Cognite (CGNT) Q2 2026: Software Revenue Jumps 36% as Tactical Intelligence Displaces Incumbents
Cognite’s Q2 2026 results highlight accelerating software growth and expanding gross margins, with recurring revenue and operational leverage strengthening the business model. Strategic wins in military intelligence and law enforcement reinforce Cognite’s competitive edge, while U.S. federal demand remains a long-term lever despite procurement delays. Management’s raised outlook signals confidence in sustained profitable growth, even as macro and budget headwinds persist in key markets.
Summary
- Software Growth Outpaces Services: Tactical intelligence and analytics drove substantial displacement of incumbents.
- Margin Expansion Accelerates: Gross margin and EBITDA margin both improved on favorable mix and operational discipline.
- U.S. Market Remains a Strategic Bet: Federal headwinds persist, but Cognite’s partnerships and pilots build future pipeline.
Performance Analysis
Cognite reported Q2 revenue of $97.5 million, up 15.5% year-over-year, with software revenue climbing nearly 36% to $36.6 million. This surge reflects both new customer wins and upsell momentum among existing clients, particularly in military intelligence and law enforcement. Software now comprises 85.5% of total revenue, while professional services contributed 13%, in line with annual targets. Recurring revenue reached $47.4 million, representing 48.7% of total revenue, underscoring the company’s growing base of high-visibility, multi-year contracts.
Profitability metrics showed marked improvement, with non-GAAP gross margin expanding 81 basis points to 72.1% and adjusted EBITDA up 33% to $11 million. Non-GAAP operating income nearly doubled year-over-year, and net income swung positive. Free cash flow was negative for the quarter, reflecting expected seasonal expenses, but management reiterated full-year cash flow guidance. Robust billings of $93 million (up 20% YoY) and RPO of $574.5 million provide strong forward visibility.
- Software Outperformance: Software revenue growth far exceeded services, validating Cognite’s product-centric model and technology differentiation.
- Margin Expansion: Gross margin improvement was driven by mix shift and operational leverage, with annual gross margin guidance raised to 72%.
- Contracted Revenue Visibility: Strong RPO and billings trends point to sustained demand and backlog conversion into revenue.
While Q2 cash flow was seasonally negative, the company’s balance sheet remains robust with $84.7 million in cash and no debt, supporting continued investments and share repurchases.
Executive Commentary
"Our Q2 performance reflects solid execution against our strategy and constant demand for our solutions. In the second quarter, we grew revenue by approximately 16% year-over-year to about $98 million... These results reflect how technology is not only mission critical, but increasingly indispensable as global threats grow more complex."
Elad Sharong, Chief Executive Officer
"This performance reflects the consistency of our execution and reinforces our continued confidence in the outlook... Non-GAAP operating income and adjusted EBITDA both grew significantly faster than revenue. In Q2, we generated $8 million of non-GAAP operating income, nearly twice as much as the $4.4 million generated in Q2 last year."
David Abadi, Chief Financial Officer
Strategic Positioning
1. Integrated Intelligence Platform Drives Displacement
Cognite’s three-layer technology stack—signal processing, insight mining, and investigative analytics—forms the backbone of its tactical intelligence suite. This integrated platform, powered by advanced AI, enables agencies to process vast and complex data in real time, supporting missions from early threat detection to operational response. Customer pilots and POCs have directly displaced entrenched incumbents in both EMEA and the U.S., demonstrating clear operational superiority and rapid time-to-value.
2. U.S. Federal Market: Long-Term Growth Lever
Despite ongoing procurement delays and budget headwinds in the U.S. federal sector, Cognite continues to invest in expanding its U.S. footprint. The new partnership with LexisNexis Risk Solutions enhances access to federal agencies and is already driving early engagement. While current guidance does not heavily rely on U.S. contributions, management expects the region to become a larger share of revenue over time as pilot successes convert to broader adoption.
3. Recurring Revenue and RPO Underpin Visibility
Nearly half of total revenue is now recurring, primarily through support contracts and term-based subscriptions. Total RPO of $574.5 million, with short-term RPO at $355 million, provides strong visibility for the next 12 months. Management expects recurring revenue to trend higher as more subscription deals activate, particularly from recent wins.
4. Capital Allocation and Profitability Focus
With a debt-free balance sheet and robust cash reserves, Cognite completed a $20 million share repurchase program and authorized an additional $20 million over the next 18 months. This disciplined capital return is paired with continued investment in R&D and go-to-market expansion, supporting both growth and margin expansion.
Key Considerations
This quarter’s results reflect a maturing business model with a strong mix of growth, profitability, and strategic market expansion. Investors should weigh the following:
Key Considerations:
- Technology Leadership: Continuous R&D investment and AI-driven analytics underpin Cognite’s ability to displace competitors and win new logos.
- Customer Expansion: Growth is primarily driven by upsell and expanded use cases among existing customers, with new customer acquisition gaining traction in new territories.
- U.S. Market Ramp: While not yet a material revenue driver, U.S. federal and state-local agencies represent significant long-term upside as pilot programs scale.
- Operational Leverage: Margin expansion and improved profitability are being delivered alongside top-line growth, validating the company’s scalable cost structure.
Risks
U.S. federal procurement delays and budget uncertainty remain a near-term headwind, with management acknowledging that growth in this market will be gradual. Competitive intensity is high, and continued technology investment is required to maintain differentiation. Macro volatility and customer budget cycles, especially in government, could introduce further unpredictability in deal timing and revenue recognition.
Forward Outlook
For Q3, Cognite guided to:
- Revenue slightly higher than Q2 levels, with sequential growth expected in Q4 as well.
For full-year 2026, management raised guidance:
- Revenue of approximately $397 million, plus or minus 2% (13% YoY growth at midpoint)
- Adjusted EBITDA of approximately $45 million (55% YoY growth)
- Non-GAAP gross margin of 72% (up 100 basis points YoY)
- Non-GAAP EPS of $0.23 at midpoint
Management emphasized confidence in achieving $500 million revenue and 73% gross margin by FY 2028, underpinned by recurring revenue, strong RPO, and expanding U.S. opportunity.
- U.S. ramp will contribute more meaningfully in future years, not embedded in near-term guidance.
- Ongoing investment in R&D and partnerships is expected to sustain competitive edge.
Takeaways
Cognite’s Q2 results reinforce the company’s position as a leading provider of AI-driven intelligence solutions for government and security agencies.
- Product-Led Growth: Displacement of incumbents and rapid customer expansion validate Cognite’s technology and operational impact.
- Margin and Profitability Trajectory: Gross margin and EBITDA gains demonstrate scalability and prudent cost management.
- U.S. Market Watch: Investors should monitor the pace of U.S. federal adoption and the conversion of pilots to larger contracts as a key future catalyst.
Conclusion
Cognite delivered a quarter marked by strong software growth, margin expansion, and strategic wins in mission-critical intelligence sectors. While U.S. federal spending remains a slow-burn opportunity, the company’s technology leadership and expanding recurring revenue base position it for durable, profitable growth.
Industry Read-Through
Cognite’s results highlight a sector-wide surge in demand for advanced data analytics and AI-powered intelligence solutions among government and security agencies. The ongoing displacement of legacy providers underscores the importance of real-time analytics and rapid deployment in public safety and national security. Procurement cycles and budget headwinds in the U.S. remain a common challenge across the sector, but successful pilots and the shift to recurring revenue models suggest a broader industry transition toward integrated, subscription-based intelligence platforms. Competitors and adjacent players should note the premium placed on operational agility, analytics depth, and partnership-driven market entry strategies.