코그나이트(CGNT) 2027 회계연도 2분기 실적 발표회: 소프트웨어 매출 20.9% 증가

주요 내용

• 코그나이트(Cognyte)는 2027 회계연도 2분기 매출이 전년 동기 대비 12% 증가한 약 1억 900만 달러를 기록했다고 발표했습니다. 전체 소프트웨어 매출은 20.9% 증가한 1억 80만 달러로, 전체 매출의 92% 이상을 차지했습니다.
• 반복 매출(Recurring revenue)은 18.4% 증가한 5,620만 달러로 전체 매출의 51.4%를 차지했습니다. 경영진은 구독 방식으로의 전환이 가시성을 개선하고 있지만, 영구 라이선스에 비해 보고되는 매출 인식이 지연될 수 있다고 설명했습니다.
• 수익성 성장 속도는 매출 성장률을 크게 상회했습니다. 비GAAP 영업이익은 52.5% 증가한 1,220만 달러, 조정 EBITDA는 35.7% 증가한 1,490만 달러를 기록했으며, 비GAAP 주당순이익(EPS)은 거의 두 배인 0.15달러로 늘었습니다.
• 경영진은 2027 회계연도 매출 전망치를 기존 중간값인 약 4억 4,800만 달러(±2%) 안팎으로 상하한 폭을 좁혔습니다. 비GAAP 영업이익 약 5,600만 달러, 조정 EBITDA 약 6,800만 달러의 기존 목표는 유지했습니다.
• 총 수주잔고(RPO)는 4억 7,020만 달러였으며, 이 중 단기 RPO는 3억 1,340만 달러였습니다. 회사는 예상 갱신 건과 분기 종료 후 체결된 계약을 포함하면 향후 12개월 동안 필요한 매출의 약 85%에 대한 가시성을 확보했다고 밝혔습니다.
• 코그나이트는 상반기에 전년 동기(31개)보다 늘어난 40개의 신규 고객사를 확보했습니다. 경영진은 2027 회계연도 중 2,000만 달러 규모의 미국 내 계약을 체결한다는 목표를 차질 없이 진행 중이라고 밝혔습니다.

주요 재무 데이터

상반기 전체 매출은 11.2% 증가한 2억 1,470만 달러를 기록했습니다. 전체 소프트웨어 매출은 19.8% 증가한 1억 9,810만 달러, 반복 매출은 14.2% 증가한 1억 810만 달러였습니다. 영업 수익성에 약 700만 달러 규모의 부정적인 환율 영향이 있었음에도 불구하고 비GAAP 영업이익은 47.2% 증가한 2,290만 달러를 기록했습니다.

분기 말 기준 코그나이트의 현금 보유액은 1억 220만 달러이며 차입금은 없습니다. 상반기 동안 약 150만 주를 1,350만 달러에 자사주 매입했으며, 총 6,000만 달러 한도 승인 하에 2024년 11월 이후 총 4,020만 달러 규모의 자사주를 매입했습니다.

사업 및 영업 실적

매출 비중은 소프트웨어 및 반복 계약 중심으로 지속적인 이동을 보였습니다. 경영진은 영구 라이선스가 여전히 주된 모델이지만 고객들이 예상보다 빠르게 구독 구조를 도입하고 있다고 설명했습니다. 코그나이트는 영구 라이선스 대 구독 비중이 전년과 유사한 수준을 유지했더라면 매출 성장률이 수 퍼센트포인트 더 높았을 것으로 추정했습니다.

경영진은 고객들의 핵심 우선순위로 AI와 데이터 및 인프라에 대한 주권적 통제권(sovereign control)을 꼽았습니다. 정부 기관들은 온프레미스 시스템을 포함한 구축 환경에 대해 설명 가능성, 거버넌스 및 통제권을 유지하면서 업무 프로세스에 통합된 AI 기능을 요구하고 있습니다.

고객 확장, 업그레이드 및 신규 계정 전반에 걸쳐 영업 활동이 활발하게 이루어졌습니다. 코그나이트는 2027 회계연도 상반기에 나토(NATO) 회원국의 티어 1 국가안보 기관을 포함해 40개의 고객사를 추가했습니다. 또한 무인 항공 위협 완화를 포함한 네트워크 지능 및 국경 보안 분야에서 아시아 태평양 지역 2건의 사업 확장을 언급했습니다.

