10-Q: Verint Systems Reports Q2 Loss Amidst Thoma Bravo Acquisition

Verint Systems Inc. reported a net loss for the second quarter and first half of fiscal 2026, alongside a pending $2 billion all-cash acquisition by Thoma Bravo affiliate, Calabrio, Inc.

Summary

• Verint Systems Inc. entered into a definitive agreement on August 24, 2025, to be acquired by Calabrio, Inc., an affiliate of Thoma Bravo, in an all-cash transaction valued at approximately $2 billion, with stockholders receiving $20.50 per share.
• The merger is expected to close before the end of the current fiscal year, subject to customary closing conditions including stockholder and regulatory approvals.
• For the three months ended July 31, 2025, total revenue decreased by 1% to $208.0 million from $210.2 million in the prior year period.
• Operating income for the three months ended July 31, 2025, significantly declined by 76% to $3.3 million from $13.9 million in the same period last year.
• A net loss attributable to common shares of $5.7 million, or $0.09 per diluted share, was reported for the three months ended July 31, 2025, compared to net income of $1.5 million, or $0.02 per diluted share, in the prior year.
• For the six months ended July 31, 2025, total revenue decreased by 4% to $416.1 million from $431.4 million in the prior year period.
• Operating income for the six months ended July 31, 2025, plummeted by 78% to $8.4 million from $38.3 million in the same period last year.
• A net loss attributable to common shares of $8.1 million, or $0.13 per diluted share, was reported for the six months ended July 31, 2025, compared to net income of $11.5 million, or $0.18 per diluted share, in the prior year.
• Subscription Annual Recurring Revenue (ARR) grew by 6% to $728.5 million as of July 31, 2025, from $684.7 million at July 31, 2024.
• Bundled SaaS revenue increased by 19% and 21% for the three and six months ended July 31, 2025, respectively, driven by new customer contracts and expansion of cloud platform use.
• Unbundled SaaS revenue decreased by 9% and 11% for the three and six months ended July 31, 2025, respectively, due to fewer conversion transactions and a lower volume of scheduled renewals.
• Support revenue decreased by 22% and 23% for the three and six months ended July 31, 2025, respectively, primarily due to customer migration to SaaS solutions and attrition.
• Nonrecurring perpetual revenue decreased by 4% and 18% for the three and six months ended July 31, 2025, respectively, attributed to reduced demand for hardware-embedded software offerings and a shift to SaaS.
• Nonrecurring professional services and other revenue decreased by 15% and 19% for the three and six months ended July 31, 2025, respectively, due to a decline in implementation and consulting services and a decrease in patent royalty revenue.
• Research and development expenses, net, increased by 11% for both the three and six months ended July 31, 2025, reflecting increased investment in R&D headcount and cloud-based infrastructure.
• Selling, general and administrative expenses increased by 1% for the three months and decreased by 1% for the six months ended July 31, 2025, influenced by employee compensation, software components, and a benefit from changes in contingent consideration fair values.
• The effective income tax rate was 206.9% for the three months and 90.6% for the six months ended July 31, 2025, primarily due to U.S. taxation of foreign activities, stock-based compensation impacts, and interest related to uncertain tax positions, on a low pretax income base.

Sentiment

Score: 3

Explanation: The financial results for the quarter and six-month period show a significant deterioration in profitability, with a net loss and substantial declines in operating income. While Subscription ARR shows growth, the overall financial performance is weak. The pending acquisition by Thoma Bravo provides a clear exit for shareholders at a fixed price, but the underlying operational results are negative.

Positives

• Subscription Annual Recurring Revenue (ARR) increased by 6% to $728.5 million, indicating healthy growth in the core subscription business.
• Bundled SaaS revenue showed strong growth, increasing by 19% for the three months and 21% for the six months ended July 31, 2025, driven by new customer contracts and expanded cloud platform usage.
• The company's cloud-first strategy and AI-powered Open Platform are aligning with market trends towards enterprise adoption of AI and CX Automation.
• Net cash provided by operating activities was $45.4 million for the six months ended July 31, 2025, demonstrating continued cash generation from core operations.

