CGNT — Q2 2026 Financial Report Analysis
Q2 · Fiscal year 2026 · Published by Pham Hop
Cognyte grew revenue 12% to $109.2M as software licences rose 35% and low-margin services fell 40%, lifting GAAP EPS to $0.06, though billings fell 18% and half-year cash flow was negative.
- Revenue
- $109M
- +12.0% YoY
- Net income
- $4.1M
- +179.5% YoY
- Diluted EPS
- $0.06
- +200.0% YoY
- Operating margin
- 4.3%
This period vs a year ago
- Same period last year
- This period
Year-ago figures (≈) are worked out from the growth rate the company reported. Each row has its own scale.
Overview
Cognyte, an Israeli maker of investigative-analytics software for police, national-security and intelligence agencies, grew revenue 12.0% to $109.2 million in the quarter ended July 31, 2026. The company calls this Q2 of fiscal year 2027 (FYE27), because its fiscal year runs February to January. Almost all of the growth came from selling more software and less of the lower-margin consulting and installation work that used to pad its revenue. GAAP net income attributable to shareholders nearly tripled to $4.1 million ($0.06 per diluted share, from $0.02). Two things flatter that figure: a quarterly tax benefit and a profit base that is still small. The full-year guidance needs a stronger second half, and billings fell 18%.
At a glance
- Software revenue up 34.5% to $49.2 million; professional services down 40% to $8.4 million. Total software revenue (licences plus support) is now more than 92% of sales, up from about 86%. The shift is from one-off project work to repeatable product sales.
- GAAP operating margin of 4.3%, up from 2.8%. That is still thin. Operating margin is the share of revenue left after running the business, before interest and tax. The company's preferred non-GAAP margin, which excludes stock pay and restructuring, was 11.2%.
- Billings of $76.3 million, down from $93.0 million. Billings are invoices sent in the quarter, a rough guide to future revenue. Management says billings are lumpy, and over the past 12 months they equalled about 95% of revenue.
Results in figures
Three months to July 31, 2026 (company's Q2 FYE27), US dollars.
| Metric | Q2 FYE27 (Jul 2026) | Q2 FYE26 (Jul 2025) | YoY Change |
|---|---|---|---|
| Revenue | $109.2M | $97.5M | +12.0% |
| Software revenue (licences) | $49.2M | $36.6M | +34.5% |
| Software service revenue (support/subscriptions) | $51.6M | $46.7M | +10.3% |
| Professional service and other | $8.4M | $14.2M | -40.4% |
| Recurring revenue | $56.2M | $47.5M | +18.4% |
| Gross margin (GAAP) | 72.9% | 71.5% | +1.4 pts |
| Operating income (GAAP) | $4.7M | $2.7M | +69.7% |
| Operating margin (GAAP) | 4.3% | 2.8% | +1.5 pts |
| Net income attributable to Cognyte | $4.1M | $1.5M | +179.5% |
| Diluted EPS (GAAP) | $0.06 | $0.02 | +200.0% |
| Non-GAAP diluted EPS | $0.15 | $0.08 | +87.5% |
| Adjusted EBITDA | $14.9M | $11.0M | +35.7% |
| Billings | $76.3M | $93.0M | -18.0% |
Recurring revenue is the company's measure of support contracts and subscriptions likely to renew. The prior-year figure is implied from the stated 18.4% growth.
What drove the quarter
The revenue mix is the main story. Licence revenue grew $12.6 million and support/subscription revenue $4.8 million, while professional services fell $5.7 million. The company says professional services were "less than 8% of total revenue during the second quarter, compared with approximately 15%" a year earlier. Professional services lose money at the gross level: they cost $10.1 million to deliver against $8.4 million of revenue. Doing less of them lifts margins on their own. That is why GAAP gross margin rose to 72.9% even though the cost of delivering licence revenue doubled from $3.6 million to $7.4 million. The gross margin on licence revenue fell from about 90% to about 85%. The release does not explain why. A rise in inventory to $24.2 million, from $16.4 million in January, suggests more hardware is being shipped with the software.