미국에서는 개념 검증(PoC) 프로젝트와 실증 시연을 거친 후 여러 연방 수주 기회가 조달 단계로 진입했습니다. 코그나이트는 신규 및 기존 주·지방 정부 고객사와의 계약 체결도 기록했습니다. 경영진은 일부 연방 계약이 2027 회계연도 내에 완료될 것으로 예상하며, 2,000만 달러 규모의 미국 계약 체결 목표를 차질 없이 추진하고 있다고 밝혔습니다.

경영진 가이던스

경영진은 3분기 매출이 2분기를 소폭 상회한 후 4분기에도 전분기 대비 성장을 이어갈 것으로 예상하고 있습니다. 연간 전망치는 2분기의 이례적으로 높았던 소프트웨어 비중이 하반기 내내 지속될 것으로 가정하지는 않았습니다.

코그나이트는 또한 2028 회계연도 매출 목표인 5억 달러 달성에 자신감을 유지했습니다. 경영진은 견조한 수요와 향후 12개월 동안 약 85%의 매출 가시성을 언급했으며, 나머지 약 15%는 주로 일반적인 주문 및 배송(book-and-ship) 활동에서 발생할 것으로 전망했습니다.

리스크 및 주요 관전 포인트

• 구독 라이선스는 영구 판매에 비해 매출 인식 시점이 달라질 수 있습니다. 일부 반복 기간제 라이선스 매출은 특정 시점(point in time)에 인식되므로, 반복 매출이 연간 반복 매출(ARR)과 동일하지 않으며 분기별로 변동될 수 있습니다.
• 보고된 수주잔고(RPO)가 전체 매출 전망을 모두 담아내지는 않습니다. 분기 말 기준 취소 가능한 구독 기간에 해당하는 약 4,200만 달러는 제외되었으며, RPO 변동분 중 약 3,000만 달러는 대규모 다년 지원 계약 소진이 반영된 것입니다.
• 주로 이스라엘 셰켈화 대비 미 달러화 약세로 인해 환율 변동이 상반기 영업 수익성을 약 700만 달러 감소시켰습니다.
• 코그나이트는 공급 리드타임 연장과 가격 상승에 대응해 예상 납품을 지원하고자 재고를 늘리고 있습니다. 경영진은 이로 인한 연간 영업활동 현금흐름 영향을 구체적 수치로 제시하지 않았으며, 기존 4,500만 달러 제시치를 상당한 플러스(+) 현금흐름 전망으로 대체했습니다.
• 분기별 청구액(billings)과 매출 비중은 계약 시점, 구조 및 고객의 도입 일정에 따라 변동될 수 있습니다. 2분기 청구액은 7,630만 달러였으며, 지난 12개월(TTM) 누적 청구액은 매출의 약 95% 수준이었습니다.

애널리스트 Q&A 주요 내용

애널리스트들은 미국 연방 정부 파이프라인, RPO 동향, 구독 관련 매출 인식 및 현금흐름에 집중했습니다. 경영진은 성공적인 연방 PoC 프로젝트들이 조달 단계로 진입했으며 2027 회계연도 중 일부 계약 체결이 예상된다고 답했습니다.

RPO와 관련하여 경영진은 4억 7,020만 달러의 잔액을 예상 갱신 건, 제외된 취소 가능 구독 기간, 분기 후 계약 활동과 함께 고려해야 한다고 주장했습니다. 코그나이트는 이러한 요인들이 향후 12개월 동안 약 85%의 매출 커버리지를 뒷받침한다고 밝혔습니다.

현금흐름과 관련해 경영진은 계획된 재고 투자 규모가 여전히 불확실하다는 이유로 기존 4,500만 달러 전망치를 재확인하지 않았습니다. 그럼에도 불구하고 회사는 연간 영업활동 현금흐름이 대폭 플러스를 기록할 것으로 예상하고 있으며, 추가 재고 확보는 가시적인 고객 수요 및 납품 계획과 연계되어 있다고 설명했습니다.

실적발표 콘퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cognyte's Second Quarter Fiscal Year 2027 Earnings Conference Call. [Operator Instructions] Please note that today's conference may be recorded.

I will now hand the conference over to your speaker host, Dean Ridlon, Head of Investor Relations. Please go ahead.

Dean Ridlon

Thank you, operator. Hello, everyone. I'm Dean Ridlon, Cognyte's Head of Investor Relations. Thank you for joining us today. I'm here with Elad Sharon, Cognyte's CEO; and David Abadi, Cognyte's CFO.

Before getting started, I would like to mention that accompanying our call today is a presentation. If you'd like to view these slides in real time during the call, please visit the Investors section of our website at cognyte.com, click on Upcoming Events, then the webcast link for today's conference call.