Negatives

• Total revenue decreased by 1% for the three months and 4% for the six months ended July 31, 2025, indicating an overall decline in sales.
• Operating income significantly decreased by 76% for the three months and 78% for the six months ended July 31, 2025, reflecting reduced profitability from operations.
• Reported a net loss attributable to common shares of $5.7 million for the three months and $8.1 million for the six months ended July 31, 2025, a substantial decline from net income in the prior year periods.
• Diluted EPS turned negative, reporting $(0.09) and $(0.13) for the three and six months ended July 31, 2025, respectively.
• Unbundled SaaS revenue and support revenue experienced declines, partially offsetting the growth in bundled SaaS.
• Nonrecurring perpetual revenue and nonrecurring professional services and other revenue both decreased, reflecting a shift away from these traditional offerings and reduced demand.
• Recurring revenue gross margins decreased from 78% to 76% for the three months and from 79% to 76% for the six months ended July 31, 2025, primarily due to a shift in SaaS mix and increased cloud infrastructure costs.
• Nonrecurring perpetual gross margins decreased from 63% to 58% for the three months and from 64% to 57% for the six months ended July 31, 2025, driven by reduced revenue and higher tariffs.
• Nonrecurring professional services and other gross margins significantly decreased from 22% to 17% for the three months and from 22% to 9% for the six months ended July 31, 2025, as costs did not decrease as rapidly as revenue.
• The effective income tax rates were exceptionally high (206.9% and 90.6%) due to low pretax income, U.S. taxation of foreign activities, and uncertain tax positions.

Risks

• The Merger with Calabrio, Inc. may not be consummated in a timely manner or at all, due to failure to satisfy closing conditions, including regulatory and stockholder approvals.
• Disruptions from the Merger could harm business operations, divert management's attention, and lead to adverse reactions or changes in business relationships.
• The company may be required to pay a $50 million termination fee if the Merger Agreement is terminated under certain circumstances.
• The fixed cash consideration of $20.50 per share will not be adjusted for changes in the company's business, financial condition, or market price, potentially limiting stockholder upside.
• Macroeconomic and global conditions, including slowdowns, recessions, economic instability, tariffs, elevated interest rates, inflation, and geopolitical conflicts, could negatively impact customer spending and increase costs.
• Customers or partners may delay, downsize, cancel orders, or fail to renew subscriptions/contracts due to budget constraints or operational challenges.
• Inability to keep pace with technological advances, particularly in Artificial Intelligence (AI), and evolving industry standards, could impact competitive differentiation and demand for solutions.
• Aggressive competition in all markets from companies with potentially greater resources or faster innovation capabilities poses a significant risk.
• Challenges in executing the SaaS strategy, including the increased importance of new subscriptions and renewals, could lead to variability in period-to-period results.
• Difficulties in selling sophisticated cloud-based solutions incorporating emerging technologies like AI, due to longer sales cycles, complex processes, and customer understanding of benefits.
• Risks associated with retaining, recruiting, and training qualified personnel and management, especially in emerging technology areas like AI, due to talent competition and increased labor costs.
• Reliance on third-party suppliers, partners, or OEMs for services, products, or components, including those who may compete with the company.
• Significant international operations expose the company to political/economic instability, foreign exchange rate fluctuations, inflation, and complex regulatory burdens.
• Complex and changing domestic and foreign regulatory environments, including data privacy, AI, cyber/information security, government contracts, and tax matters, could impact operations and product offerings.
• Risks associated with the mishandling or perceived mishandling of sensitive or confidential information and data, particularly in SaaS or hosted services.
• Solutions or services, including those from third-party suppliers or hosting platforms, may contain defects, operational problems, or be subject to security vulnerabilities or cyber-attacks.
• Intellectual property rights may not adequately protect the business, or others may claim infringement on their IP.
• Leverage from current debt position and ability to incur additional debt, including liquidity considerations and covenant compliance, poses financial risk.
• Market volatility in the prices of common stock and convertible notes based on performance, speculation, or activist stockholders.

