Cognyte Software Ltd. Q1 FY2026 earnings call

• Cognyte reported a strong start to the year with Q1 revenue growth of 16% y-o-y to $95.5 million, non-GAAP gross profit up 17% y-o-y, adjusted EBITDA $10 million (double y-o-y), and cash flow from operations $1.7 million.
• Customer wins included a multi-year support agreement with a longstanding National Security customer valued at over $20 million per year, a new 3-year subscription agreement with another long-standing national security customer valued at over $10 million per year, and 5 deals ~$5 million each from new and existing customers.
• Participated in ISS World's Prague, showcasing mission-critical solutions including a preview of the investigation copilot.
• Acquired GroupSense, a cyber threat intelligence company, adding ~50 customers, integrating its capabilities with Cognyte's technology to enhance threat detection and visibility.
• Investor and Analyst Day shared strategic priorities, technology, and the real-world challenges the company helps customers solve.

In the first quarter, Cognyte grew revenue by approximately 16% year-over-year to $95.5 million. Software revenue was $37.4 million, an increase of $5.9 million or 19% year-over-year. Software Service revenue was $44.7 million, roughly even with the previous year. Total software revenue for the quarter was approximately $82 million, representing about 86% of total revenue. Professional services revenue in Q1 was $13.5 million, an increase of $6.6 million over the prior year. Recurring revenue for Q1 was $47.2 million, representing 49% of total revenue. Non-GAAP gross margin for the quarter was 71.9%, expanding by 80 basis points year-over-year. Gross profit in the first quarter was $68.7 million, an increase of about 17% year-over-year. Adjusted EBITDA for the quarter was $10.3 million, more than double the amount generated in Q1 of the previous year. Cash flow from operations was approximately $1.7 million.

• Fiscal '26 revenue guidance: approximately $395 million, plus or minus 2%, representing about 13% year-over-year growth at the midpoint.
• Adjusted EBITDA guidance: approximately $44 million at the midpoint of the revenue range, representing approximately 50% year-over-year growth.
• Q2 revenue expected to be slightly higher than Q1 with sequential growth throughout the year.
• Annual non-GAAP gross margin expected to be 71.5%, reflecting a 50 basis points improvement over the prior fiscal year.
• Non-GAAP operating expenses expected to grow meaningfully slower than revenue, reaching approximately $252 million, an increase of about 8%.
• Expected non-GAAP EPS at the midpoint of the revenue range is $0.19.
• Cash flow from operations expected to be $45 million for the full year.

• Forward-looking statements are based on management's current expectations and may not materialize as expected.
• Actual results could differ materially from forward-looking statements due to risks and uncertainties discussed in Cognyte's annual report on Form 20-F for the fiscal year ended January 31, 2025, and other SEC filings.

Q: Congrats on the solid start to the year. Just wanted to come back to the guidance for a second, and how did the quarter itself play out versus plan? Also, speak to demand and market environment.

A: Hi, Mike. So in Q1, the top line came a little bit ahead of expectation, but this can happen between quarters. We still expect the sequential growth quarter-on-quarter along the year. As of the demand and market environment, we do see similar momentum as we shared before. We do see very good traction with customers. It's evidenced also in conferences we are participating, including the recent one. The demand drivers remains very healthy. The data is growing volume diversity, the adversaries are most sophisticated, better hide, and the technology is running fast. So we do see the momentum continues, and we continue to expect to continue and grow along there quarter-over-quarter and improve profitability for the...

Q: For the contract signings, why isn't the volume of contract value impacting fiscal '26 to a greater extent?

A: Yes, sure. So we mentioned actually two large deals. One is related to a renewal of very large contract contracts. We expected this to come in. So it was already baked in our guidance. And the second one is the larger subscription deal of over $10 million per deal, and the deployment is planned to take place in Q1 next year, fiscal '27. And that's the reason it's not relevant in terms of top line for this year.

Q: On the GroupSense acquisition, what is the revenue impact and associated OpEx increase?

A: So in general, it's a small transaction. It's a breakeven business. We added the $3 million to the top line. The model that they are selling is a subscription model. So it's a recurring revenue of $3 million that were added to the top line. And this is something that we saw to the guidelines. From an OpEx perspective, we have additional $2 million because of some other savings that come from different areas. So in general, it's a breakeven. We believe that over time, due to synergies and other elements, we can create profitability and it will allow us to grow in the U.S.

Q: Are all 50 customers from GroupSense in the U.S. and any customer overlap with Cognyte's traditional customer base?

A: All customers are in the U.S. And the solution -- actually, the GroupSense provide to those customers is in the domain of cyber threat intelligence. We do believe that for some of the customers, and this was also the main rationale for the deal, we can leverage our technology and being able to deliver to the Cognyte's technology in addition to what GroupSense delivers to them today. And by that expand presence -- continue to expand our presence in the U.S., this is one element in our strategy to increase presence in the U.S.