the jurisdictions in which such entities were incorporated. In addition, the distribution of dividends by the foregoing joint venture requires the consent of our partner in such joint venture. Inability to receive dividends from our subsidiaries could adversely affect our financial condition, results of operations, cash flows and limit shareholders' return, if any, and may require us to obtain additional financing, which may not be available to us on commercially reasonable terms.
Exchange rate fluctuations between the U.S. dollar and the New Israeli Shekel and other non-U.S. currencies negatively affect the earnings of our operations.
We are exposed to foreign currency exchange rate fluctuations, primarily between the U.S. dollar and the New Israeli Shekel, which could materially affect our operating costs and results of operations. Our financial results and most of our revenues are recorded in U.S. dollars. However, substantially all of the research and development expenses of our Israeli operations, as well as a portion of the cost of revenues, selling and marketing, and general and administrative expenses of our Israeli operations, are incurred in New Israeli Shekels. As a result, we are exposed to exchange rate risks that may adversely affect our financial results. If the New Israeli Shekel appreciates against the U.S. dollar or if the value of the New Israeli Shekel declines against the U.S. dollar at a time when the rate of inflation in the cost of Israeli goods and services exceeds the rate of decline in the relative value of the New Israeli Shekel, then the U.S. dollar cost of our operations in Israel would increase and our results of operations would be adversely affected. Our Israeli operations also could be adversely affected if we are unable to effectively hedge against currency fluctuations in the future. We cannot predict any future trends in the rate of inflation or deflation in Israel or the rate of appreciation or devaluation of the New Israeli Shekel against the U.S. dollar. The Israeli annual rate of inflation amounted to 2.6%, 3.2%, and 3.0% for the calendar years 2025, 2024 and 2023, respectively. The annual (appreciation) depreciation of the New Israeli Shekel in relation to the U.S. dollar amounted to (12.5)%, 0.6% and 3.1% for the calendar years 2025, 2024 and 2023, respectively.
We also have substantial revenues and expenses that are denominated in non-U.S. currencies other than the New Israeli Shekel, particularly the Euro and the Singapore dollar. Therefore, our operating results and cash flows fluctuate due to changes in the relative values of the U.S. dollar and those foreign currencies. These fluctuations affect our operating results and cause our revenues and net income or loss to vary from quarter to quarter. Furthermore, where our sales are denominated in U.S. dollars, a strengthening of the U.S. dollar against other currencies makes our products less competitive in those foreign markets and collection of receivables is more difficult.
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From time to time we engage in currency hedging activities. While these hedging activities help reduce short-term volatility in our financial results, they do not fully eliminate our exposure to foreign currency risk. In particular, our hedging program may not adequately offset the effects of inflation in Israel or significant shifts in exchange rates, and may result in financial losses if currency movements differ from our expectations.
If our goodwill or other intangible assets become impaired, our financial condition and results of operations could be negatively affected.
Because we have periodically executed business combinations, goodwill and other intangible assets represent a material portion of our assets. Goodwill and other intangible assets totaled approximately $131.0 million, or approximately 25.1% of our total assets, as of January 31, 2026. We test our goodwill for impairment at least annually, or more frequently if an event occurs indicating the potential for impairment, and we assess on an as-needed basis whether there have been impairments in our other intangible assets. We make assumptions and estimates in this assessment which are complex and often subjective. These assumptions and estimates 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. To the extent that the factors described above change, we could be required to record additional non-cash impairment charges in the future, which could negatively affect our financial condition and results of operations. Impairment of our goodwill might result in failure to comply with the financial and other restrictive covenants contained in our debt agreements, which in the event of default could result in all or a significant portion of the debt, if any exist, becoming immediately due and payable; See also “Item 3.D Risks Related to Our Finances and Capital Structure— Our credit facilities expose us to leverage risks and subjects us to covenants which may adversely affect our operations. In addition, financing sources may not be available to us.”
Calculating our income tax rate is complex and subject to uncertainty, including risks related to changing global tax landscapes, and potential legislative reforms that could materially impact our effective tax rate and financial results.