I would also like to draw your attention to the fact that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws. These forward-looking statements are based on management's current expectations and are not guarantees of future performance. Actual results could differ materially from those expressed in or implied by these forward-looking statements.

The forward-looking statements are made as of the date of this call, and except as required by law, Cognyte assumes no obligation to update or revise them. Investors are cautioned not to place undue reliance on these forward-looking statements. For a more detailed discussion of how these and other risks and uncertainties could cause Cognyte's actual results to differ materially from those indicated in these forward-looking statements, please see our annual report on Form 20-F for the fiscal year ended January 31, 2026, and other filings we make with the SEC.

The financial measures discussed today include non-GAAP measures. We believe investors focus on non-GAAP financial measures in comparing results between periods and among our peer companies that publish similar non-GAAP measures. Please see today's presentation slides, our earnings release and the Investors section of our website at cognyte.com for a reconciliation of non-GAAP financial measures to GAAP measures.

Non-GAAP financial information should not be considered in isolation from, as a substitute for or superior to GAAP financial information, but is included because management believes it provides meaningful information about the financial performance of our business and is useful to investors for informational and comparative purposes. The non-GAAP financial measures that the company uses have limitations and may differ from those used by other companies.

Now I would like to turn the call over to Elad.

Elad Sharon

Thank you, Dean, and hello, everyone. Q2 was a strong quarter for Cognyte. We are growing, executing against our operating plan and strengthening the business as we scale. Total software revenue grew 21% year-over-year and recurring revenue grew 18%, both meaningfully faster than total revenue. Profitability expanded significantly faster than revenue, reflecting the leverage we have built into the model.

Beyond the performance is a healthy environment across the markets we serve. Governments in our market are prioritizing national security, military intelligence, border security and public safety, and they're investing to build their intelligence capabilities these missions now require. Threats are moving faster, data volumes are growing and agencies need technology they can trust, explain and control. That is why AI and sovereignty are now the center of customer discussions.

First, AI is reshaping how intelligence work is done, transforming both the threat and the opportunity. As investigative environments become more data-intensive and time-sensitive, customers are looking for AI and agentic capabilities embedded directly within their operational workflows. AI helps agencies not only work faster, but differently, uncovering hidden connections, surfacing insight that would otherwise be missed, taking the routine work off analysts, so their expertise goes where it counts.

But a commercial AI engine on its own does not do that. It is only a starting point. What turns it into something an agency can use are 2 things. The first is domain expertise, knowing how intelligence work is done, what the data means and where the answer is likely to be. The second is governance. In mission-critical work, an analyst has to know why the technology reached a conclusion and be able to stand behind it. Agencies do not accept the black box, so they are not buying AI tools. They are buying platforms powered by AI, built by domain experts who understand the mission.

That is much harder thing to build. And the reason it is hard is the nature of the work. Intelligence work is not made of common cases. It is the rare, the obscure and the deliberately hidden. A general-purpose model handles the common well. That is not where our customers' investigations live.

Second, sovereignty. Agencies want their intelligence capabilities under their own control, their data, their infrastructure, their operations. Security agencies can't afford to depend on systems they do not own and control. They want the data to stay where they decide, the systems to run where they decide, and the ability to keep operating whatever happens around them.

Putting AI and sovereignty together with what we shared with you before, the growth in the volume and complexity of data and how fragmented most agencies' environments have become, you can see why the Cognyte platform is such a strong fit. Agencies need to work with more data than ever, faster than ever with AI, they can trust and explain and on infrastructure they control. This is the environment our platform is built to serve.

We win for a few reasons. Agencies choose us because we cover the whole spectrum from the field to the decision. They can run it under their own control in the environment they actually operating. And we bring domain expertise built from working with government customers around the world, which we then keep feeding back into our solutions.

These advantages are helping us win against competitors, including in-house built systems, and we saw that translate into strong commercial traction across expansions, upgrades and new logos. New logo activity remains strong across geographies with 40 new customers in H1 compared to 31 in the same period last year. One of them is a Tier 1 National Security Agency in a NATO member nation who were referred to us by another agency we serve. We expanded within our customer base. Among our expansions this quarter, 2 in Asia Pacific stand out, one to expand its network intelligence capabilities, and another to secure its borders, including mitigating unmanned aerial threats.

In the U.S., we made progress across all priority segments. In federal, several opportunities have moved into procurement following strong proof of concepts and operational demonstration. And in state and local, we won with both new and existing customers.