Future Outlook

The company expects the acquisition by Thoma Bravo to close before the end of the current fiscal year. Management believes that AI is a top investment priority for enterprises, with customer engagement offering significant ROI through CX Automation. The company anticipates a continued shift in revenue mix towards SaaS offerings, consistent with its cloud-first strategy and broader market trends. The company also expects a more moderate pace of support conversions going forward, as the transition from perpetual licenses to recurring SaaS subscriptions is largely complete. The company is evaluating the impacts of the recently enacted One Big Beautiful Bill Act (OBBBA) on its financial statements, which includes significant changes to the U.S. tax code effective in 2025 and 2026.

Management Comments

• Management believes that AI is at or near the top of the list of investment priorities for most enterprises and customer engagement presents one of the best opportunities for brands to achieve significant ROI by investing in CX Automation powered by AI.
• Management anticipates a more moderate pace of support conversions going forward as the company has largely completed transitioning its customer base from a perpetual license model to recurring SaaS subscriptions.

Industry Context

The company operates in the Customer Experience (CX) Automation market, which is experiencing significant tailwinds from the enterprise adoption of AI, a changing workforce dynamic (hybrid, bots, efficiency needs), and elevated customer expectations for faster, more consistent service. The company's focus on its AI-powered Open Platform and SaaS offerings aligns with these trends, positioning it to capitalize on the demand for specialized solutions that fuse and analyze data across enterprise silos to automate and improve customer experiences. The pending acquisition by Thoma Bravo, a private equity firm known for its software investments, further underscores the strategic value and growth potential seen in the CX Automation and AI software sector.

Corporate Governance

Legal Proceedings

• The company is a party to various litigation matters and claims arising in the ordinary course of business, but does not believe any current proceedings will have a material adverse effect on its financial condition, results of operations, or liquidity.

Related Party Transactions

• Apax Partners, through an affiliate (the Apax Investor), holds $400.0 million in Series A and Series B convertible preferred stock, representing approximately 13.6% ownership on an as-converted basis. Dividends on this preferred stock are paid semi-annually.

Stakeholder Impact

• Shareholders: Will receive $20.50 in cash per share upon completion of the merger, but will forego potential long-term value as an independent company. The stock price could decrease if the merger fails.
• Employees: Face potential uncertainty and disruption due to the pending merger, which could impact retention and productivity.
• Customers: May experience uncertainty in the marketplace, potentially leading to delays in purchases or a shift to competitors.
• Creditors: Holders of the 2021 Notes will receive an offer to repurchase their notes at 100% of the principal amount plus accrued interest upon consummation of the merger.
• Regulatory Authorities: The merger is subject to required regulatory approvals, including antitrust and foreign investment reviews.

Next Steps

• Obtain stockholder approval for the Merger Agreement.
• Receive required regulatory approvals for the merger.
• Close the acquisition by Thoma Bravo before the end of the current fiscal year.
• Refinance or repay the $315.0 million 2021 Notes within the next year.
• Continue to monitor and assess the direct and indirect effects of macroeconomic and geopolitical developments on operations and financial condition.
• Evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on condensed consolidated financial statements and disclosures.

Key Dates

Recommendation

The company has announced a definitive agreement to be acquired by Thoma Bravo for $20.50 per share in cash. Given this impending all-cash transaction, the stock price is likely to trade in a narrow range, typically at a slight discount to the offer price, reflecting the time value of money and the remaining merger completion risk. For most investors, holding the stock until the merger closes or selling it now to avoid any potential deal-break risk would be appropriate. A 'buy' recommendation for long-term growth is not applicable due to the imminent delisting upon acquisition. The operational results, showing a net loss and significant decline in operating income, would typically warrant a 'sell' or 'strong sell' if the company were to remain independent, but the merger agreement overrides this fundamental analysis for short-term price action.

Keywords

Verint Systems, VRNT, Thoma Bravo, Calabrio, Merger, Acquisition, Customer Experience Automation, CX Automation, Artificial Intelligence, AI, SaaS, Software as a Service, Cloud Platform, SEC Filing, 10-Q, Financial Results, Recurring Revenue, Operating Income, Net Loss, Subscription ARR, Convertible Notes, Corporate Governance, Risk Factors