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NETSCOUT SYSTEMS INC (NTCT)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 beat on both top line and adjusted EPS: revenue $186.7M vs $181.5M consensus (+$5.2M) and non-GAAP diluted EPS $0.34 vs $0.30 consensus; GAAP diluted EPS was $(0.05) due to transition/restructuring charges and compares to a large goodwill impairment last year . S&P Global consensus values marked with * (see Estimates Context).*
  • Mix and profitability improved YoY: product revenue +19% YoY to $73.0M; non-GAAP operating margin expanded to 14.2% (from 8.0% YoY), and non-GAAP EBITDA margin reached 15.7% .
  • Guidance maintained: FY26 revenue $825–$865M and non-GAAP diluted EPS $2.25–$2.40 reaffirmed; GAAP diluted EPS $1.07–$1.22; tax rate ~20%; diluted shares ~74M .
  • Execution and cash flow strong: non-GAAP EBITDA $29.3M; operating cash flow $73.6M; cash and securities $543.5M; repurchased ~0.76M shares for ~$15.0M; no revolver borrowings, product backlog rose to $30.9M .

What Went Well and What Went Wrong

What Went Well

  • Cybersecurity momentum: Cybersecurity revenue +18.3% YoY; company launched AI-backed enhancements across Arbor DDoS portfolio; management says AI/ATLAS feed can mitigate up to 80% of DDoS attacks without further analysis .
  • Enterprise strength and mix shift: Enterprise vertical revenue +17.7% YoY and now 59% of total; management highlighted multi-solution wins (including a high 7-figure U.S. government order pulled forward) and traction in Omnis AI/OCI .
  • Margin and cost discipline: Non-GAAP operating margin improved to 14.2% from 8.0% YoY; CFO noted restructuring/cost actions benefited Q1, though effects normalize in Q2 .

What Went Wrong

  • Sequential margin compression and seasonality: Non-GAAP operating margin fell QoQ (14.2% vs 23.1% in Q4) as typical seasonality and normalization of OpEx offset YoY gains .
  • Service provider softness: Service provider vertical revenue declined 5.6% YoY; management continues to see measured 5G investment pacing and lumpy order timing .
  • GAAP loss: GAAP diluted EPS $(0.05) on executive transition and restructuring charges despite better YoY comps vs the prior year’s goodwill impairment period .

Financial Results

P&L summary vs prior two quarters (oldest → newest)

MetricQ3 FY25Q4 FY25Q1 FY26
Revenue ($USD Millions)$252.0 $205.0 $186.7
Non-GAAP Diluted EPS ($)$0.94 $0.52 $0.34
GAAP Diluted EPS ($)$0.67 $0.25 $(0.05)
Non-GAAP Operating Margin %35.6% 23.1% 14.2%
Non-GAAP Gross Margin %82.8% 79.2% 78.7%

Q1 FY26 vs S&P Global consensus

MetricActualConsensusSurprise
Revenue ($USD Millions)$186.7 $181.5*+$5.2
Non-GAAP Diluted EPS ($)$0.34 $0.30*+$0.04

Values marked with * are from S&P Global consensus (see Estimates Context).

Segment and Vertical mix

  • Product lines (Q1 YoY) | Product Line ($USD Millions) | Q1 FY25 | Q1 FY26 | |---|---|---| | Service Assurance | $116.8 | $118.3 | | Cybersecurity | $57.8 | $68.4 |

  • Customer verticals (Q1 YoY) | Customer Vertical ($USD Millions) | Q1 FY25 | Q1 FY26 | |---|---|---| | Enterprise | $94.1 | $110.8 | | Service Provider | $80.5 | $76.0 |

Geography mix (Q1 YoY)

Region ($USD Millions)Q1 FY25Q1 FY26
United States$99.9 $100.5
International$74.6 $86.2
Europe$31.4 $30.7
Asia$11.9 $15.1
Rest of World$31.3 $40.5

KPIs and balance sheet

KPIQ4 FY25Q1 FY26
Non-GAAP EBITDA ($USD Millions)$50.3 $29.3
Non-GAAP EBITDA Margin %24.5% 15.7%
Operating Cash Flow ($USD Millions)$140.0 $73.6
Cash & Securities ($USD Millions)$492.5 $543.5
Deferred Revenue (Total, $USD Millions)—$445.8
Product Backlog ($USD Millions)$33.1 $30.9
DSO (days)68 41
Share RepurchasesNone in Q4 0.761M sh @ $19.72 ($15.0M)
Revolving Credit Facility$0 drawn $0 drawn

