Cognyte Software Ltd. (NASDAQ: CGNT) saw its stock price plummet 13.14% in Tuesday's intraday trading, despite reporting better-than-expected second-quarter results for fiscal year 2026. The significant drop highlights investors' concerns about certain aspects of the company's financial performance, overshadowing the positive headline numbers.

For Q2 FYE26, Cognyte reported revenue of $97.51 million, surpassing analyst estimates of $96.32 million. The company's adjusted earnings per share came in at $0.08, also beating the expected $0.03. Additionally, Cognyte raised its outlook for the fiscal year ending January 31, 2026, now projecting revenue of $397 million at the midpoint, representing approximately 13% growth from the previous year.

However, despite these seemingly positive results, investors appeared to focus on other aspects of the report. One key concern may be the company's cash flow situation. Cognyte reported that net cash used in operating activities increased to $6.3 million in Q2, compared to $5.7 million in the same period last year. This negative cash flow, despite improved revenue and earnings, could be raising red flags for investors about the company's ability to convert profits into cash. Additionally, while Cognyte reported strong revenue growth and improved profitability, the market's severe reaction suggests that expectations may have been even higher or that there are underlying concerns about the sustainability of this growth in the face of global economic uncertainties.