We are on target to achieve $20 million of signed deals in the U.S. this year. That momentum across our growth pillars has continued since quarter end, with several additional significant agreements signed. We'll provide more details on these wins in the coming weeks. The takeaway is simple. Our growth strategy is working and the momentum is broad and global.

We took part in major events across 4 continents. These events spanned a range of intelligence missions, including law enforcement, military intel and national security. In the U.S., at the largest law enforcement event, NATIA, inbound interest was high. In addition, agencies are approaching us directly after reading about Cognyte in the trade and business press or on referrals from other agencies or from industry experts. In this market, agencies rely on what their peers have already deployed, and that works in our favor. Reputation is key.

What we hear from prospects and customers in these engagements is the same thing we have been describing to you for several quarters. Agencies are drowning in data they already hold. The environment is fragmented. They are under pressure to move faster than their systems allow. And now on top of that, they have to decide how to bring AI into work, where every conclusion has to be defensible on infrastructure they control. These are the problems we are built to address. Customers are bringing us into strategic conversations early as they shape their future plans and think through what next-generation intelligence solutions should look like.

That engagement works both ways. They look to us for perspective and innovative solutions, and we listen closely to their priorities, using that insight to help shape where we invest. Those relationships take years to build, and the trust behind them is what lets us keep growing with customers as their missions evolve.

On the organization, Adam Philpott joined us as Chief Revenue Officer early last month to lead our global commercial organization. Adam brings deep experience building and scaling go-to-market teams in the security industry globally, and he joins Cognyte at an important time, with strong customer momentum and a healthy demand environment that presents a significant opportunity. His priorities are the same 3 growth drivers: expanding with existing customers, winning new agencies and accelerating our growth in the United States. I'm excited to have Adam on the team and look forward to working with him as we build on the momentum across the business.

In closing, Cognyte is stronger, more focused and better positioned than a year ago. The market is moving directly towards what we have built for, mission-critical intelligence in complex, high-stakes environment, powered by trusted AI, sovereign control and continuous innovation, all grounded in deep domain expertise earned through long-term relationships with customers around the world. Our strategy is working. Our momentum is global and the quality of our business continues to improve. With strong execution and clear visibility ahead, we remain confident in our full year outlook and fiscal '28 targets. We have built the platform, the expertise and the trust this market now demands, and we are moving forward with confidence and ambition.

With that, I'll turn the call over to David for a deeper review of our results and outlook.

David Abadi

Thank you, Elad, and hello, everyone. Elad talked about the quality of the business improving. That is exactly what our financial model is designed to deliver. We drive profitable growth by increasing the contribution from software and recurring revenue, expanding gross margins and maintaining discipline around operating expenses. That model is working. Revenue was approximately $109 million, up 12% year-over-year. Total software revenue grew 20.9% to $100.8 million and represents more than 92% of total revenue in Q2. Recurring revenue grew 18.4% year-over-year to $56.2 million and represented 51.4% of total revenue.

Professional services represented less than 8% of total revenue, compared with approximately 15% a year ago, reflecting the increasing software content of our business. This ongoing mix shift supports higher quality revenue, stronger margins and greater scalability. Put simply, software revenue grew at nearly twice the company overall growth rate, while recurring revenue also grew significantly faster.

As a result, both are becoming larger contributors to our overall revenue mix. A point to note about recurring revenue is that our model is different from a traditional SaaS model. A portion of our recurring revenue comes from term-based licensing arrangements that are recognized at a point in time rather than ratably over the life of the contract. As a result, recurring revenue is not the same as ARR and can fluctuate between quarters based on the timing of revenue recognition. What matters strategically is that recurring revenue is growing faster than the company overall and becoming a larger part of our business, enhancing revenue visibility and supporting long-term growth.

Now I will review the results in more details. Breaking down the revenue mix, software revenue grew 34.5% year-over-year to $49.2 million. Software revenue is comprised of perpetual licenses, appliances and term-based subscription licenses. Software services revenue grew by $4.8 million or 10.3% year-over-year, to $51.6 million, coming mainly from support contracts and to a lesser extent, cloud-based SaaS subscriptions. Total software revenue was $100.8 million, up 20.9%, growing significantly faster than total revenue and up by $17.5 million year-over-year.

Software revenue now represented more than 92% of total revenue versus approximately 86% 1 year ago. Professional services revenue was $8.4 million in Q2, compared to $14.2 million last year. Recurring revenue increased by 18.4% to $56.2 million, representing 51.4% of total revenue.

