Cognyte's Q2 2026 Earnings Call: Contradictions Emerge on U.S. Federal Market Growth, Software Revenue Mix, and Sales Cycle Timelines

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $97.5M, up 15.5% YOY
• EPS: Non-GAAP EPS $0.08; GAAP EPS $0.02 (vs GAAP loss in prior-year Q2)
• Gross Margin: Non-GAAP gross margin 72.1%, up 81 bps YOY

Guidance:

• FY26 revenue ~ $397M (+/-2%), ~13% YOY growth at midpoint.
• Q3 revenue expected slightly above Q2; Q4 to grow sequentially.
• FY26 adjusted EBITDA ~ $45M (~55% YOY growth).
• FY26 non-GAAP gross margin ~72% (+100 bps YOY); gross profit to outpace revenue growth.
• FY26 non-GAAP EPS ~ $0.23 at midpoint.
• FY26 non-GAAP tax expense ~ $11M.
• FY26 operating cash flow ~ $45M.
• FY26 software revenue ~ $345M (~87% of total); professional services ~13%.
• Long-term (FY28): revenue $500M, GM ~73%, adj. EBITDA margin >20%.

Business Commentary:

* Revenue Growth and Market Demand: - Cognyte Software Ltd. reported a 16% growth in revenue for Q2, reaching approximately $98 million. - This increase was driven by a solid performance against the company's strategy and constant demand for its solutions, particularly due to rising global security threats and complex data volumes.

• New Customer Acquisition and Market Expansion:
• The company secured two significant wins in Q2 with military intelligence customers, totaling about $10 million each.

• These wins underscore the increasing trust and value placed in Cognyte's solutions, which address the rising levels of complexity and security challenges faced by governments and agencies worldwide.

• Technological Innovation and Differentiation:

• Cognyte's technology stack was highlighted as a key differentiator, with significant investments in AI capabilities and analytics to stay ahead of adversaries.

• The company's success in displacing incumbent vendors in competitive markets, including the U.S. and EMEA, is attributed to the superiority of its technology and ability to generate insights from large data sets.

• Recurring Revenue and Financial Stability:

• Cognyte reported a 48.7% recurring revenue for Q2, driven primarily by support contracts and some term-based subscriptions.
• The company's financial stability is further supported by a strong balance sheet, with no debt, and a focus on expanding profitability, which is reflected in the updated guidance for adjusted EBITDA growth of approximately 55% year-over-year.

Sentiment Analysis:

• Q2 revenue grew 15.5% YOY; non-GAAP gross margin reached 72.1% (+81 bps YOY); adjusted EBITDA rose ~33% YOY. Management raised FY26 outlook to ~$397M revenue and ~$45M EBITDA, expects Q3 above Q2 and Q4 to grow sequentially, and projects FY26 non-GAAP EPS of $0.23. Cash of $84.7M with no debt and a new $20M repurchase authorization. Class action lawsuit fully dismissed. Some U.S. federal procurement delays persist but are viewed as temporary.

Q&A:

• Question from Matthew Kalitri (Needham): Can you unpack the raised revenue outlook, U.S. federal assumptions, and any impact from large deals and GroupSense?
  Response: Guidance relies mainly on existing customers outside the U.S.; U.S. is small near-term with procurement delays, though LexisNexis partnership helps; GroupSense is small and integration/on-selling is on track.

• Question from Matthew Kalitri (Needham): Are U.S. budgets starting to open or still constrained?
  Response: Budgets remain tight, but POCs and displacements are strong; expect normalization over time while continuing to invest for U.S. growth.

• Question from Matthew Kalitri (Needham): Confidence in 87%/13% software/pro services mix and any seasonality?
  Response: Pro services fluctuates due to revenue timing, but visibility supports ~87% software and ~13% services; gross margin is improving and guidance raised.

• Question from Joshua Husk (Evercore): What drove growth—existing customers’ data expansion vs. new products/new logos?
  Response: Majority from existing customers via capacity and functionality expansions; ~30 new logos in H1; U.S. expansion is a midterm growth pillar.

• Question from Joshua Husk (Evercore): What enables you to displace incumbents in EMEA and the U.S.?
  Response: Superior AI/analytics and data-scale handling proven in POCs lead to better outcomes; sustained R&D keeps tech ahead of adversaries and competitors.

• Question from Joshua Husk (Evercore): Are new logos mostly displacements or greenfield?
  Response: It’s a mix: greenfield in new geographies like the U.S., plus new agencies/departments within countries where Cognyte already operates.

• Question from Joshua Husk (Evercore): What explains the strong sequential jump in billings?
  Response: Timing of contractual milestones and advances; no single unusual item; overall trend remains healthy.

• Question from Joshua Husk (Evercore): Outlook for recurring revenue mix around 48%?
  Response: Expect gradual increase as subscription (term-based and SaaS) grows, while support remains the majority of recurring.

• Question from Joshua Husk (Evercore): Does the $500M FY28 target require a large U.S. contribution?
  Response: Yes, it assumes rising U.S. contribution; product-market fit is validated, partners engaged, and follow-on orders support expansion.

• Question from Charlie Zhou (Evercore): How is the pipeline vs. 6–12 months ago, and any new threat trends?
  Response: Demand is robust as threats rise; agencies are modernizing for more data and analytics; strong engagement seen via POCs, demos, and events.