Cognyte Software Ltd. (CGNT) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal strong financial guidance with a 13% revenue growth expectation and a 55% increase in EBITDA. The strategic alliance with LexisNexis and focus on the U.S. market are positive indicators. Despite some minor concerns about contract duration and professional services revenue, the overall sentiment is positive, driven by strong software revenue growth and margin expansion.
Key Financial Performance
Revenue $100.7 million, up 13.2% year-over-year, driven by ongoing demand for software solutions.
Software Revenue $41.9 million, an increase of $11.9 million or 39.6% year-over-year, driven by perpetual licenses, appliances, and some term-based subscription licenses.
Software Services Revenue $46.9 million, up $1.6 million from last year, mainly from support contracts and cloud-based SaaS subscriptions.
Total Software Revenue $88.7 million, a year-over-year increase of 17.9%, representing 88.1% of total revenue.
Professional Service Revenue $12 million, a decrease of $1.7 million year-over-year, attributed to a shift in revenue mix.
Recurring Revenue $47.5 million, representing 47.1% of total revenue, driven by support contracts and term-based/SaaS subscription offerings.
Non-GAAP Gross Margin 73.1%, expanding by 297 basis points year-over-year, reflecting revenue growth and efficiencies related to COGS.
Gross Profit $73.6 million, an increase of 18% year-over-year, demonstrating customer willingness to pay a premium for differentiated technology.
Non-GAAP Operating Income $9 million, nearly triple the $3.4 million generated in Q3 last year, reflecting operational leverage.
Adjusted EBITDA $11.9 million, 81.4% higher than the $6.6 million generated in Q3 last year, showcasing operational efficiency.
Non-GAAP Net Income $2 million, resulting in non-GAAP EPS of $0.03, driven by increased profitability.
GAAP Net Loss $3.4 million compared to a loss of $2.6 million in Q3 last year, primarily due to increased tax expenses and FX impacts.
Cash Flow from Operations $25 million, reflecting strong cash generation and disciplined working capital management.
Free Cash Flow $23.2 million, showcasing efficient cash utilization.
Deferred Revenue $117.9 million, indicating robust short- and long-term contract liabilities.
RPO (Remaining Performance Obligations) $576.6 million, up from $567.6 million last year, validating business strength and resilience.
Short-term RPO $358.9 million, providing solid visibility into revenue over the next 12 months.
Billings $107.7 million, an increase of 2.9% year-over-year, reflecting healthy business activity.
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Operating Highlights
AI-powered investigative and Decision Intelligence solutions: Revenue grew in the mid-teens, operating income grew significantly faster, and cash flow from operations was strong. The company secured several major deals and expansions, including a $5 million follow-on subscription agreement with a Tier 1 military intelligence organization in EMEA and multimillion-dollar contract renewals with national intelligence customers.
Decision intelligence platform: The platform fuses data across silos, uncovering hidden insights that allow agencies to resolve identities and relationships, detect hybrid behavior and criminal patterns, and enable faster, higher confidence decisions. It is recognized for predictive analytics and intelligence platforms for improved decision-making.
U.S. market expansion: The company is expanding its partner ecosystem, strengthening its team, and increasing field activities. A new partnership with LexisNexis Risk Solutions is progressing well, with joint engagements and structured solution training delivered to their sales organization.
Military intelligence and NATO countries: Increased interest from military intelligence organizations, including NATO countries, reflects the growing relevance of the company's capabilities to multi-domain defense missions.
Revenue and profitability growth: Revenue for Q3 was $100.7 million, up 13.2% year-over-year. Software revenue increased by 39.6% year-over-year, and non-GAAP gross margin expanded by 297 basis points to 73.1%. Non-GAAP operating income nearly tripled year-over-year, and adjusted EBITDA grew by 81.4%.
Cash flow and financial leverage: Strong cash flow from operations of $25 million in Q3, with free cash flow of $23.2 million. The company has no debt and a cash position of $106.6 million.
Raising full-year guidance: The company raised its full-year revenue outlook to $400 million, representing 14% year-over-year growth, and adjusted EBITDA to $47 million, representing 60% year-over-year growth.
Long-term targets: The company aims to achieve revenue of $500 million, gross margin of 73%, and adjusted EBITDA margin of greater than 20% by the fiscal year ending January 31, 2028.
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Risk or Challenges
Regulatory and Compliance Risks: The company operates in sectors like law enforcement, national security, and military intelligence, which are subject to stringent regulatory and compliance requirements. Any failure to meet these could adversely impact operations and reputation.