Operating expenses rose 11.9%, slightly slower than revenue. Sales, general and administrative costs were the faster-growing line at $42.9 million (+13.6%), and R&D was $32.0 million (+9.5%). For the first half, the company says profits absorbed "approximately $7 million of net unfavorable foreign exchange impact". Most of Cognyte's staff are paid in Israeli shekels, so a stronger shekel raises its dollar costs.
What the headline numbers hide
- A tax benefit made the net income figure look better. Pre-tax income was $4.6 million, but the company booked a $0.5 million tax benefit for the quarter, so net income ($5.1 million before minority holders' share) exceeded pre-tax profit. For the half year, tax was $4.1 million on $7.2 million of pre-tax income, a 57% rate. Half-year net income attributable to Cognyte was only $1.1 million ($0.01 per share). The "tripled" quarterly EPS mostly reflects how tax was allocated across quarters.
- Minority shareholders take a slice. $1.0 million of Q2 net income belongs to non-controlling interests, outside investors in some subsidiaries, before Cognyte's own shareholders get anything.
- The GAAP vs non-GAAP gap is large. Non-GAAP EPS of $0.15 is more than twice GAAP EPS of $0.06. It excludes $5.7 million of stock-based compensation (about $0.08 per share), $1.8 million of restructuring costs (up from almost nothing a year ago), and other smaller items. Stock pay recurs every quarter, and the company itself expects $23.5-25.5 million of it this year, so the non-GAAP figure overstates what shareholders actually earn. Restructuring was a genuine one-off cost in Q2. Without it, GAAP operating income would have been about $6.4 million.
- Cash conversion is weak so far this year. Operating cash flow was -$3.6 million for the first half against $3.1 million of net income, though Q2 alone was +$1.1 million, an improvement on -$6.3 million a year ago. Two working-capital items absorbed cash: inventory rose $8.1 million, and contract liabilities (customer prepayments for work not yet delivered) fell $11.1 million as that work was delivered. Cash fell from $116.9 million to $102.2 million over the half, after $13.4 million of share buybacks. Cognyte has no debt.
- Buybacks did not drive EPS growth. The diluted share count was 74.6 million, 0.7% higher than a year ago. The $13.4 million of first-half repurchases roughly offset new shares issued as stock compensation. The profit growth is operational.
- Falling billings deserve watching. Revenue grew 12% while billings fell 18%, and contract liabilities fell $11.3 million in six months. If that continues, revenue growth will slow.
Takeaway: Cognyte's improvement is in its revenue mix. Software licences up 35% and loss-making services down 40% lifted gross margin and doubled non-GAAP EPS. But GAAP profit is still thin: half-year net income was $1.1 million on $215 million of revenue, after stock pay, restructuring and a 57% tax rate. The next test is whether falling billings and negative first-half cash flow turn around in the second half, as the guidance assumes.
Outlook
Management narrowed its FYE27 (year to January 31, 2027) revenue range around an unchanged midpoint and reaffirmed its profit targets:
| FYE27 guidance | Midpoint | Implied second half (guidance minus H1 actual) |
|---|---|---|
| Revenue | $448M (±2%), ~12% growth | ~$233M vs $214.7M in H1 |
| Adjusted EBITDA | ~$68M, ~40% growth | ~$39.5M vs $28.5M in H1 |
| Non-GAAP diluted EPS | $0.47 | ~$0.28 vs $0.19 in H1 |
The CFO said the company has "visibility into approximately 85% of the next 12 months' revenue" from contracts in hand and expected renewals. The company also says it remains on track for its FYE28 targets.
Our read: revenue guidance looks reachable. The H2 figure needs only about 9% more than H1, and recurring revenue is growing 18%. The profit guidance is the harder part: adjusted EBITDA has to rise almost 40% from the first half to the second, which depends on continued margin improvement and on the shekel not strengthening further. The next quarter's billings and cash flow will show whether the first-half weakness was timing, as management says, or a slowdown in new orders.