Cognyte Software Ltd. (NASDAQ:CGNT) reported on September 9 that revenue for the fiscal second quarter ended July 31, 2026, increased 12.0% to $109.2 million. Total software revenue, comprising software and software services, rose 20.9% to $100.8 million.
Company-defined non-GAAP adjusted EBITDA increased 35.7% to $14.9 million. The measure adds depreciation, amortization, stock-based compensation, restructuring costs, and other specified adjustments to GAAP operating income. Yet quarterly billings fell to $76.3 million from $93.0 million. The central question is whether a more profitable revenue mix can produce stronger cash generation while sustaining future growth.
Bull Case
The portfolio transition is visible in the revenue base. Total software revenue represented more than 92% of sales. Recurring revenue, primarily support contracts and subscription offerings, reached $56.2 million, or 51.4% of total revenue.
For Cognyte Software Ltd., a larger recurring base could make revenue more predictable and support continued product investment. Renewals also create opportunities to expand customer relationships without rebuilding the sales pipeline from scratch. The benefit depends on retention and expansion within those accounts.
Profitability improved under both accounting measures. GAAP operating margin increased to 4.3% from 2.8%, while adjusted EBITDA margin expanded to 13.6% from 11.3%. That combination strengthens the case that the transition is improving operating economics, even after recognizing expenses excluded from adjusted results.
Cognyte Software Ltd. also ended the quarter with $102.2 million in cash and no debt. That provides flexibility to fund development and manage uneven contract cycles. The balance sheet gives the transition time to mature, although sustained cash generation remains the better measure of financial resilience.
Bear Case
Billings declined approximately 18.0% year over year. Cognyte Software Ltd. calculates billings as revenue plus changes in contract liabilities, contract assets, and unbilled balances. This operating metric differs from new bookings and cash receipts, so the decline cannot be read directly as an equivalent drop in orders or collections.
Contract timing can produce quarterly volatility. Trailing-12-month billings were approximately 95% of revenue, providing a broader perspective on the quarterly shortfall. Investors still need to see subsequent invoicing support the current pace of recognized revenue.
Operating cash flow was just $1.1 million, although that improved from a $6.3 million outflow a year earlier. Management cited stronger collections, improved profitability and working-capital discipline, while annual incentive payments and other seasonal uses affected the quarter.
For Cognyte Software Ltd., the next test is whether cash conversion strengthens as those seasonal payments pass. Repeated gaps between earnings growth and operating cash generation would limit the resources available for investment and shareholder returns.
Recurring revenue also depends on customer renewal decisions. A growing recurring mix improves visibility, but maintaining that advantage requires continued product relevance, contract renewals, and dependable collection.
Hedge Fund Sentiment
The filings available so far reflect positions held before Cognyte Software Ltd. reported fiscal second-quarter results. Insider Monkey’s database showed 24 hedge funds holding Cognyte Software Ltd. at the end of 2Q2026, down from 30 funds three months earlier.
Conclusion
Cognyte Software Ltd. is delivering a stronger software mix and better operating margins. The remaining question is how consistently those gains become cash and support future revenue. Billings, recurring growth, backlog conversion, and operating cash flow are the next tests. The transition looks credible, but durable returns require both income-statement progress and cash conversion.
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This article is originally published at Insider Monkey.