The computation of income taxes is complex because it is based on the laws of numerous taxing jurisdictions and requires significant judgment on the application of complicated rules governing accounting for tax provisions under GAAP. Examples of items that could cause variability in our income tax rate include our mix of income by jurisdiction, changes in our uncertain tax positions, the application of transfer pricing rules and tax audits. Future events, such as changes in our business and the tax law in the jurisdictions where we do business, could also affect our tax rate.
Our effective income tax rate was 59.3% for the year ended January 31, 2026, please see “Item 5.A. Operating Results—Components of Results of Operations—Provision for Income Taxes”. Our effective tax rate could change over time as a result of changes in corporate income tax rates or other changes in tax laws of the jurisdictions in which we operate. Any changes in tax laws could have an adverse impact on our financial results. Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax jurisdictions where we have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions are under heightened scrutiny and tax reform legislation is being proposed or enacted in a number of jurisdictions.
For example, there is growing pressure in many jurisdictions and from multinational organizations such as the Organization for Economic Cooperation and Development (OECD) and the EU to amend existing international taxation rules in order to align the tax regimes with current global business practices. Specifically, in October 2015, the OECD published its final package of measures for reform of the international tax rules as a product of its Base Erosion and Profit Shifting (BEPS) initiative, which was endorsed by the G20 finance ministers. Many of the initiatives in the BEPS package required and resulted in specific amendments to the domestic tax legislation of various jurisdictions and to existing tax treaties. We continuously monitor these developments. Although many of the BEPS measures have already been implemented or are currently being implemented globally (including, in certain cases, through adoption of the OECD’s “multilateral convention” (to which Israel is also a party) to effect changes to tax treaties which entered into force on July 1, 2018 and through the European Union’s “Anti Tax Avoidance” Directives), it is still difficult in some cases to assess to what extent these changes would impact our tax liabilities in the jurisdictions in which we conduct our business or to what extent they may impact the way in which we conduct our business or our effective tax rate due to the unpredictability and interdependency of these potential changes. In January 2019 the OECD announced further work in continuation of the BEPS project, focusing on two “pillars”. As of December 5, 2025 ,148 member jurisdictions approved a statement known as the OECD BEPS Inclusive Framework, which builds upon the OECD’s continuation of the BEPS project. The first pillar is focused on the allocation of taxing rights between countries for in-scope multinational enterprises that sell goods and services into countries with little or no local physical presence. Based on the guidelines published to date, we do not expect to fall within the scope of the rules of the first pillar. The second pillar is focused on developing a global minimum tax rate of at least 15% (measured on a country-by-country basis) applicable to in-scope multinational groups (with consolidated revenue over Euro750 million). Israel, as well as other jurisdictions where we operate, are included among more than 140 countries which have agreed in principle to the adoption of the global minimum tax rate.
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Given these developments, it is generally expected that tax authorities in various jurisdictions in which we operate may increase their audit activity and may seek to challenge some of the tax treatments we have adopted. It is difficult to assess if and to what extent such challenges, if raised, might adversely impact our effective tax rate.
Further, there are proposals in the United States to introduce further amendments to the federal tax regime applicable to corporations. As of the date of filing, it remains unclear what legislation, if any, would be enacted. If any legislation is enacted, it could create the potential for added volatility in our provision for income taxes and might have an adverse impact on our future income tax provision and tax rate.
Our financial results may be significantly impacted by changes in our tax position.
We are subject to taxes in Israel, the United States and numerous foreign jurisdictions. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in valuation allowance on deferred tax assets (including our non-U.S. NOL carryforwards), changes in unrecognized tax benefits, or changes in tax laws or their interpretation. Any of these changes could have a material adverse effect on our profitability. In addition, the tax authorities in the jurisdictions in which we operate, including but not limited to Israel and the United States, may from time to time review the pricing arrangements between us and our non-U.S. subsidiaries or by and among our non-U.S. subsidiaries. An adverse determination by one or more tax authorities in this regard may have a material adverse effect on our financial results.
The extent to which we will be able to use NOLs may be impacted, restricted, or eliminated by a number of factors, including changes in tax rates, laws or regulations, whether we generate sufficient future taxable income, and possible adjustments to our tax attributes. To the extent that we are unable to utilize our NOLs or other losses, our results of operations, liquidity, and financial condition could be materially adversely affected. When we cease to have NOLs available to us in a particular tax jurisdiction, either through their expiration, disallowance, or utilization, our cash tax liability will generally increase in that jurisdiction. Disallowance of any NOLs previously utilized by the Verint group to offset Cognyte income in a particular tax jurisdiction could result in a tax payment obligation.
