Cognyte Software Ltd. (CGNT) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Revenue Revenue for Q2 was $97.5 million, an increase of 15.5% year-over-year. This growth reflects solid execution against strategy and constant demand for solutions.
Software Revenue Software revenue was $36.6 million, an increase of $9.7 million or 35.9% year-over-year. This growth is attributed to perpetual licenses, appliances, and some term-based subscription licenses.
Software Services Revenue Software services revenue was $46.7 million, up $1.4 million from last year. This growth is mainly driven by support contracts and, to a lesser extent, cloud-based SaaS subscriptions.
Professional Services Revenue Professional services revenue in Q2 was $14.2 million, an increase of $2 million over last year. This fluctuation is due to revenue recognition timing.
Recurring Revenue Recurring revenue for Q2 was $47.4 million, representing 48.7% of total revenue. This is driven primarily by support contracts and some term-based and SaaS subscription offerings.
Non-GAAP Gross Margin Non-GAAP gross margin for the quarter was 72.1%, expanding by 81 basis points year-over-year. This improvement is due to the significant value customers derive from innovative solutions, competitive differentiation, and improved cost structure.
Gross Profit Gross profit in the second quarter was $70.3 million, an increase of 16.8% year-over-year. This growth is attributed to revenue growth and improved cost structure.
Non-GAAP Operating Income Non-GAAP operating income for Q2 was $8 million, nearly twice as much as the $4.4 million generated in Q2 last year. This reflects operational leverage and improved profitability.
Adjusted EBITDA Adjusted EBITDA for the quarter was $11 million, about 33% higher than the $8.3 million generated last Q2. This growth is due to revenue growth and operational leverage.
GAAP Net Income GAAP net income for the quarter was $2.7 million, versus a loss of $0.9 million in Q2 last year. This improvement reflects better profitability.
Non-GAAP EPS Non-GAAP EPS for Q2 was $0.08, compared to $0.02 in the same period last year. This reflects improved profitability.
Cash Flow from Operations Cash flow from operating activities was a negative $6.3 million, primarily due to expected seasonal expenses, including bonus payments.
RPO (Remaining Performance Obligations) Total RPO at the end of Q2 was $574.5 million, versus $567.7 million at the same period last year. This reflects contracted revenue to be recognized in future periods.
Billings Q2 billings were $93 million, an increase of about 20% versus the same period last year. This reflects strong demand and sales execution.
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Operating Highlights
Operational Intelligence Suite: Highlighted as a key offering, including tactical intelligence solutions for real-time operations in complex environments. Demonstrated success in a U.S. city pilot, leading to arrests and outperforming incumbent solutions.
AI-Powered Predictive Analytics: Recognized by Gartner as a Sample Vendor in the 2025 Hype Cycle for Public Safety and Law Enforcement, showcasing transformational benefits.
U.S. Market Expansion: Strengthened presence through a strategic alliance with LexisNexis Risk Solutions, targeting federal market growth. Participated in key U.S. events to showcase capabilities.
Global Market Engagement: Secured significant deals in Asia Pacific ($10M follow-on deal) and EMEA ($10M competitive win), reflecting trust in tactical intelligence solutions.
Revenue Growth: Achieved 16% year-over-year revenue growth in Q2, reaching $98M. Software revenue grew by 35.9% year-over-year.
Profitability Improvements: Non-GAAP gross profit increased by 17% year-over-year, with adjusted EBITDA growing by 33%.
Long-Term Financial Targets: Set goals for FY 2028: $500M revenue, 73% gross margins, and 20%+ adjusted EBITDA margins.
Capital Allocation: Completed $20M share repurchase program and initiated a new $20M program.
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Risk or Challenges
U.S. agency procurement delays: The company is facing atypical U.S. agency procurement delays, which limit near-term visibility into budget timing. This creates challenges in planning and executing their U.S. market strategy.
Cash flow challenges: The company reported negative cash flow from operating activities of $6 million for the quarter, attributed to expected seasonal expenses. This could impact short-term liquidity and operational flexibility.
Competitive pressures: In the EMEA region, the company faced competition from several global vendors, including regional incumbents, in securing a $10 million deal. This highlights the competitive intensity in the market.
Dependence on government agencies: The company’s reliance on law enforcement, military intelligence, and national security agencies exposes it to risks related to government budget constraints, policy changes, and procurement delays.
Economic uncertainties: Global economic uncertainties and heightened security challenges could impact customer budgets and spending priorities, potentially affecting demand for the company’s solutions.
Revenue concentration: A significant portion of the company’s revenue is derived from software, which represents 85.5% of total revenue. This concentration could pose risks if there are disruptions in software sales or changes in customer preferences.
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Guidance & Outlook
Revenue Guidance for FY 2026: Cognyte expects revenue of approximately $397 million, plus or minus 2%, representing about 13% year-over-year growth at the midpoint of the range.
Adjusted EBITDA Guidance for FY 2026: The company projects adjusted EBITDA of approximately $45 million at the midpoint of the revenue range, representing approximately 55% year-over-year growth.
