EPS of $-0.05 increased by 99.2% from previous year
Gross margin of 76.7%
Net income of -3.68M
"Revenue was approximately $187 million, representing a 7% year-over-year increase driven by strong growth in our cybersecurity area and the timing of orders received." - Anil K. Singhal
NetScout Systems Inc (NTCT) QQ1 2026 Results Analysis: Cybersecurity and Service Assurance Momentum, Margin Expansion, and AI-Driven Growth
Executive Summary
NetScout Systems Inc delivered a solid start to fiscal year 2026, with Q1 revenue of approximately $186.7 million, up 7% year over year, led by robust cybersecurity growth and favorable order timing. Management highlighted ongoing margin expansion, with non-GAAP gross margins around 78% and non-GAAP operating margins in the mid-teens, supported by cost-management actions from the prior year. Diluted non-GAAP EPS reached $0.34, up ~21% year over year, while GAAP results showed a small quarterly loss driven by non-cash and restructuring effects. The company reaffirmed its FY2026 guidance of $825–$865 million in revenue and $2.25–$2.40 in non-GAAP EPS, signaling confidence in the trajectory aided by AI-enabled product enhancements, expanded DDoS protections, and growing federal and enterprise wins.
Key remarks from management emphasize: (1) acceleration in cybersecurity revenue, (2) cross-sell opportunities from integratedArbor and Omnis platforms, including AI-driven insights and post-incident response capabilities, (3) ongoing improvement in working capital with a 41-day DSO and a strong cash position, and (4) a cautious yet constructive view on macro conditions and 5G-related service provider investments. The pipeline appears solid, with notable multi-solution wins and a high-value U.S. government opportunity cited. investors should monitor the timing of large deals (particularly in the service provider and federal spaces) and the pace of AI-enabled product adoption across both service assurance and cybersecurity platforms.
Key Performance Indicators
Revenue
186.75M
QoQ: -8.90% | YoY:6.98%
Gross Profit
143.33M
76.75% margin
QoQ: -10.02% | YoY:10.08%
Operating Income
-6.56M
QoQ: -133.01% | YoY:98.58%
Net Income
-3.68M
QoQ: -119.76% | YoY:99.17%
EPS
-0.05
QoQ: -119.73% | YoY:99.17%
Revenue Trend
Margin Analysis
Key Insights
Total revenue: $186.747 million in Q1 2026, up 7% YoY (approx. 6.98% per earnings data).
Gross profit: $143.325 million; gross margin approximates 76.75% on GAAP basis (management commentary cites 78.7% non-GAAP margin in the quarter).
Net income (GAAP): -$3.679 million; non-GAAP diluted EPS: $0.34, up ~21% YoY.
Revenue mix by product: Cybersecurity +18% YoY; Service Assurance +1.4% YoY; Cybersecurity ~37% of total revenue; Service Assurance ~63% of total revenue.
Financial Highlights
Revenue and margin dynamics:
- Total revenue: $186.747 million in Q1 2026, up 7% YoY (approx. 6.98% per earnings data).
- Gross profit: $143.325 million; gross margin approximates 76.75% on GAAP basis (management commentary cites 78.7% non-GAAP margin in the quarter).
- Non-GAAP operating margin: 14.2% (GAAP operating margin: -3.51%).
- Net income (GAAP): -$3.679 million; non-GAAP diluted EPS: $0.34, up ~21% YoY.
- Revenue mix by product: Cybersecurity +18% YoY; Service Assurance +1.4% YoY; Cybersecurity ~37% of total revenue; Service Assurance ~63% of total revenue.
- Customer verticals: Enterprise +17.7% YoY; Service Provider -5.6% YoY.
- Geographic mix: U.S. 54% of revenue; International 46%.
- Cash and liquidity: $543.5 million in cash, equivalents, and securities; no outstanding balance on $600 million revolver; free cash flow for the quarter: $71.7 million.
- Share repurchase: ~761 thousand shares repurchased for ~$15 million at an average price of $19.72.
- DSO: 41 days (vs. 63 days year-ago), reflecting timing and composition of bookings.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
186.75M
6.98%
-8.90%
Gross Profit
143.33M
10.08%
-10.02%
Operating Income
-6.56M
98.58%
-133.01%
Net Income
-3.68M
99.17%
-119.76%
EPS
-0.05
99.17%
-119.73%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Theme: Strategy and AI-driven growth
- Anil Singhal highlighted cybersecurity momentum and AI-enabled enhancements as key growth drivers, noting that Omnis AI Insights and Adaptive Threat Analytics are expanding the addressable market and enabling AI-driven operations in complex environments (5G, observability, and security).
- He cited multi-solution wins across three verticals, including a high-7-figure order with a U.S. government agency and a low-7-figure deal with a Latin American financial institution, underscoring the value of NETSCOUT's integrated platform (service assurance + cybersecurity) and smart data.
Theme: Operations and outlook
- Tony Piazza reaffirmed fiscal year 2026 guidance: revenue of $825–$865 million and non-GAAP EPS of $2.25–$2.40, with a Q2 revenue growth guide of 4–6% and Q2 non-GAAP EPS of $0.43–$0.45.
- The company expects normalization of benefits from prior-year restructuring in Q2 and notes the sale of a foreign investment as a relatively neutral full-year impact.
Theme: Market conditions and mix shifts
- Management emphasized ongoing macro uncertainty but remained cautiously optimistic, with enterprise AI and observability driving growth more than traditional service assurance.