In July 2025, the United States enacted significant tax legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent many provisions of the Tax Cuts and Jobs Act of 2017 (“TCJA”) and introduces additional changes affecting individuals and businesses. Compliance with the TCJA and OBBBA requires significant complex computations not previously required by U.S. tax law.
The key provisions of the TCJA, which may significantly impact our current and future effective tax rates, include new limitations on the tax deductions for interest expense and executive compensation and new rules related to uses and limitations of NOL carryforwards. New international provisions add a new category of deemed income from our non-U.S. operations, eliminate U.S. tax on foreign dividends (subject to certain restrictions), and add a minimum tax on certain payments made to foreign related parties. The TCJA amendments to Section 174 of the United States Internal Revenue Code of 1986, as amended (the “Code”) require that specific research and experimental expenditures be capitalized and amortized over five years if incurred in the U.S. or fifteen years if incurred in a foreign jurisdiction beginning in our fiscal 2022. Subsequent amendments to Section 174 under the OBBBA eliminated the requirement for U.S. domestic companies to amortize such expenditures over five years; however, this change does not apply to research activities conducted outside the United States (whether by a U.S. entity or on behalf of a U.S. entity by a foreign contractor including a related foreign subsidiary), and therefore the fifteen-year amortization requirements continue to apply to us. These provisions, their interpretations, and other proposed changes to law could further impact our effective tax rate and cash flows in future years.
Risks Associated with the Spin-Off
The spin-off could result in significant tax liability to Verint and us, and in certain circumstances, we could be required to indemnify Verint for material taxes pursuant to indemnification obligations under the Tax Matters Agreement. In addition, we agreed to certain restrictions designed to preserve the tax treatment of the spin-off that may reduce our strategic and operating flexibility.
Verint has obtained a tax ruling (the “U.S. Tax Ruling”) from the Internal Revenue Service (the “IRS”) that certain of the requirements for tax-free treatment under Section 355 of the Code will be satisfied and that Cognyte will be treated as a domestic corporation for U.S. federal income tax purposes under Section 7874 of the Code. Verint also obtained a written opinion of Jones Day (the “Tax Opinion”) to the effect that the distribution will qualify as tax-free, for U.S. federal income tax purposes, to Verint and to Verint shareholders under Section 355 of the Code.
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The U.S. Tax Ruling may not be relied on if the facts or representations made by Verint about Verint’s and our businesses and other matters are incorrect or not otherwise satisfied. Although the U.S. Tax Ruling will be generally binding on the IRS, the continuing validity of the U.S. Tax Ruling is subject to the continuing validity of the facts and representations made in the ruling request.
The Tax Opinion is based on certain representations as to factual matters from, and certain covenants by, Verint and us. The Tax Opinion may not be relied on if any of the assumptions, representations or covenants are incorrect, incomplete or inaccurate or are violated in any material respect. Further, the Tax Opinion is not binding on the IRS or in any court, and there can be no assurance that the relevant tax authorities will not take, or any court will not affirm, a contrary position.
If the distribution were determined not to qualify for the treatment described in the U.S. Tax Ruling or the Tax Opinion, or if any conditions in the U.S. Tax Ruling or the Tax Opinion are not observed, then Verint and its shareholders could suffer adverse tax consequences and, under certain circumstances, we could have an indemnification obligation to Verint with respect to some or all of the resulting tax to Verint under the Tax Matters Agreement (the “Tax Matters Agreement”) we entered into with Verint, as described in “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between Verint and Us—Tax Matters Agreement.”