Currency Exchange Risks: The weakening of the U.S. dollar against the Israeli shekel and other currencies led to valuation expenses of $1.9 million in Q3, highlighting exposure to foreign exchange fluctuations.
Revenue Dependency on Perpetual Licenses: A significant portion of revenue comes from perpetual licenses, which, while showing recurring behavior, may lack the predictability and stability of subscription-based models.
Geopolitical Risks: The company’s operations and customer base in regions like EMEA and NATO countries expose it to geopolitical uncertainties that could disrupt business activities.
Data Complexity and Integration Challenges: The company operates in a highly complex data environment with massive volumes and fragmented systems. Failure to effectively manage and integrate this data could hinder operational efficiency and customer satisfaction.
Macroeconomic Environment: The global macroeconomic environment, including currency fluctuations and regional revenue mix, has impacted tax expenses and could continue to pose challenges.
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Guidance & Outlook
Revenue Expectations: Cognyte has raised its full-year revenue guidance for fiscal year 2026 to approximately $400 million, representing a year-over-year growth of approximately 14%. The company also expects revenue to reach about $500 million by the fiscal year ending January 31, 2028.
Profitability Projections: Adjusted EBITDA for fiscal year 2026 is projected to be approximately $47 million, representing a year-over-year growth of approximately 60%. The company aims for an adjusted EBITDA margin of greater than 20% by fiscal year 2028.
Gross Margin: Annual non-GAAP gross margin for fiscal year 2026 is expected to be 72.3%, reflecting an improvement of 130 basis points over the last fiscal year. By fiscal year 2028, gross margin is projected to be approximately 73%.
Market Trends and Demand: The company anticipates healthy and growing demand for its AI-driven investigative and decision intelligence solutions, particularly in the U.S. market and among military intelligence organizations, including NATO countries.
Strategic Partnerships: Cognyte is expanding its partner ecosystem, including a new partnership with LexisNexis Risk Solutions, which is expected to strengthen its traction with federal and state local stakeholders in the U.S.
Recurring Revenue: Recurring revenue is expected to enhance visibility and support long-term growth, driven by support contracts, term-based subscriptions, and SaaS offerings.
Capital Allocation: The company plans to maintain sufficient working capital for operations while evaluating opportunities for targeted acquisitions and returning capital to shareholders.
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Shareholder Return Plan
Share Repurchase Program: During Q3, we continued to execute our share repurchase program, which the Board approved in July 2025, repurchasing approximately 152,000 ordinary shares for a total of about $1.3 million.
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Key Q&A
Q:When I look at some of the large deal announcements, year-to-date, you've announced customer wins totaling over $65 million in ACV. Can you help break down how much of this amount is currently impacting RPO and revenue?
A:The software license part is included in the RPO. Large deals typically take 2-5 quarters for the sales cycle. Backlog conversion to revenue depends on the deal size and customer readiness. Deals are immediately added to RPO upon landing. If scheduled to convert to revenue within 12 months, they are included in CRPO; otherwise, they remain in RPO. Subscription deals include only the non-consumable element in RPO.
Q:What portion of the license deals are being recognized upfront? And how does that impact recognition in revenue versus RPO?
A:Revenue recognition depends on the contract terms. It can be based on percentage of completion, delivery, or acceptance criteria. CRPO reflects planned delivery and revenue recognition within the next 12 months. The company uses CRPO to plan efficiently and improve margins.
Q:Turning to U.S. federal, what are overall conversations like there? How did they change during the government shutdown we just went through? And have they picked up since it ended?
A:The U.S. federal market faces similar challenges as other regions, making the company's technology a good fit. The shutdown disrupted engagements temporarily, but federal customers resumed discussions post-shutdown. The company is expanding market access and brand awareness through partnerships, sales activities, and industry conferences. The U.S. opportunity is significant, and the company is focused on this territory.
Q:I believe you had said in the prepared remarks that you've delivered structured training to LexisNexis. Are they ready to start selling now? Or where are you at in that training process?
A:The partnership with LexisNexis focuses on expanding access to state, local, and federal sales. Training has been conducted, and some of their sales force is ready to engage with customers. Joint meetings and events are ongoing, and progress is expected to accelerate.
Q:How does the U.S. market differ from other parts of the world in terms of competitive landscape? And who do you guys see in [indiscernible]?
A:The U.S. market has similar challenges but a slightly different competitive landscape. The company focuses on operational units within law enforcement agencies. Competitors in the U.S. include L3Harris and Octaseek.
Q:Can you comment on the duration -- the contract duration this quarter? If I look at the mix of RPO versus CRPO, it looks like the duration probably went down year-over-year slightly. Maybe just clarify if that was the case. And what do you think about the duration -- contract duration trends going forward?
