Defense Technology Company last week Cognit software (Nasdaq: CGNT) announced the unexpected appointment of Nadav Argaman as Senior Strategic Advisor. Cognyte expects Argaman to leverage his experience, contribute operational ideas and assist with communications to enhance the company’s activities.
Argaman served as head of the Shin Bet Security Service from 2016 to 2021. “Nadav’s deep understanding and unwavering dedication to crime and terrorism prevention makes him an invaluable addition to our team,” Cognet CEO Elad Sharon said of Argaman’s appointment. For his part, Argaman said that Cognit is “a company at the forefront of innovative intelligence solutions, at a time when combating terrorism and crime requires the most advanced and adaptive technology.”
Who is Cognyte and what will Argaman’s appointment do to him?
The Herzliya-based company describes itself as a global leader in investigative analysis software for government agencies and security organizations. The company is developing technology based on artificial intelligence. According to Cognyte, its software is designed to help customers speed up their investigations and improve the effectiveness of their decision-making processes. The company notes that hundreds of customers rely on its solutions to derive insights that help them identify, neutralize, and deal with threats to national security, terrorist and criminal activities. According to estimates, after October 7, the IDF also began purchasing Cognyte systems.
Until 4 years ago, Cognyte was a business within Verint Systems (Nasdaq: VRNT), which decided to spin it off into an independent company. This followed pressure from Verint shareholders to split up its security activities, somewhat similar to the successful move taken earlier by NICE Systems (Nasdaq: NICE; TASE: NICE) – (Incidentally, Verint itself was split in 2013 from Technology company Comverse).
Since the split, Cognyte’s CEO has been Elad Sharon, who joined the company when it was part of Verint in 1997 and has held various senior roles. As of January 2024, the company had 1,613 employees (down from more than 2,000 two years earlier), 52% of whom worked in Israel.
Israeli Palantir with much less noise
Some people are comparing Cognate to Palantir – one of the hottest stocks on Wall Street over the past year. Palantir, run by its founder Alex Karp, develops software for big data analytics and, among other things, attracts security agencies and militaries around the world, with a focus on the United States. Cognyte, which is much smaller, addresses a similar market segment, although it is mainly active outside the US – according to its FY2024 reports, more than half of its revenue was in the EMEA (Europe, Middle East and Africa) region. ).
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Another difference between companies is their size and market capitalization. Palantir trades at a market cap of $153 billion, reflecting a sales multiple of 61, following a 340% jump in its stock price last year. Cognyte, on the other hand, has a market capitalization of $628 million and a modest sales multiple of 1.8, after its stock price rose just 34% in 2024 — a tenth of the increase in Palantir’s share price.
The market believes that Argaman will help Cognyte open doors and create connections with new potential customers, while at the same time, it will enable the company to achieve more successes in the US market, where the largest budgets are located. Cognyte recently won several major contracts, including a $20 million follow-on order from an agency in EMEA and a $10 million border protection deal with an agency in the Asia-Pacific region.
Also in the United States, the company will likely not compete for huge contracts against Palantir and other large companies, but it will be able to apply for modest-sized contracts and thus significantly expand its activities. The company may consider adding senior American officials, who held similar positions to Argaman, as advisors or members of the board of directors.
From $1.8 billion to $630 million
In the first three fiscal quarters of 2024 ending Oct. 31, Cognate reported revenue of $256 million, up 11.5% from the corresponding period. Revenues from its main business area, software services, grew by 10% to $135 million, revenues from the company’s most profitable area – software, rose 7.6% to $88.4 million, and revenues from professional services, which is the least profitable area, rose. By 31.7%.
Cognyte’s GAAP net loss in these three quarters was $10.8 million, down from $13 million in the corresponding period, and on a non-GAAP basis, the company swung from a loss to a net profit of $2.7 million. According to the company’s forecasts, it will record 2024 annual revenues of about $349 million, a growth of 11%, and its annual EBITDA will grow nearly three-fold to $26 million.
Since the low point at which Cognyte stock fell just over two years ago, when its market cap fell to about $160 million, the stock price has risen 271%. However, from a broader perspective, the stock is a long way from the levels at which it began trading after the spin-off from Verint – at the time the company’s market capitalization was nearly three times its current value – about $1.8 billion.
The stock’s slowdown attracts activist investors
As the stock has underperformed in recent years, Cognyte has attracted activist investors who have sought to shake up the company. Last August, private investment fund Value Base VBF took a stake of about 9.3% in the company, sought to appoint a director on its behalf, opposed an extension of Chairman Earl Shanks’ term and approved a compensation package for CEO Sharon. Ultimately, no director was appointed on behalf of VBF.
However, Cognyte acknowledged some of the fund’s claims and stated that it was committed to taking steps to improve the composition of the board and provide more disclosures. The Value Base Fund, managed by Viktor Shamrich and Ido Neuberger, has acquired Cognate shares in recent years for a total of about $38 million, while today its holdings are worth about $60 million, recording profits of more than $20 million “on paper.” From investing it. Other stakeholders in Cognyte are US corporate entities, including Neuberger Berman, which owns 5.2% of the company.
Published by Globes, Israel Business News – en.globes.co.il – on January 14, 2025.
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