In addition, under the Tax Matters Agreement, we agreed to certain restrictions designed to preserve the tax-free nature of the distribution for U.S. federal income tax purposes. These restrictions may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that might be beneficial and could discourage or delay strategic transactions that our shareholders may consider favorable. Furthermore, we agreed with Verint under the Tax Matters Agreement that we will be primarily responsible for any taxes related to, or arising in connection with our business, including with respect to the period prior to the spin-off. As a result of such undertaking, we have recorded in the fiscal year that ended on January 31, 2023 a $4.7 million tax contingency in connection with a tax position that should have been recognized by Verint beginning with 2019, prior to the spin-off, and related primarily to our business. During the fourth quarter of fiscal year ending January 31, 2024, the uncertain tax positions associated with Verint, as well as the corresponding indemnification asset, were reversed due to the expiration of the statute of limitations. For further information, please see “Item 5.A. Operating Results—Components of Results of Operations—Provision for Income Taxes” and “Item 7.B. Related Party Transactions—Separation and Distribution and Tax Matter Agreements with Verint.”
Verint has obtained a tax ruling (the “Israeli Tax Ruling”) from the Israeli Tax Authority (the “ITA”) providing that, for Israeli income tax purposes, the distribution and certain internal transactions, which are part of the spin-off and the separation, are generally tax-free to Verint shareholders, Verint and Cognyte. Certain other internal transactions not covered by the Israeli Tax Ruling should also not result in any tax liabilities in Israel.
We agreed to conditions and restrictions set forth in the Israeli Tax Ordinance and the Israeli Tax Ruling issued by the ITA. These restrictions may also limit our ability to engage in new businesses or other transactions, and the ability of certain shareholders of Verint and Cognyte to sell or otherwise transfer their shares for a period of two years following the date the internal transactions are consummated.
Risks Related to Our Ordinary Shares
Our share price has been and may be volatile, and shareholders may lose all or part of their investment.
Our share price has been and may continue to be volatile for various reasons, including:
•announcements by us or our competitors regarding, among other things, strategic changes, new products, product enhancements or technological advances, acquisitions, major transactions, significant litigation or regulatory matters, stock repurchases, or management changes;
•press or analyst publications, including with respect to changes in recommendations or earnings estimates or growth rates by financial analysts, changes in investors’ or analysts’ valuation measures for our securities, our credit ratings, our security solutions and customers, speculation regarding strategy or mergers and acquisitions (“M&A”), or market trends unrelated to our performance;
•stock sales or purchases by us or our directors, officers, or other significant holders, or our future repurchases, if any, of our ordinary shares pursuant to our current share repurchase program and/or any other share repurchase program which may be approved in the future;
•hedging or arbitrage trading activity by third parties;
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•actual or anticipated fluctuations in our results of operations;
•market conditions in our industry including periods of heightened volatility, valuation compression, or shifts in investor sentiment affecting technology companies, including companies associated with artificial intelligence or emerging technologies, regardless of our operating performance;
•changes in the estimation of the future growth and size of our markets;
•the trading volume of our ordinary shares;
•general economic and market conditions; and
•negative media and public exposures.
In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. For example, in March 2023, a private securities lawsuit was filed in the U.S. against us and certain officers alleging, among other things, that we concealed the fact that our business practices violated Meta’s community standards and terms of services and that our stock price dropped after the facts were disclosed. In June 2025 the court finally dismissed the lawsuit, bringing the matter to a close. Nevertheless, such lawsuits could result in substantial costs and divert management’s attention and resources, which could adversely affect our business. Furthermore, given that a significant part of certain of our employees’ compensation is linked to our share price, volatility in our share price may affect our ability to recruit and retain qualified personnel. Lastly, volatility in our share price may adversely impact our ability to make acquisitions using our ordinary shares as consideration, our ability to raise additional funds in the capital markets and our ability to generally execute on our strategy, in turn negatively affecting our business, results of operations and financial condition.
If we do not meet the expectations of securities analysts, if they do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our ordinary shares, or, alternatively, if we do not meet our own earnings guidance, the price of our ordinary shares could decline.
The trading market for our ordinary shares relies in part on the research and reports that securities analysts publish about us and our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our revenues, our results of operations, or our financial condition are below the estimates or expectations of public market analysts and investors, the price of our ordinary shares could decline. Moreover, the price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. In addition, to the extent we do not meet our earnings guidance, our share price may be adversely affected. The earnings guidance we issue from time to time is based on, among other things, our expectations and assumptions regarding our business and the market we operate in, and there is no assurance that our assumptions and expectations will prove to be accurate.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our business, financial condition and results of operations may be adversely affected.