On gross margin and profit, we continue to improve year-over-year. Q2 non-GAAP gross margin was 73.7%, an expansion of 154 basis points. Non-GAAP gross profit grew 14.4%, or $10.1 million, to a total of $80.5 million. Again, faster than revenue. Our model continues to deliver strong financial leverage and profitability is expanding significantly faster than revenue.

The majority of the year-over-year increase in operating expenses reflected foreign exchange movements, primarily the weaker U.S. dollar against the Israeli shekel. We continued to partially hedge future periods. We partially offset that impact through ongoing efficiency initiatives across the organization, including increased use of enterprise AI. Despite the FX headwinds, operating expenses grew more slowly than revenue, allowing profitability to grow significantly faster.

Q2 non-GAAP operating expenses were $68.2 million. GAAP operating income increased 69.7% year-over-year to $4.7 million against revenue growth of 12%. Non-GAAP operating income increased 52.5% to $12.2 million. Adjusted EBITDA increased 35.7% to $14.9 million. Non-GAAP EPS was $0.15, nearly double the $0.08 we generated last year. GAAP diluted EPS was $0.06, compared with $0.02 a year ago, reflecting the significant improvement in our profitability. These results demonstrate the operating leverage we have been working to build. Revenue grew 12%, while non-GAAP operating income grew more than 4x as fast.

Looking at the first half, the same trends are evident. H1 revenue was $214.7 million, up 11.2%. Total software revenue was $198.1 million, up 19.8%. Recurring revenue was $108.1 million, up 14.2%. GAAP operating income was $9.1 million, up 85.1% year-over-year. Non-GAAP operating income was $22.9 million, up 47.2%. Importantly, we achieved these results despite approximately $7 million of net unfavorable foreign exchange impact on operating profitability in the first half of the year. So across both the quarter and the first half, we are seeing consistent execution against our financial model. Compared with a year ago, Cognyte is generating more revenue with higher quality, more software revenue, higher recurring revenue, higher gross margins and meaningfully greater profitability.

Turning to RPO. Total RPO at quarter end was $470.2 million, including $313.4 million of short-term RPO. As we have discussed previously, RPO remains an indicator of future contracted revenue, but movement in the metric can also reflect contract structure, duration, renewals and the consumption of large multiyear agreements. Reported RPO excludes the cancelable portion of subscription contract.

At July 31, approximately $42 million of future revenue associated with those arrangements was therefore not included in reported RPO. In addition, approximately $30 million of the change in the RPO reflected the consumption of large multiyear support contracts as we delivered against those agreements and recognized the associated revenue.

Short-term RPO is an important component of our revenue visibility, but it does not capture the full picture. When we combine short-term RPO with expected renewals of recurring business and contracts signed since quarter end, we have visibility into approximately 85% of the revenue required to support our plan over the next 12 months.

The remaining approximately 15% is expected to come primarily from normal book and ship activity. That level is well within our historical execution range and supports our confidence in our growth objectives. This level of visibility is one of the reasons we believe we remain on track to achieve our FY '27 outlook and FY '28 revenue target of $500 million. Q2 billings were $76.3 million. As billings can vary significantly quarter-to-quarter based on contract terms, we believe the trailing 12-month measure is more informative. On that basis, billings were approximately 95% of revenue, which we believe reflects the underlying strength of the business.

Turning to cash flow. We generated $1.1 million of positive cash flow from operations in Q2, compared to net cash used in operating activities of $6.3 million in Q2 last year. This improvement reflects stronger collections and profitability, as well as disciplined working capital management. The second quarter also includes our annual incentive payments and other seasonal working capital uses.

Turning to our balance sheet. Our financial position remains strong. We ended the quarter with $102.2 million in cash and no debt, providing us with significant flexibility. During the first 6 months of fiscal '27, we repurchased approximately 1.5 million ordinary shares for $13.5 million. Since launching our first repurchase program in November 2024, we have repurchased approximately $40.2 million of shares through the end of Q2 FY '27, out of the $60 million authorized across the company's repurchase programs.

Our capital allocation priorities remain unchanged. We'll continue investing organically to support growth, evaluate strategic M&A opportunities where we see the potential to create returns significantly in excess of our cost of capital and use share repurchases opportunistically where we believe they represent a compelling use of capital.

