Margin Pressure Looms as Cogstate Defers Revenue Despite Contract Boom
Cogstate Ltd reports a near doubling in sales contracts for the first half of 2026 but warns of timing-related revenue deferrals that will temper short-term earnings. Despite this, management remains optimistic about medium- and long-term growth prospects.
- Sales contracts expected to grow 82%-97% to $37-$40 million in 1H26
- Revenue guidance lowered to $25-$26 million, a 5%-9% increase year-on-year
- Margins pressured by timing delays and increased investments in science and AI
- Contracted revenue backlog for 2H26 rises to approximately $21 million
- Management confident in expanding market share and diversified therapeutic focus
Strong Sales Contract Growth
Cogstate Ltd (ASX, CGS), a neuroscience technology company specialising in cognitive assessment solutions for clinical trials, has updated its financial guidance for the half-year ending December 31, 2025. The company anticipates executing sales contracts valued between $37 million and $40 million, representing an impressive 82% to 97% increase compared to the same period last year. This surge marks Cogstate’s second-best half-year performance in contract execution, supported by a record pipeline of opportunities across a broadening range of neurological and psychiatric indications.
Revenue Recognition and Timing Impact
Despite the strong contract wins, Cogstate expects reported revenue for 1H26 to be in the range of $25 million to $26 million, reflecting only a modest 5% to 9% growth over the prior corresponding period. This is below the company’s earlier guidance of 18% to 20% revenue growth. The shortfall is primarily due to timing delays in revenue recognition, as many contracts were signed late in the December quarter, limiting the amount of revenue that can be booked within the half-year. Additionally, a shift in the revenue mix toward service fees, which are recognised evenly over the life of clinical trials, rather than upfront license fees, is contributing to the deferral of revenue.
Margin Pressure from Investment and Revenue Mix
Cogstate is also investing heavily in future growth drivers, including expanding scientific resources to support psychiatry and mood disorder trials, increasing Asia-Pacific regional support, enhancing data engineering capabilities, and developing AI-enabled offerings. These investments, combined with the timing-related revenue deferrals, are expected to compress margins in 1H26. The company forecasts a gross margin of 50% to 52%, down from 61% in the prior half, and EBITDA margins of 20% to 23%, compared to 26% previously. EBIT margins are also expected to decline to between 14% and 17.5%.
Confidence in Medium- and Long-Term Growth
Despite these near-term challenges, Cogstate’s management remains confident in the company’s strategic positioning and growth trajectory. The backlog of contracted revenue for the second half of 2026 is expected to increase to approximately $21 million, up from $16.5 million at mid-year and $17.4 million in the prior corresponding half. CEO Brad O’Connor highlighted the diversity and quality of the current contract wins, noting that the largest contract in this period is just over $6 million, compared to a single large $30 million trial in a previous record half-year. This diversification reduces risk and underscores Cogstate’s expanding footprint across multiple neurological and psychiatric indications.
Looking Ahead
Cogstate’s focus on innovation, including AI and data analytics, combined with its growing presence in central nervous system clinical trials and adjacent therapeutic areas, positions it well for sustained growth. While the timing of revenue recognition and increased costs will weigh on short-term profitability, the company’s expanding contract pipeline and strategic investments suggest a promising outlook beyond 2026.
Bottom Line?
Cogstate’s robust contract growth sets the stage for stronger revenue and margin recovery in the second half of 2026 and beyond.
Questions in the middle?
- How quickly will deferred revenues from 1H26 contracts translate into recognised revenue in 2H26?
- What impact will increased investment in AI and data engineering have on future profitability?
- Can Cogstate sustain its expanded contract pipeline across diverse neurological and psychiatric indications?