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in our consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates. We base our estimates on assumptions (both historical and forward-looking), trends, and various other assumptions that are believed to be reasonable, as provided in Note 2 to our consolidated financial statements. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, in addition to the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates are used to prepare our consolidated financial statements, including revenue recognition, fair value of goodwill, income taxes related to realizability of deferred tax assets and tax uncertainties. Our business, financial condition and results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our ordinary shares.
We may issue additional equity, which may dilute the value of our outstanding ordinary shares.
In the future, the percentage ownership of our investors may be diluted because of equity issuances from acquisitions, capital markets transactions or otherwise, including equity awards that we will be granting to our directors, officers and employees. Our Compensation Committee of our board of directors have granted and will continue to grant additional equity
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awards to our employees, officers and directors, from time to time, under our employee benefits plans. These additional awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our shares.
We are an FPI and, as a result, we are subject to reporting obligations and corporate governance practices that, to some extent, are more lenient than those of a U.S. domestic public company whose shares are listed on Nasdaq.
We report under the Exchange Act as a Foreign Private Issuer (“FPI”). Thus, we are exempt from certain provisions of the Exchange Act applicable to U.S. domestic public companies, which are more expansive and require more frequent filings, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act and the content of proxy statements, (ii) the rules under Section 16 of the Exchange Act subjecting officers, directors and principal shareholders to short-swing profit recovery and subjecting principal shareholders to beneficial ownership reporting, and (iii) the rules under the Exchange Act requiring the filing with the U.S. Securities Exchange and Commission (“SEC”) of quarterly reports on Form 10-Q containing full unaudited financial statements and notes thereto and other specified information, and current reports on Form 8-K, which are due upon the occurrence of specified significant events. In addition, FPIs are not required to file their annual reports on Form 20-F until four months after the end of each financial year, while U.S. domestic issuers that are accelerated filers like us are required to file their annual reports on Form 10-K within 75 days after the end of each fiscal year. We are required to report certain material developments in reports furnished on Form 6-K with the SEC, and we have furnished and intend to continue furnishing on Form 6-K our unaudited quarterly financial information after the end of each fiscal quarter. FPIs are also exempt from Regulation FD, aimed at preventing issuers from making selective disclosures of material information. Recently enacted U.S. legislation will require our directors and officers to make insider reports under Section 16(a) of the Exchange Act, effective March 18, 2026. Our principal shareholders continue to remain exempt from the reporting requirements under Section 16(a) of the Exchange Act and our directors, officers and principal shareholders continue to remain exempt from the short-swing profit recovery provisions contained in Section 16(b) of the Exchange Act. As a result of the above, our shareholders may not have the same protections and/or access to information afforded to shareholders of companies that are not FPIs.
As an FPI whose shares are listed on Nasdaq, we are also permitted to follow certain home country corporate governance practices instead of certain requirements of the Nasdaq rules. Currently, as permitted under the Israeli Companies Law, our articles of association (“Articles of Association”) provide that the quorum for any meeting of shareholders is 25% of the issued and outstanding share capital, which is less than the 33.33% minimum required under Nasdaq rules. In addition, we currently follow home country practices in Israel in lieu of compliance with the Nasdaq requirements for shareholder approval of certain significant issuances of shares pursuant to a private placement or merger/acquisition for shareholder approval for adoption and material amendments to share incentive plans and for the distribution of annual and interim reports, which requirements apply to a domestic U.S. issuer. For more information, see “Item 16G. Corporate Governance.” While we otherwise follow all Nasdaq corporate governance requirements applicable to domestic companies, we may later decide to rely on exemptions from certain of these requirements as an Israeli FPI. For instance, unlike the requirements of Nasdaq, there are currently no mandatory corporate governance requirements in Israel that would require us to (i) have a majority of its board of directors be independent, (ii) establish a nominating/governance committee, or (iii) hold regular executive sessions where only independent directors may be present.
Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on Nasdaq may provide less protection than is accorded to investors of domestic issuers.