Turning to our outlook. Our first half's performance remains strong and the demand environment is healthy. Based on our execution to date and the visibility we have into the remainder of the year, we are narrowing our full year revenue range around an unchanged midpoint. We now expect full year revenue of approximately $448 million, plus or minus 2%, representing approximately 12% year-over-year growth at the midpoint. We continue to expect recurring revenue to grow faster than total revenue and become a larger contributor to overall business. As we have discussed, the increasing adoption of subscription agreements can shift the timing of reported revenue recognition compared with our historical perpetual model.

While this can affect reported growth in a particular period, we believe the continued shift towards recurring arrangement strengthens the long-term visibility and durability of our revenue base. Total software represented a particularly high percentage of revenue in Q2. We expect quarterly mix to continue to fluctuate based on the timing and composition of customer activity. And our full year outlook does not assume the Q2 mix persists throughout the second half.

From a quarterly cadence perspective, we currently expect Q3 revenue to be slightly higher than Q2, followed by sequential growth in Q4, consistent with the seasonality reflected in our full-year outlook. We also remain confident in our profitability outlook. We expect non-GAAP gross margin of approximately 73.5% for the year, an improvement of 50 basis points from last year. We continue to expect non-GAAP operating income to be about $56 million, growth of more than 50% year-over-year and adjusted EBITDA of approximately $68 million, growth of about 40%. We continue to expect annual non-GAAP EPS of $0.47 at the midpoint of the range.

On cash flow, we continue to expect significant positive operating cash flow for the full year. Given the customer demand and future growth opportunities, we are making targeted inventory investment to support expected customer deliveries. As a result, the timing and the level of cash generation this year is expected to be affected. It reflects a deliberate working capital investment rather than any change in the underlying performance of the business. To close, the progress we are making reflects the strength of our strategy and the discipline of our execution.

We are building a higher-quality business, one with a greater contribution from software, a growing recurring revenue base, stronger margins and increasing operating leverage as we scale. This is not only about the first half or even the fiscal year. It's about building a more durable, more predictable and more profitable Cognyte for the long term. With healthy demand, strong customer momentum and clear visibility into the opportunities ahead, we remain confident in our FY '27 outlook and on track to achieve our FY '28 targets.

Operator, we are ready to take questions.

Operator

[Operator Instructions] Our first question in queue coming from the line of Eric Martinuzzi with Lake Street Capital Markets.

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Eric Martinuzzi

A couple of questions. First off, Elad, for the U.S. federal pipeline, you talked about there's good success there. You've got some transactions that are in the procurement phase. Just curious to know if these are transactions that you expect to be awarded during the current fiscal year, the government fiscal year ended September 30, or if that's something that's further out on the horizon?

Elad Sharon

Yes, actually, we have [ closed ] with federal agencies. We had POCs with few law enforcement fed agencies, very successful results, very good feedback from customers. And I do expect some deals already in this fiscal year.

Eric Martinuzzi

Okay. And then for David, the RPO number that you gave, that $470 million total RPO number, that was down versus the April quarter, which was down versus the January quarter. Is there -- are we expecting that to trough and recover here? Can you give me a little bit more insight on the total RPO number?

Elad Sharon

Yes, sure. So first of all, it's important to say that demand is very strong, and it aligns to our strategy. I think it's reflected in the strong customer expansion we discussed and we shared with you and also with new logos that we have acquired. We also see growing customer preference for subscription-based arrangements. This also improves the quality and visibility of the business, but has some shift that affecting the reported RPO. RPO is an important indicator for visibility. But given the market -- the business dynamics today, it doesn't tell the full story by its own. And you need to look at it in a wider perspective.

This includes RPO that excludes the subscription periods, as David mentioned earlier, that remain subject to cancellation. And it's about $42 million by the end of Q2. You have large multiyear contracts that are recognized and consumed over time. We shared a few times before that we have very large renewals for 3 years. So every year, we consume 1/3 of it. So you see that the consumption takes the RPO down. And if you look at it specifically for this quarter, actually, this year, it's about $30 million. Other 2 indicators that are related to RPO are the renewals. Renewals are not included in RPO until they are contractually committed. So it's important to understand that it doesn't really matter whether the customers are buying perpetual or buying subscription. Still, the solutions that we deliver to them are integrated in their environment, deliver a lot of value. So there will be renewals. But until it's committed by the contract, it's not part of the RPO. And also the timing of large deals impacts the quarter end balance.