Gross Margin Outlook: Cognyte anticipates an annual non-GAAP gross margin of 72%, reflecting an improvement of 100 basis points over the previous fiscal year.
Revenue Growth Expectations: Sequential revenue growth is expected in Q3 and Q4 of FY 2026, with Q3 revenue slightly higher than Q2 levels.
Long-Term Financial Targets for FY 2028: Cognyte aims to achieve $500 million in revenue, gross margins of about 73%, and adjusted EBITDA margins above 20% by the fiscal year ending January 31, 2028.
Cash Flow Projections: The company expects to generate $45 million of operating cash flow in FY 2026.
Market Trends and Demand: The company observes a favorable demand environment driven by increased investment in modern, AI-enabled intelligence platforms, particularly in the U.S. market.
U.S. Market Strategy: Cognyte is focusing on further penetration into the U.S. market, despite temporary procurement delays, and has entered into a strategic alliance with LexisNexis Risk Solutions to expand its footprint and sales power in the region.
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Shareholder Return Plan
Share Repurchase Program Completion: The company completed the previously authorized share repurchase program, repurchasing approximately 2.1 million ordinary shares for a total of $20 million.
New Share Repurchase Program: The Board approved a new share repurchase program of up to $20 million in ordinary shares over the next 18 months, through January 14, 2027. Share repurchases could commence on Friday, August 13, following the required 30-day notice period under Israeli law.
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Key Q&A
Q:Can you help us think through your updated assumptions around the U.S. federal environment, the GroupSense contribution, and any contributions from the large deals signed during the quarter?
A:The U.S. represents a significant opportunity, but it is a small portion of the business in the short term due to budget issues and the time it takes to sell to federal agencies. GroupSense is a small acquisition aimed at increasing market access for cyber threat intelligence, and its integration is on track. Efforts are ongoing to expand presence in the U.S.
Q:How are conversations in the U.S. compared to expectations, especially regarding budgets?
A:Budget headwinds in the U.S. are accounted for in the guidance. Despite challenges, the company has acquired new state and local customers, conducted successful POCs, and received follow-on orders. The strategy to expand in the U.S. remains unchanged, and budget issues are seen as temporary.
Q:Is there any seasonality at play with the 87% software and 13% professional services split, and what gives you confidence in the software revenue mix increasing in the second half of the year?
A:There is no real seasonality in professional services. The confidence in the software revenue mix comes from visibility into the next 12 months, growing software revenue, and improving gross margins. The gross margin guidance has been raised to 72%, with a long-term target of 73%.
Q:How much of the growth this quarter came from existing customers buying more products versus data growth?
A:Growth is primarily driven by the existing customer base, which continues to expand through data capacity, functionality upgrades, and new use cases. New customers usually start small and grow over time, contributing to the existing customer base.
Q:What is driving the displacement of incumbents in Europe and the U.S.?
A:Displacement is driven by superior technology, including advanced AI, analytics, and GenAI capabilities. The company encourages POCs to demonstrate the superiority of its solutions, which often leads to customers switching from incumbents.
Q:How much of new logo acquisition is displacing an existing vendor versus greenfield opportunities?
A:New logo acquisition is a mix of displacing incumbents and entering greenfield opportunities. This includes new territories like the U.S., new departments within existing organizations, and new agencies in the same country.
Q:What drove the strong billings number this quarter?
A:The strong billings number is attributed to factors like contract milestones and new orders with advances. There is no specific event to call out, but the overall trend shows strong and quality revenue.
Q:Do you expect the recurring revenue mix of 48% to increase?
A:Recurring revenue is expected to grow over time, driven by support and subscription offerings. Deals closed in subscription will become active next year, contributing to an increase in recurring revenue.
Q:Does the U.S. need to become a sizable portion of revenue to reach the $500 million long-term target?
A:The U.S. is expected to grow over time and contribute to the $500 million target. The product-market fit in the U.S. is strong, and there is increasing traction with customers and partners.
Q:How is the overall deal pipeline trending versus 6 to 12 months ago, and are there any incremental pressures from macro factors?
A:The demand environment remains healthy despite macro pressures. Security challenges are growing, driving the need for modernization and advanced analytics. The company sees strong demand through POCs, demos, and customer engagement.
Q:Have there been any new trends in the public sector threat landscape?
A:The public sector faces increasing challenges from blurred lines between criminal and terror activities, advanced tools used by adversaries, and the need for predictive analytics. This drives strong demand for modernization and advanced solutions.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact contribution of GroupSense to revenue, the precise breakdown of growth from data versus new products, and the specific drivers behind the strong billings number this quarter.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI intelligence
Asia Pacific
Tier
actor
adversary technology
border
city
customer solution
decision
demand solution
event
field
footprint
harm
insight mining
intelligence capability
intelligence security
intelligence solution
layer signal
mining analytics
mission threat
opportunity capability
platform
power
premier
proof
region
response
safety
security agency
security challenge
signal processing
solution customer
state
suite
target
threat precision
trust
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
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