We could lose our status as a “foreign private issuer” under applicable securities laws and regulations if more than 50% of our outstanding voting securities were to become directly or indirectly held of record by U.S. holders and any one of the following were true: (i) the majority of our directors or executive officers were U.S. citizens or residents; (ii) more than 50% of our assets were located in the United States; or (iii) our business were administered principally in the United States.
Additionally, in June 2025, the SEC published a concept release soliciting public comment on potential changes to the eligibility criteria for foreign private issuer status. Among other topics, the SEC is considering whether to narrow the definition of an FPI, for example, by lowering the threshold for U.S. shareholder ownership required to trigger a company’s loss of FPI status, introducing a minimum amount of trading outside the United States, or requiring a non-U.S. exchange listing. While no final rule has been adopted as of the date of this annual report, if the SEC revises its eligibility criteria for FPIs in the future, it could affect our ability to continue qualifying as an FPI and benefiting from related accommodations. We are continuing to monitor these developments and will assess the potential impact of any changes if and when they are adopted.
If we were to lose our status as a “foreign private issuer” in the future, we would no longer be exempt from the rules described above and, among other things, we would be required to file periodic reports and annual and quarterly financial statements as if we were a company incorporated in the United States. If this were to happen, we would likely incur significant additional legal, accounting, and other expenses and would likely have to divert significant management time and resources in order to comply with U.S. domestic issuer requirements.
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Our shareholders’ rights and responsibilities are governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. corporations.
The rights and responsibilities of the holders of our shares are governed by our Articles of Association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the nature of these duties or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our shares that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our Articles of Association may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions, in each case, in ways that are different from and may be considered more burdensome than corresponding U.S. law.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of different conditions.
Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
Our Articles of Association also contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions include the following:
•the election of our directors on a staggered basis, such that a potential acquirer cannot readily replace our entire board of directors at a single annual general shareholder meeting;
•no cumulative voting in the election of directors, which limits the ability of minority shareholders to elect director candidates;
•approval of the holders of at least 65% of the total voting power of our shareholders is generally required to remove any of our directors from office, and any amendment to that provision in our Articles of Association shall require the approval of at least 65% of the total voting power of our shareholders; and
•the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors, and the right of our board of directors to fill a vacancy upon the resignation, death or removal of a director, which limits shareholders’ ability to fill vacancies on our board of directors.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a publicly traded company, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting under Section 404(a) of the Sarbanes-Oxley Act of 2002 (“SOX”). We are also required to receive an attestation from our independent registered public accounting firm on the effectiveness of such controls under Section 404(b) of SOX.
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Our system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. Because of its inherent limitations, our system of internal control over financial reporting may not prevent or detect every misstatement. An evaluation of effectiveness is subject to the risk that the controls may become inadequate because of changes in conditions, because the degree of compliance with policies or procedures decreases over time, or because of unanticipated circumstances or other factors. While our management has concluded that we maintained effective disclosure controls and procedures and internal control over financial reporting as of January 31, 2026, and our independent registered public accounting firm has issued a report attesting to the effectiveness of our internal control over financial reporting as of such date, we cannot be certain at this time that all of our controls will be considered effective and our internal control over financial reporting may not satisfy the regulatory requirements going forward. As a result, we cannot assure you that our internal controls will prevent or detect every misstatement, that material weaknesses or other deficiencies will not occur or be identified in the future or that future restatements will not be required. A determination that our internal controls are not effective and any remedial actions required could divert internal resources and take a significant amount of time and effort to complete, and could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. We could experience higher than anticipated operating expenses and higher independent auditor fees during and after the implementation of these changes. Further, the reliability of our financial statements may be questioned and our share price may suffer. Any of these outcomes could materially and adversely affect our business and your investment in our ordinary shares.
It may be difficult to enforce a judgment of a U.S. court against us and/or our officers and directors in Israel or the United States, assert U.S. securities laws claims in Israel or serve process on our officers and directors.
Certain of our directors or officers are not residents of the United States and most of their and our assets are located outside the United States. Service of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our non-U.S. officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors.
Moreover, an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in the absence of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.
The exclusive forum clause in our amended and restated articles of association could limit our shareholders’ ability to bring claims against, as well as obtain favorable judicial forum for disputes with us and/or our directors, officers and other employees.
