Release Date: September 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cognyte Software Ltd (CGNT, Financial) reported double-digit revenue growth, with Q2 revenue of $84 million, up approximately 10% year-over-year.
- Non-GAAP gross profit increased by 13% year-over-year, demonstrating effective margin expansion.
- The company generated $8 million of positive adjusted EBITDA in Q2, more than three times the amount generated in the same quarter last year.
- Cognyte Software Ltd (CGNT) secured three substantial follow-on orders, each valued at over $10 million, from national security and law enforcement agencies.
- The company has increased its full-year revenue outlook to approximately $347 million, representing about 11% year-over-year growth at the midpoint.
Negative Points
- Software and software service revenue declined 5% sequentially, marking the first decrease since Q3 of fiscal '23.
- Despite the overall revenue growth, the company still faces challenges in converting more customers to its subscription model.
- The professional services segment showed strong performance, but its sustainability remains uncertain.
- The company continues to operate in a highly complex and evolving threat landscape, which requires constant innovation and adaptation.
- Cognyte Software Ltd (CGNT) reported a non-GAAP EPS loss of $0.03 at the midpoint of the revenue range for the full year.
Q & A Highlights
Q: Just wanted to cycle back to the revenue composition when we're looking at it today. I saw the software and software service declined 5% sequentially, which I think was the first time that we've seen this revenue stream decrease since 3Q of fiscal '23. So just trying to get a sense of the software and software service revenue to understand what caused that decline? Or was that in line with how you guys had expected.
A: Hi, Mike. So the vast majority of our offering is offered in perpetual license. As you remember, we do offer certain elements of our portfolio in a subscription model. And recurring revenue this quarter grew sequentially and year-over-year. In Q2, the recurring revenue came at $46.6 million versus $41.2 million in Q2 last year, representing about a 40% increase and related to incremental subscription revenue. So if you look at it, the overall software revenue increased over by $5.5 million. So actually, it's a conversion of perpetual license to some offerings that is subscription. - Elad Sharon, CEO
Q: If I think about the guidance that we have here for the rest of the year now, can you help us better think through, I guess, the split you're expecting between software and software service versus the professional services, just again because that professional services was so strong in this past quarter.
A: Yes, Mike. In general, our guidance baked in the subscription revenue that we're seeing that is growing. You could see the trend that on overall recurring revenue that is growing and it's becoming more than 55% of the total revenue, which is good, it gives us visibility. And you could see that between the growth in the recurring revenue, the portion of the subscription is higher. Now, if you will think about governmental agencies, the purchasing behavior is -- remain the same. The preference is to still and buy in our domain on a CapEx model, which means, in other words, perpetual. We do encourage the customer to do this transition, and we are very pleased that we were able to do it this year. But from a forecast perspective, our 11% is taking [concerns] on everything. And we believe that in the long term, there will be more impact related to subscription. - David Abadi, CFO
Q: Can you provide more details on the substantial follow-on orders you secured in Q2?
A: In Q2, we secured three substantial follow-on orders each valued at over $10 million. These orders came from two national security agencies and a law enforcement agency. Each of these customers has realized significant value from our solutions over the years. We believe our solutions have proven to be indispensable, providing our customers the quality, reliability, and power needed to tackle evolving challenges effectively. - Elad Sharon, CEO
Q: How is the company addressing the evolving world of threats and the intelligence imperative faced by customers?
A: The investigation challenges faced by law enforcement and security agencies are becoming increasingly complex over time across various activities, such as organized crime, counterterrorism, drug smuggling, human trafficking, financial crimes, and illegal immigration. To empower our customers to stay ahead of this constantly evolving threat, we deliver cutting-edge innovation powered by AI and advanced analytics. Our technology equips agencies to detect patterns, relationships, and hidden insights that would otherwise be impossible to uncover. - Elad Sharon, CEO
Q: Can you elaborate on the recognition of your Cyber Threat Solution, LUMINAR, in the Gartner report?
A: Recently, Cognyte was recognized for LUMINAR AI Insights, one of our AI-driven Threat Intelligence solutions, in an August 2024 Gartner report, Emerging Tech, The Future of Cyber Threat Intelligence Research. In this report, Gartner assesses trends impacting the threat intelligence domain, predicting that GenAI-based capabilities will become key as this technology will support faster mean time to respond by more quickly providing indicators about threats and the surrounding context. - Elad Sharon, CEO
Q: What are the key financial highlights from Q2?
A: Q2 revenue was $84.4 million, an increase of approximately 10% year-over-year. The majority of the revenue growth was driven by an increase in software revenue. Recurring revenue is strong, and in Q2, we generated $46.6 million of recurring revenue. Non-GAAP gross margin for the quarter was 71.3%. Our non-GAAP gross profit for the quarter was $60.2 million, an increase of $6.9 million or 12.9% year-over-year growth. - David Abadi, CFO
Q: What is the updated fiscal '25 outlook?
A: We are now expecting revenue to be approximately $347 million, plus or minus 2%, representing about 11% year-over-year growth at the midpoint. Given the leverage in our financial model, we increased our adjusted EBITDA guidance, and we now expect it to be about $25 million at the midpoint of the revenue range, almost 3 times of what we generated in fiscal '24. - David Abadi, CFO
Q: How is the company's cash position and balance sheet?
A: Our cash position is strong with almost $100 million of cash, up over $16 million from year-end and no debt. The increase in our cash balance was primarily due to cash flow from operations we generated during the first half of the year. Our short- and long-term contract liabilities, also known as deferred revenue, are strong and were $111.4 million at the end of Q2. - David Abadi, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