So if you have to look at the visibility more broadly, you should take the RPO, the expected renewals, the customer activity, the strong start we have seen in Q3 that we'll share more color in the next few weeks. We believe we have very strong visibility over the next 12 months. And as David mentioned before, it's about 85% coverage for the next 12 months revenues, and we remain confident in our outlook for this year and also for fiscal '28 target. So we are seeing a very healthy demand, very strong market, and very strong execution into this market.

Eric Martinuzzi

Understand. Appreciate the insight from the questions and congrats on the quarter.

Operator

Our next question coming from the line of Taz Koujalgi with ROTH Capital.

Imtiaz Koujalgi

A couple of clarifications. So number one for David. If I look at the cRPO bookings now, David, it accelerated. It was strong this quarter again, similar to last quarter. I think if I'm doing my math right, your cRPO bookings grew 16%. You're guiding to revenues growth of 12% this year and 12% next year. We know typically, that cRPO bookings are a good leading indicator of revenue. So given the gap between your revenue guide and cRPO bookings that we've seen for the last 2 quarters, are you just being conservative? Or there's something else that we should be mindful of, given the cRPO bookings are growing at 16%, but you're guiding to revenues -- revenue growth of only 12% for this year and for next year?

David Abadi

Thank you, Taz. So actually, we are seeing a few things that are happening in the business, and we're actually very pleased from that. So -- we spoke during the call about the quality of the revenue. You see that we have more and more subscription revenue that's coming and much more software. If you look at the overall mix, software is becoming a very significant portion, and we have the growth of 21%, and it's a consistent growth that we see over the last few periods. So this is something that we see as a trend.

As for the demand and what we have in our hands, it gives us a lot of confidence into the end of this year and also when we enter into the next year. The visibility is high. You mentioned percentage, 12% and 15%. The way that we look at that is that we are working with our customers to see deployment and what can be done. And based on that, I think putting our guidance, and we are feeling comfortable with the guidance. And if we will need to update, we'll be more than happy to do it.

Elad Sharon

Taz, let me add on this, that actually, while we are growing top line, we are improving the quality of the revenue a lot. So as David mentioned, software mix is growing, the recurring revenue is growing, profitability is expanding. So actually, if you would compare the perpetual equivalent versus the subscription that we see today, actually, the growth would be higher if you continue to deliver the same as perpetual license in a few points. So actually, the growth rate is faster than it looks in the numbers.

Imtiaz Koujalgi

Yes. No, fair point. And then, David, last quarter, we had a little bit of weakness on the operating cash flow due to, I guess, the shift to subscriptions and also FX. This quarter also, the cash flow looks negative. Any comment on -- I know last year, you -- last quarter, you said the full year guide was maintained at $45 million. Any comment on the full year expectations for cash flow for this year?

David Abadi

Yes. Thank you, Taz. So cash actually in Q2 was strong. What we see in Q2 that we were able to generate a positive cash flow from operations and actually pleased from the quarter. Q1 -- Q2 actually is the Q that we had some specific expenses that related to annual bonus and stuff like that, that's taking place usually in Q2. And although this seasonal expenses, we were able -- seasonal payment, we were able to drive a strong cash flow from operations. Actually, if you look this year, we're generating $1.1 million of cash from operations. Last year, Q2 was negative $6.3 million. So actually, if you look at Q2 versus Q2 last year, you're seeing a strong cash from operation.

On the other perspective, given the trends that we see in the business and given what we see actually in hardware and the need for inventory and supply chain that required the planning -- a different planning, we are making a deliberate decision to increase the level of inventory, and it's mainly to support what we see customer demands and deliverables, and we don't want to have any risk related to execution and deliverables. So we made a decision to increase the levels of the inventory. So that also impact about our -- the way that we're looking into this year cash flow. We think that the right thing that is to make the right decision in the short term of increasing inventory level to support future growth and the execution and customer delivery.

Imtiaz Koujalgi

So just to clarify, so we are expecting cash flow of $45 million for the year?

David Abadi

So in this stage, what we are planning is that we would like to increase the inventory level. As you can see, the balances in the end of Q2, and we continue to do this decision. We believe that this is the right thing to do in this time of the year. It allows us to better plan, better support future demand. We see significant demand in front of us, and we want to be able to deliver to our customer on time. And that is great for us, the right -- in our view, the right decision to increase inventory, and we will not -- we will invest in the right things to make the growth into the future.

Imtiaz Koujalgi

Okay. One last one. So I think around last quarter, you had expected -- you had mentioned that you expect about $20 million of bookings from U.S. for fiscal '27. Are we still on track of that? Or is that is -- we could be slightly better than what you had expected last quarter for the U.S.?