Under our amended and restated articles of association, the competent courts of Tel Aviv, Israel are the exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or the Israeli Securities Law. This exclusive forum provision is intended to apply to claims arising under Israeli Law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act or any other claim for which federal courts would have exclusive jurisdiction. Such exclusive forum provision in our amended and restated articles of association will not relieve the Company of its duties to comply with federal securities laws and the rules and regulations thereunder, and shareholders of the Company will not be deemed to have waived the Company’s compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with the Company or its directors or other employees which may discourage lawsuits against the Company, its directors, officers and employees.
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Our amended and restated articles of association provide that, unless we consent to an alternative forum, the federal district courts of the United States shall be the exclusive forum for resolution of any complaint asserting a cause of action arising under the Securities Act.
Our amended and restated articles of association provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for any claim asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both U.S. state and federal courts have jurisdiction to entertain such claims. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction, as Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may increase the costs associated with such lawsuits, which may discourage such lawsuits against us and our directors, officers and employees. Additionally, there is uncertainty as to whether a court would enforce the exclusive forum provisions relating to causes of actions arising under the Securities Act. If a court were to find these provisions of our amended and restated articles of association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
We cannot guarantee that our share repurchase program will be utilized to the full value approved or that it will enhance long-term shareholder value. Repurchases we consummate could increase the volatility of the price of our ordinary shares and could have a negative impact on the liquidity of our ordinary shares.
In November 2024, our Board of Directors approved a share repurchase program for the purchase of up to $20 million of our ordinary shares. Under the Repurchase Program, we repurchased a total of 2,094,538 ordinary shares for an aggregate purchase price of $20 million, and this authorization was fully utilized.
On July 14, 2025, our Board approved a new share repurchase program (“Repurchase Program”) authorizing the buyback of up to an additional $20 million in ordinary shares over 18 months, through January 14, 2027, as part of our capital allocation strategy.
On March 2, 2026, our Board of Directors approved an additional share repurchase program authorizing the buyback of up to a further $20 million in ordinary shares through January 14, 2027. We repurchase our ordinary shares from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with U.S. federal securities laws. The timing, as well as the number and value of any shares repurchased under the program, will be determined at our discretion and will depend on a variety of factors, including management's assessment of the intrinsic value of our ordinary shares, the market price of our ordinary shares, general market and economic conditions, available liquidity, alternative investment opportunities, and applicable legal requirements. Share repurchases could have an impact on the trading price of our ordinary shares, increase the volatility of the price of our ordinary shares, or reduce the liquidity of our ordinary shares.
Additionally, repurchases under the Repurchase Program may diminish our cash reserves, which could impact our ability to pursue possible strategic opportunities and acquisitions and could result in lower overall returns on our cash balances.
The Repurchase Program does not obligate us to acquire a particular amount of ordinary shares, and the Repurchase Program may be suspended, modified or discontinued at any time at our discretion and without prior notice, which may result in a decrease in the trading prices of our ordinary shares. We cannot assure you that any share repurchases will enhance shareholder value because the market price of our ordinary shares could decline.
General Risk Factors
Actions of activist shareholders have caused us in the past, and may cause us in the future, to incur substantial costs, disrupt our operations, divert management’s attention, or have other material adverse effects on us.
We have been subject to shareholder activism and, from time to time, activist investors may take and have taken a position in our shares. These activist investors may disagree with decisions we have made or may believe that alternative strategies or personnel, either at a management level or at a board level, would produce higher returns. Such activists may or may not be aligned with the views of our other shareholders, may be focused on short-term outcomes, or may be focused on
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building their reputation in the market. These activists may not have a full understanding of our business and markets and the alternative personnel they may propose may also not have the qualifications or experience necessary to lead the company.
Responding to advances or actions by activist investors may be costly and time-consuming, may disrupt our operations, and may divert the attention of our board of directors, management team, and employees from running our business and maximizing performance. Such activist activities could also interfere with our ability to execute our strategic plan, disrupt the functioning of our board of directors, or negatively impact our ability to attract and retain qualified executive leadership or board members, who may be unwilling to serve with activist personnel. Uncertainty as to the impact of activist activities may also affect the market price and volatility of our shares.