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY26$825–$865M $825–$865M Maintained
GAAP Diluted EPSFY26$1.07–$1.22 $1.07–$1.22 Maintained
Non-GAAP Diluted EPSFY26$2.25–$2.40 $2.25–$2.40 Maintained
Effective Tax RateFY26~20% ~20% Maintained
Diluted SharesFY26~74–75M ~74M Maintained
Non-GAAP Diluted EPSQ2 FY26—$0.43–$0.45 New/Quarterly color
Revenue Growth YoYQ2 FY26—+4% to +6% New/Quarterly color
Sale of Foreign InvestmentFY26 impact—~$12M proceeds; neutral to FY26 outlook New disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25, Q4 FY25)Current Period (Q1 FY26)Trend
AI/technology initiativesAnnounced AI/ML updates to Adaptive DDoS; showcased smart data/observability; investing in AI in FY26 AI-backed DDoS enhancements; Omnis AI Insights showcased at TM Forum; OCI positions with NIST Zero Trust; Adaptive Threat Analytics launched Building momentum in AI-native security/observability
Supply chain/tariffs/macroMinimal direct tariff exposure; software-heavy mix; monitoring macro uncertainty “Jury is still out”; software focus limits impact; no effect seen yet Neutral; monitoring
Product performanceQ3: both SA & Cyber strong (pull-ins); Q4: Cyber +6.6% YoY for FY25 Cyber +18.3% YoY; SA +1.4% YoY Cyber outperforming SA
Customer verticalsFY25: Enterprise +7.5%, SP −10.1% Enterprise +17.7% YoY; SP −5.6% YoY Mix shifting to Enterprise
Regional trendsFY25: 57% US/43% International Q1: 54% US/46% International; Asia and ROW grew strongly International growth improving
Federal/governmentNoted FY25 refresh cycles; watching pipeline High 7-figure U.S. government order pulled in; cautious on timing Improving but timing variable
Cost/OpEx disciplineFY25 restructuring/VRP savings Q1 margins benefited; CFO warns normalization in Q2 Structural improvements, less tailwind ahead

Management Commentary

  • “We delivered a solid start to fiscal year 2026, with Q1 performance reflecting strong execution and positive momentum across both our top- and bottom-lines.” — Anil Singhal, CEO .
  • “We expanded both our gross and operating profit margins during the quarter and delivered non-GAAP diluted earnings per share of $0.34… [benefiting from] restructuring and cost management… [effects] will begin to normalize in our year over year comparisons starting in the second quarter.” — CEO prepared remarks .
  • “We are reaffirming our fiscal year 2026 revenue and non-GAAP EPS outlook.” — CFO .
  • “DSO at the end of [Q1] was 41 days versus 63 days in the prior year… reflecting the timing and composition of bookings.” — CFO .
  • “AI… enables customers to mitigate up to 80% of all DDoS attacks without the need for further analysis.” — Company on AI-backed Arbor enhancements .

Q&A Highlights

  • Macro/tariffs: Management has not seen tariff-related impact; software-heavy mix reduces exposure; macro looks similar to last year .
  • Service provider spending: Lumpy; too early to compare YoY; measured 5G investment pace continues; focus where monetization is clear (fixed wireless, private 5G) .
  • Security portfolio drivers: Integration of Arbor DDoS with scalable DPI; repositioning OCI towards post-incident response; AI sensor data for SecOps with partners (e.g., Splunk, Palo Alto) .
  • Federal demand: Strong in Q1 (mid-teens YoY growth); early large order helped Q1; pipeline healthy but subject to approvals and timing .
  • Q2 color: Revenue +4–6% YoY; non-GAAP EPS $0.43–$0.45 as OpEx normalizes and foreign investment gain/loss nets to neutral over H1 .

Estimates Context

  • Q1 FY26 results vs S&P Global consensus: revenue $186.7M vs $181.5M*; non-GAAP EPS $0.34 vs $0.30* — both beats .
  • Forward setup at the time: management guided Q2 FY26 non-GAAP EPS $0.43–$0.45; consensus EPS for Q2 FY26 was ~$0.445* and revenue ~$200.6M*, implying an “in-line” posture into Q2 .
  • Note: Only 1 estimate recorded for Q1 and 2 for Q2, limiting consensus robustness.*

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Q1 delivered a clean beat on revenue and adjusted EPS with expanding YoY margins; Cybersecurity drove the outperformance while Enterprise mix continued to improve .
  • Sequential margin compression and a modest QoQ revenue step-down reflect seasonality and cost normalization; monitor Q2 execution against EPS $0.43–$0.45 and 4–6% revenue growth guide .
  • Cybersecurity momentum (+18% YoY) with AI-enhanced DDoS defense and NIST-aligned NDR should remain a key growth vector; watch for incremental federal and cloud wins .
  • Service provider demand remains measured and lumpy; any acceleration in fixed wireless/private 5G or slicing could be upside, but timing is uncertain .
  • Cash generation and balance sheet are strengths (FCF $71.7M; cash/securities $543.5M; no revolver draw); continued buybacks provide support .
  • FY26 guide reaffirmed; with cost work largely complete, topline delivery (especially in Cyber) and mix shift toward Enterprise will be key to hitting the $2.25–$2.40 non-GAAP EPS range .
  • Near-term catalysts: Q2 print vs guide; visibility into large federal/SP opportunities; adoption of Omnis AI/OCI and Adaptive DDoS; any macro/tariff headlines (currently neutral) .