NETSCOUT SYSTEMS INC (NTCT)·Q2 2026 Earnings Summary

Executive Summary

• NTCT delivered a clear beat/raise quarter: revenue $219.0M vs S&P Global consensus $200.6M* and non-GAAP diluted EPS $0.62 vs $0.445*, with Y/Y growth aided by federal deal timing and maintenance renewals; GAAP diluted EPS was $0.35 .
• Management raised FY26 guidance: revenue to $830–$870M (from $825–$865M) and non-GAAP EPS to $2.35–$2.45 (from $2.25–$2.40); GAAP EPS to $1.13–$1.23 (from $1.07–$1.22) .
• Q3 outlook embeds sustained momentum despite Q2 pull-forward: revenue $230–$240M and non-GAAP EPS $0.83–$0.88; tax rate ~20% and ~73M diluted shares .
• Upside drivers: stronger software mix (high-80s product gross margin in Q2), federal strength, and AI-driven offerings (KlearSight, Omnis AI Insights); watch for 2H order timing normalization and macro/US government/tariff watch items .

What Went Well and What Went Wrong

• What Went Well

  • Broad-based beat with expansion in non-GAAP operating margin to 26.5% (from 23.1% Y/Y), driven by product volume/mix and timing of maintenance renewals; non-GAAP EBITDA margin rose to 27.7% (from 24.9%) .
  • Federal strength and order acceleration supported top-line; CEO: “We delivered another solid quarter… revenue growth from both our Cybersecurity and Service Assurance… benefited from the acceleration of some orders originally anticipated in the second half” .
  • AI differentiation resonating: “We are feeding smart data to algorithms in a unique way so that they have better outcomes… We created a new product called AI Sensor/AI Insight” .

• What Went Wrong

  • Underlying growth mid-single digit ex timing benefits, implying some normalization ahead as large orders/maintenance timing fade .
  • Macro watch items: potential US federal government shutdown/timing and tariffs could affect sales cycles or deal structures; management is monitoring but hasn’t seen material cost impact yet .
  • Q2 free cash flow of $4.3M was light (seasonality/timing); management repurchased ~$16.6M of stock and ended with $526.9M in cash/marketable securities .

Financial Results

Consensus vs Actual (Q2 FY26): Revenue beat by ~$18.4M; EPS beat by ~$0.175* .

Segment mix (Product vs. Service)

KPIs and Operating Metrics

Balance Sheet & Capital Return

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We delivered another solid quarter in Q2, driven by revenue growth from both our Cybersecurity and Service Assurance… Our strong top and bottom-line performance also benefited from the acceleration of some orders originally anticipated in the second half” .
• “Adjusting for these timing benefits… underlying total revenue growth for the quarter was in the mid-single digits year-over-year” .
• “What is different for NETSCOUT… we have smart data telemetry… We are feeding smart data to algorithms in a unique way so that they have better outcomes… a new product called AI Sensor/AI Insight” .
• “Product gross margin was in the high 80% range… particularly strong given the volume of software sales in the quarter” .
• “We are raising our full-year expectations for both revenue and non-GAAP diluted earnings per share… Revenue: $830M–$870M; Non-GAAP EPS: $2.35–$2.45… Q3 revenue $230M–$240M; non-GAAP EPS $0.83–$0.88” .

Q&A Highlights

• Order timing and federal strength: Q2 benefited from accelerated federal orders (preparedness for potential shutdown); one 10% customer tied to a federal channel partner .
• AI differentiation: Focus on “smart data” feeding external AI/observability ecosystems (e.g., Splunk/ServiceNow/AWS), via AI Sensor/AI Insight product strategy .
• DDoS evolution: Carpet-bombing and AI-enhanced attacks; NTCT’s Adaptive DDoS (subscription) updates functionality every ~6 months to address evolving vectors .
• Tariffs: Limited direct cost impact due to software-heavy mix and North America sourcing; potential effects may show up in end-user pricing/budgets on hardware components .
• Margin sustainability: High-80s product gross margin in Q2 driven by software; continued mix shift to software expected .

Estimates Context

• S&P Global consensus for Q2 FY26: revenue $200.6M*, non-GAAP EPS $0.445*; NTCT reported $219.0M and $0.62, respectively, representing material beats on both lines .
• FY26 consensus revenue stands at ~$854.6M*; management raised FY26 revenue outlook to $830–$870M, bracketing consensus; non-GAAP EPS guidance $2.35–$2.45 vs consensus $2.415* mid-point .
• Coverage remains thin (2 revenue/EPS estimates for Q2; 3 target prices), which can amplify estimate dispersion and price reactions*.

Values retrieved from S&P Global.

Key Takeaways for Investors

• Beat/raise quarter with stronger software mix and federal strength; underlying growth mid-single digit after timing benefits suggests normalization ahead but still improving profitability trajectory .
• Raised FY26 guide and introduced Q3 guide imply sustained momentum despite Q2 pull-forward; near-term trading likely anchored to durability of 2H pipeline conversion .
• AI “smart data” strategy (AI Sensor/AI Insight) and KlearSight for Kubernetes expand NTCT’s observability foothold and should support software mix and margins medium term .
• Cybersecurity demand remains healthy; Adaptive DDoS subscription cadence is a recurring monetization lever amid intensifying DDoS threats .
• Watch risks: federal shutdown timing, tariff-driven pricing/budget effects, and lumpy service provider spending; mgmt sees limited direct cost impact so far .
• Capital allocation remains supportive (repurchases; no revolver draw); cash/marketable securities of $526.9M provide flexibility .
• For positioning: near-term momentum long setup into Q3 guide, with balanced attention to order timing normalization and macro watch items; medium-term thesis leans on AI-enabled observability/cyber growth and margin accretion .

Footnote: Items marked with an asterisk (*) are values retrieved from S&P Global.