A:The overall RPO is strong, with both short-term and long-term components. CRPO grew by about 10% year-over-year. The company is confident in its demand and deal flow, supporting continued growth.
Q:If you look at the professional services line, the PS line, I think it was a little bit lighter versus last quarter. Any comment on if deployments were pushed out or anything that -- to kind of help us understand why that services line seems a little bit lighter than what it was last quarter?
A:Professional services revenue fluctuates due to revenue recognition criteria. The company targets professional services to be 13% of total revenue. Software revenue grew by 18%, and the company focuses on acquiring long-term customers with recurring revenue behavior.
Q:If you can give us some more details or some more color on how to think about that mix between software, software services, and PS because I know last -- if I look at Q4 of last year, I think we had a big jump in software revenue. I think Q3 to Q4, there's a big jump seasonally in software revenues. So I just want to make sure that we don't end up mismodeling the different line items for revenue. So maybe if you can, some more color or some more clarity on how to think about the mix of the revenue between software services and NPS?
A:Software revenue grew significantly, almost 40% year-over-year. Total software revenue (software + software services) is expected to be 87% of total revenue. The company focuses on providing premium solutions and recurring revenue from long-term customers.
Q:Could you please just help us to maybe just break down the primary drivers of the margin outperformance? And also like how should we think about the gross margin expansion trajectory from here? And also, any updated color on the adjusted EBITDA margin as well?
A:Gross margin reached 73% this quarter, driven by premium pricing for advanced analytics solutions and cost structure efficiencies. Adjusted EBITDA margin is guided at $47 million for the year, reflecting profitable growth and operational leverage. The company expects gradual margin improvement over time.
Q:Should we think about the 800 basis points expansion from here is more linear, like 400 basis points in '27 and maybe 400 basis points in '28. Is that the correct way to think about it?
A:The company expects gradual improvement in adjusted EBITDA margin over time but has not provided specific yearly breakdowns for FY '27 and FY '28.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about the slight year-over-year decrease in contract duration trends, providing only general comments about RPO and CRPO growth without clarifying the specific trend.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Decision
AI multi
AI technology
Border police
Cash
Cognyte
activity
behavior
border
case
city
crime
decision
defense
domain
flow travel
foundation
future
hospital
intelligence platform
intelligence unit
investigation
mandate system
mission
network
organization
partner
picture
region
silo
state
system signal
terror
threat environment
travel pattern
trust customer
unrest
CGNT Transcript
Cognyte Software Ltd. (CGNT) Q1 2027 Earnings Call Transcript
Positive6-3
The earnings call showed strong financial performance, with significant growth in software and recurring revenue. Despite a slight deceleration in software revenue, the increase in recurring revenue and robust adjusted EBITDA growth are positive indicators. The company's confidence in achieving its full-year cash flow guidance and U.S. deal targets, along with no debt and strategic flexibility, further support a positive outlook. The Q&A session revealed manageable concerns, with management providing satisfactory explanations. Overall, the company's strategic direction and financial health suggest a positive stock price movement in the short term.
Cognyte Software Ltd. (CGNT) Q4 2026 Earnings Call Transcript
Positive3-25
The earnings call summary and Q&A highlight strong financial metrics, including raised revenue guidance and improved EBITDA margins. The new partnership with LexisNexis and strategic U.S. market expansion are positive catalysts. Despite slight free cash flow underperformance, cash generation remains robust. The balance of shareholder returns and growth investments, alongside optimistic guidance, suggests a positive stock price movement, likely between 2% to 8%.
Cognyte Software Ltd. (CGNT) Q3 2026 Earnings Call Transcript
Positive12-9
The earnings call summary and Q&A reveal strong financial guidance with a 13% revenue growth expectation and a 55% increase in EBITDA. The strategic alliance with LexisNexis and focus on the U.S. market are positive indicators. Despite some minor concerns about contract duration and professional services revenue, the overall sentiment is positive, driven by strong software revenue growth and margin expansion.
Cognyte Software Ltd. (CGNT) Q2 2026 Earnings Call Transcript
Positive9-9
The earnings call reflects a positive outlook with strong financial performance, particularly in EPS and billings growth. The acquisition of GroupSense and strategic U.S. expansion provide additional growth avenues, despite current budget headwinds. The company's confidence in increasing software revenue and improving margins further supports a positive sentiment. The Q&A reveals management's focus on overcoming challenges and leveraging advanced technology to displace incumbents. Overall, the positive financial results and strategic initiatives are likely to drive a stock price increase of 2% to 8% over the next two weeks.
CGNT Report
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