Cognyte Software Q2 Earnings Call Highlights

Cognyte Software (NASDAQ:CGNT) reported second-quarter fiscal 2027 revenue growth and expanding profitability, as the intelligence software provider cited increased demand from government agencies for AI-enabled and sovereign intelligence capabilities.

Revenue for the quarter totaled approximately $109 million, up 12% from a year earlier. Total software revenue increased 20.9% to $100.8 million and accounted for more than 92% of revenue, compared with approximately 86% in the prior-year quarter. Recurring revenue grew 18.4% to $56.2 million, representing 51.4% of total revenue.

CEO Elad Sharon said government customers are prioritizing national security, military intelligence, border security and public safety investments as threats accelerate and data volumes increase. He said customers are increasingly focused on AI capabilities that can be embedded in operational workflows while remaining explainable and under agency control.

“Agencies do not accept a black box, so they are not buying AI tools,” Sharon said. “They are buying platforms powered by AI, built by domain experts who understand the mission.”

Software mix and profitability expand

CFO David Abadi said the company’s business mix continued to shift toward software and recurring revenue. Software revenue, which includes perpetual licenses, appliances and term-based subscription licenses, rose 34.5% year over year to $49.2 million. Software services revenue, largely comprising support contracts and cloud-based SaaS subscriptions, grew 10.3% to $51.6 million.

Professional services revenue declined to $8.4 million from $14.2 million a year earlier, reflecting the growing contribution of software to the business.

Non-GAAP gross margin increased 154 basis points to 73.7%, while non-GAAP gross profit rose 14.4% to $80.5 million. GAAP operating income increased 69.7% year over year to $4.7 million. Non-GAAP operating income rose 52.5% to $12.2 million, and adjusted EBITDA increased 35.7% to $14.9 million.

Non-GAAP earnings per share were $0.15, nearly double the $0.08 reported in the prior-year period. GAAP diluted EPS was $0.06, compared with $0.02 a year earlier.

Abadi said operating expenses were affected mainly by foreign exchange movements, particularly the weaker U.S. dollar against the Israeli shekel. The company partially offset those effects through efficiency initiatives, including greater use of enterprise AI. Despite the foreign exchange headwind, operating expenses grew more slowly than revenue, he said.

For the first half of fiscal 2027, Cognyte reported revenue of $214.7 million, up 11.2%. Total software revenue rose 19.8% to $198.1 million, while recurring revenue increased 14.2% to $108.1 million. The company said it faced approximately $7 million of net unfavorable foreign exchange impact on operating profitability during the first half.

Customer momentum and U.S. opportunity

Sharon said Cognyte added 40 new customers during the first half, compared with 31 in the same period last year. He highlighted a new customer that is a Tier 1 national security agency in a NATO member country, which was referred to Cognyte by another agency it serves.

The company also expanded with customers in Asia-Pacific, including one customer broadening its network intelligence capabilities and another using the company’s technology for border security and mitigation of unmanned aerial threats.

In the U.S., Sharon said several federal opportunities moved into procurement after proof-of-concept projects and operational demonstrations. During the question-and-answer session, he said Cognyte had closed deals with federal agencies and expects some additional federal deals during the current fiscal year.

The company reiterated that it is on track to sign $20 million in U.S. deals during fiscal 2027, with expected contributions from state and local customers as well as federal contracts. Sharon also said several significant agreements were signed after quarter-end, with more details expected in the coming weeks.

Cognyte appointed Adam Philpott as chief revenue officer early in the prior month. Sharon said Philpott will lead the company’s global commercial organization, focusing on expansions with existing customers, winning new agencies and accelerating U.S. growth.

RPO, cash flow and outlook

Total remaining performance obligations at the end of the quarter were $470.2 million, including $313.4 million of short-term RPO. Abadi said reported RPO excludes cancelable portions of subscription contracts; approximately $42 million of future revenue related to those arrangements was excluded at July 31.

He also said about $30 million of the RPO change reflected the consumption of large multiyear support agreements as revenue was recognized. When combined with expected recurring-business renewals and contracts signed after quarter-end, Cognyte said it has visibility into about 85% of the revenue needed to support its plan for the next 12 months. The remaining 15% is expected largely from normal book-and-ship activity.

Operating cash flow was positive $1.1 million in the second quarter, compared with cash used in operations of $6.3 million in the prior-year quarter. Cognyte ended the period with $102.2 million in cash and no debt.

During the first six months of fiscal 2027, the company repurchased approximately 1.5 million ordinary shares for $13.5 million. Since beginning its first repurchase program in November 2024, Cognyte has repurchased approximately $40.2 million of shares out of $60 million authorized across its programs.

Cognyte narrowed its full-year revenue outlook around an unchanged midpoint, forecasting fiscal 2027 revenue of approximately $448 million, plus or minus 2%, representing about 12% growth at the midpoint. It continues to expect recurring revenue to outpace total revenue growth.

• Non-GAAP gross margin is expected to be approximately 73.5%.
• Non-GAAP operating income is expected to be about $66 million.
• Adjusted EBITDA is expected to be approximately $68 million.
• Annual non-GAAP EPS is expected to be $0.47 at the midpoint.

The company expects third-quarter revenue to be slightly above second-quarter levels, followed by sequential growth in the fourth quarter. It also continues to expect significant positive operating cash flow for the full year, though it said targeted inventory investments to support customer deliveries and supply-chain planning could affect the timing and amount of cash generation.

Sharon said a faster-than-expected shift toward subscriptions may reduce reported near-term revenue growth compared with a perpetual-license mix, but he said the transition supports greater predictability and visibility over time.

About Cognyte Software (NASDAQ:CGNT)

Cognyte Software Ltd. is a global provider of security analytics solutions that was spun off from NICE Ltd. in early 2021. Headquartered in Israel, the company delivers specialized software and services designed to help government agencies, law enforcement organizations and critical infrastructure operators process and analyze large volumes of data for intelligence and investigative purposes.

The company’s core offerings include advanced analytics platforms that aggregate and visualize structured and unstructured data from diverse sources, such as communications metadata, open-source intelligence and sensor feeds.