Elad Sharon

Yes, absolutely. Yes, we are on track. We are on track to achieve the $20 million signed deals this year. I expect this to come from state local and also some federal contracts should land this fiscal year. Yes, we are doing a good progress in the U.S.

Operator

[Operator Instructions] Our next question in the queue coming from the line of Matthew Calitri with Needham & Company.

Matthew Calitri

It is Matt Calitri over at Needham. David, I want to stay on the cash flow for a second there. So I understood with the inventory purchases, and obviously, that's a prudent decision by you guys, so credit there. But there was a slight change in language there from significant positive operating cash flow versus the $45 million. Like how should we think about the impact of that level of inventory purchasing?

Elad Sharon

Matt, I'll start and then I'll let David continue. I think it's important to understand that we want to be in a position to be able to grow as the demand is growing. And for that reason, we want to be able to invest in inventory for 2 reasons actually. The first one is related to demand and the second one is related to the supply environment. Supply environment today, the delivery time is long and the prices are going up, and we want to be in a position that we are able to fulfill the demand -- the growing demand of the customers.

So that's the rationale behind it. And it's quite difficult to predict how far we'll go with inventory increase, but we'll do it, of course, in a cautious manner in a way that balances, of course, the level of inventory we have in stock, but also the ability to fulfill the demand on time and to fulfill and to be able to deliver to customers as contracted. So that's the logic and the rationale behind it.

Now I'll let David answer specifically to the question.

David Abadi

So given that we cannot quantify in this phase like the impact of the incremental inventory and what we see changing in this area and taking session that we are seeing much more subscription, we have not quantified what will be the cash flow operation. But overall, we think that it will be significantly in the positive. And the question like, how much exactly we will invest in the inventory levels, it will be based on what we see in the market. And currently, what we see in the market, we see strong demand. You can see that we already increased the level of the inventory in the first half of the year significantly. And against this inventory, we have actually a strong demand, and we have a customer planning to be delivered for this inventory. So actually, we are in a very good situation that allow us to satisfy our customer to plan ahead and avoid disruption that's related from supply chain that it is not in our control.

Matthew Calitri

Got it. Okay. That makes sense. And then the other part to that is obviously the impact from the subscription recognition and great to see the continued adoption of subscription. Like is there a way to think about what growth might look like had we not have that sort of revenue recognition headwind? And more than anything, I'm just trying to square away like the strong results and underlying currents here with -- and the visibility with you guys keeping the guide unchanged and some of this RPO and billings dynamics that you spoke about earlier?

Elad Sharon

Yes. So Matt, I'll -- first of all, I'll share why some customers move to subscription, and then I'll give you our view of how it would be different if it would be perpetual. So threats are moving quickly. We said that earlier in the call, agencies need the latest capabilities. Governments, when they go to perpetual license and buy a solution later on to upgrade and expand, it's another new cycle of purchasing, which is a headache for them. So actually, the fact that some of them are moving to subscription gives them the flexibility to get the latest and greatest technology and expand without being required to go through the entire process. And we see it happening gradually, but faster than expected. This is one.

Second, we continue to sell both perpetual and subscription. And a perpetual is still the dominant portion, okay? So we are moving to subscription faster than expected, but we have heavy portions that is still perpetual. It's also important to understand that regardless of contract structure, whether it's subscription or perpetual, our solutions are deeply integrated and embedded into customer operational environments. If you heard earlier in the call, I mentioned AI and sovereignty. Sovereignty, some of it means that customers want on-prem deployments. So it could be that they will go for a subscription agreement, but still it will be on-prem. That's usually what happens. So subscription is something that gives the customers flexibility while being able to run faster in terms of technology and make sure that they maintain advantages versus the adversary. So that's the rationale of moving to subscription for customers.

Our view is that if we would be in the same pace as last year, for example, selling perpetual versus subscription or the mix is not changing, we would see a few percentage more in growth rate. So I think that it's great news that we maintain the top line growth outlook, while more of the revenue is coming from recurring. This is, I think, a good indication that the market is growing faster than it looks in the numbers and the predictability and the visibility are improving over time. It's reflected in the recurring, it's reflected in the software mix, and it's also reflected in the profitability levels. So I think that the business is improving.

Operator

And I'm showing there are no further questions in the Q&A queue at this time. I will now turn the call back over to Dean for any closing remarks.

Dean Ridlon

Thank you, Livia, and thank you all for participating in today's call. Should you have any questions, please feel free to reach out to me, and we look forward to speaking with you again next quarter.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.