- Federal sector opportunities remain meaningful, albeit timing-sensitive due to approvals and budget cycles; the pipeline is described as strong with continued opportunity in AI-enabled security and post-incident response solutions.
Theme: Competitive positioning and product road map
- Arbor DDoS solutions are fully integrated into NETSCOUT’s main portfolio, with AI-backed enhancements designed to mitigate up to 80% of DDoS attacks without additional analysis. Omnis Cyber Intelligence aligns with NIST Zero-Trust, reinforcing relevance to federal agencies. Adaptive Threat Analytics enhances incident response via continuous packet capture and metadata enrichment.
Revenue was approximately $187 million, representing a 7% year-over-year increase driven by strong growth in our cybersecurity area and the timing of orders received.
— Anil K. Singhal
We reaffirm our fiscal year '26 revenue and non-GAAP EPS outlook.
— Anthony Piazza
Forward Guidance
Outlook assessment: Management reaffirmed FY2026 revenue of $825–$865 million and non-GAAP EPS $2.25–$2.40, with tax rate around 20% and ~74 million weighted-average shares. The second-quarter guide implies 4–6% revenue growth and $0.43–$0.45 non-GAAP EPS, reflecting normalizing operating expenses post-restructuring and the impact of the foreign investment sale. The engagement at Engage 2025 and anticipated AI-driven product traction (Omnis AI Insights, Adaptive Threat Analytics) are potential catalysts for the second half of FY2026, particularly as large deal cycles in federal and enterprise segments unlock cross-sell opportunities.
Key factors investors should monitor:
- Adoption and monetization of AI-enabled observability and cybersecurity offerings, including Omnis AI Insights and post-incident response capabilities.
- The pace of 5G-related service-provider spending and the timing of large orders in the federal sector.
- Realization of operating leverage from cost-management initiatives and normalization of restructuring benefits.
- Execution of share repurchases and the impact on per-share metrics in a capital-light model.
- Macro risks and geopolitical developments that could influence enterprise IT budgets and government procurement cycles.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
NTCT Focus
76.75%
N/A
N/A
N/A
PRGS
80.60%
13.60%
2.53%
53.98%
CVLT
82.30%
8.20%
6.57%
71.72%
BLKB
57.60%
7.55%
14.70%
154.36%
ACIW
45.90%
14.80%
3.97%
24.48%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
NetScout is transitioning from a niche service-assurance provider to a broader, AI-enhanced observability and cybersecurity platform. The combination of strong Q1 fundamentals (revenue growth, margin expansion, robust cash flow) and a diversified, high-value pipeline (enterprise, federal, and select international deals) supports a constructive long-term thesis. The FY2026 targets imply healthy growth, with AI-enabled products expected to contribute meaningfully over the year. Key catalysts include: (1) AI-driven product adoption in Omnis AI Insights and Adaptive Threat Analytics, (2) expansion of DDoS protection capabilities through Arbor integration, (3) secure federal and enterprise mandates favoring integrated cybersecurity/observability solutions, and (4) continued capital returns via share repurchases. Risks to the thesis include deal timing risk, macro volatility, and potential pricing pressure in a competitive landscape. Overall, the stock could be considered a moderate-beta play for investors seeking exposure to AI-enabled security and network observability with a solid balance sheet and disciplined cost management.
Key Investment Factors
Growth Potential
Significant upside from AI-enabled observability and cybersecurity synergies (Omnis AI Insights, Adaptive Threat Analytics, AI-backed DDoS protections). Cross-sell opportunities between service assurance and cybersecurity, particularly in enterprise and government verticals, support a path to expanding the total addressable market beyond legacy niches.
Profitability Risk
Macro uncertainty and variable federal/non-federal spending cycles; service provider spend is lumpy and can be volatile; timing risk around large orders; reliance on AI adoption timing; potential margin pressure from product mix shifts and higher professional fees during scale-up periods.
Financial Position
Strong liquidity with roughly $543.5 million of cash and investments and no revolver debt, enabling flexibility for buybacks and strategic investments. Free cash flow of $71.7 million in the quarter supports shareholder-friendly actions and potential deleveraging or accretive acquisitions if pursued.
SWOT Analysis
Strengths
Integrated platform combining service assurance and cybersecurity (Arbor, Omnis) with AI-driven insights (Omnis AI Insights) and post-incident response capabilities.
Solid balance sheet with substantial liquidity, no debt on revolver, and meaningful free cash flow generation.
Visible multi-solution wins in enterprise and government sectors, supported by differentiated offerings and strong customer relationships.
Significant margin expansion in the quarter (non-GAAP gross margin ~78.7% and operating margin ~14.2%), driven by product mix and restructuring benefits.
Weaknesses
GAAP net income declined to a quarterly loss despite strong non-GAAP margins, reflecting non-cash items and restructuring effects.
Service-provider spending was down 5.6% YoY, indicating some cyclicality in one of the key end-markets.
Short-term revenue volatility from lumpier government and network operator deals may dampen momentum in near term.
Opportunities
AI-enabled observability and security growth through Omnis AI Insights, OCI/NDR-related post-incident capabilities, and AI-assisted DDoS mitigation.
Federal-government adoption and international expansion, with AI-enhanced security solutions aligning to Zero-Trust and NIST frameworks.
Expanded addressable market beyond traditional service assurance into broad observability, improving win rates and average deal size.
Threats
Macroeconomic uncertainty and potential reductions in IT budgets could affect timing of large deals.
Competition from larger cybersecurity and observability players could pressure pricing and market share.
Reliance on government and carrier cycles introduces execution risk tied to procurement timelines.
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