NetScout Systems Q4 Earnings Call Highlights

Key Points

• Fiscal 2026 results: Revenue rose about 4.5% to roughly $859.5 million with diluted EPS up nearly 12% to $2.48 and expanded gross and operating margins, while Q4 revenue dipped 1% due to customer order timing.
• Cybersecurity and product strategy: Cybersecurity grew faster than the company average (~7.8% for the year) as NetScout pushes AI-ready data, observability and Adaptive DDoS protection, and completed a tuck-in acquisition of DigiCert’s DDoS assets to scale its cloud DDoS business.
• Outlook and capital allocation: Management guided fiscal 2027 revenue of $885–$915 million and non-GAAP EPS of $2.65–$2.80 (including an initial ~$20M annualized run-rate from the DigiCert deal), backed by a strong balance sheet with $705M in cash and near‑record free cash flow and ongoing share repurchases.

NetScout Systems NASDAQ: NTCT reported fourth quarter and full fiscal year 2026 results that executives said were driven by growth across its cybersecurity and service assurance offerings, alongside margin expansion and strong free cash flow generation. Management also introduced fiscal 2027 guidance calling for continued year-over-year growth in revenue and earnings.

Q4 results reflected order timing shift, while full-year growth accelerated

President and CEO Anil Singhal said the company delivered “strong fiscal year 2026 top and bottom line results,” adding that performance supported strategic objectives laid out a year earlier, including product innovation, annual revenue growth, and margin expansion.

For the fourth quarter ended March 31, 2026, Singhal said total revenue was approximately $203 million versus $205 million in the prior-year period, which he attributed to “the shift in customer order timing to the prior quarter” previously discussed on the company’s third quarter call. Diluted earnings per share were $0.52, unchanged year over year.

EVP and CFO Tony Piazza added that fourth-quarter revenue declined 1% year over year, with product revenue of $80.7 million versus $89.5 million a year earlier, reflecting “the timing and mix of certain orders across quarters.” Service revenue increased 5.9% to $122.3 million, which Piazza said was driven by “underlying growth and favorable timing of service renewal orders and mix associated with an enterprise license agreement.”

Piazza said gross margin in the quarter was 79.7%, up 0.5 percentage points year over year on favorable product mix, while operating margin was 21.6% versus 23.1% a year earlier. Operating expenses were $117.9 million, up 2.4%, “primarily related to the timing of variable incentive compensation expense,” he said.

Piazza also pointed to higher product backlog at quarter-end, with total product backlog of about $50 million, including $45.8 million of fulfillable backlog, compared with about $33 million total backlog and $25.1 million fulfillable backlog at the end of the same period in 2025.

Full-year revenue grew 4.5% with margin expansion and nearly 12% EPS growth

For fiscal 2026, Singhal said revenue increased 4.5% to approximately $860 million, driven by growth in both cybersecurity and service assurance. He said the company expanded both gross and operating margins year over year and delivered nearly 12% growth in diluted EPS to $2.48, which he said exceeded the high end of guidance.

Piazza quantified fiscal 2026 revenue at $859.5 million, including product revenue of $370.1 million (up 2.8%) and service revenue of $489.3 million (up 5.7%). He noted product revenue was affected by “a year-over-year shift in the classification of revenue associated with an enterprise license agreement,” which also benefited service revenue, along with renewal timing including back maintenance.

For the year, Piazza reported gross margin of 80.8%, up 0.8 percentage points, driven by higher product margin from increased volume and favorable mix. Operating margin was 25.4%, up 1.7 percentage points, which he attributed to higher revenue, improved product and gross margins, and “disciplined cost management.” The annual non-GAAP effective tax rate was 19.9% compared to 19% the prior year, which Piazza said had benefited previously from “a valuation gain in a foreign investment with favorable tax treatment.”

Cybersecurity outpaced the company average; enterprise led customer vertical growth

Management highlighted faster growth in cybersecurity. Singhal said cybersecurity revenue increased about 8% for the year, with growth across both enterprise and service provider verticals, and described the segment as “an increasingly important driver” of long-term revenue growth and margin expansion.

Piazza reported service assurance revenue increased 2.6% and cybersecurity revenue grew 7.8% in fiscal 2026. He said service assurance represented about 64% of total revenue and cybersecurity about 36%, adding that the company expects cybersecurity to become a larger portion of the mix over time.

By customer vertical, Piazza said enterprise revenue grew 5.4% and service provider revenue grew 3.3% for the year. Enterprise represented about 58% of total revenue and service providers 42%. He also said no customer accounted for more than 10% of revenue in the quarter or full year.

Regionally, Piazza said the U.S. represented 55% of fiscal 2026 revenue and international markets 45%.

Product development focused on AI-ready data, observability, and DDoS protection

Singhal emphasized portfolio innovation, citing “AI-ready smart data,” expanded observability, enhanced edge visibility, and adaptive threat protection. In service assurance, he highlighted the Omnis Sensor and Omnis Streamer as an integrated AIOps solution that converts packet data into “actionable intelligence,” and said the products include “agentic AI interfaces” intended to enable integration with multi-vendor AI solutions and reduce total cost of ownership.

In cybersecurity, Singhal referenced the company’s March 2026 DDoS Threat Intelligence Report, saying AI-powered attacks are emerging and that “large coordinated attacks are outpacing traditional defenses.” He said organizations are turning to “automated intelligent protection,” and positioned NetScout’s innovations around distributed detection and mitigation for “a more robust and resilient Adaptive DDoS protection environment.”

Singhal also said the company completed a tuck-in acquisition of assets of DigiCert Inc.’s DDoS protection business, bringing the back-end infrastructure of the Arbor Cloud network fully in-house. He said the deal should provide greater control and a clearer path to scaling cloud-based services, while providing “immediate incremental recurring revenue in the cloud DDoS space.”

Cash flow and capital allocation; FY 2027 outlook calls for growth

Piazza reported cash, cash equivalents, and marketable securities of $705.1 million at fiscal year-end, up $212.7 million from the end of fiscal 2025. Free cash flow was $150.1 million in the fourth quarter and $285.4 million for the full year, which he described as a near record high.

During fiscal 2026, the company repurchased about 2.5 million shares at an average price of $24.29 for approximately $61 million, Piazza said. The company ended the year with no outstanding balance on its $600 million revolving credit facility, which expires in October 2029. He added that accounts receivable net totaled $151.5 million, down $12.2 million year over year, and days sales outstanding were 62 days versus 68 days in the prior-year period.

For fiscal 2027, Piazza guided to revenue of $885 million to $915 million and non-GAAP diluted EPS of $2.65 to $2.80. He said the outlook includes the DigiCert DDoS asset acquisition and assumes an initial annualized revenue run rate contribution of about $20 million, with only a partial benefit in fiscal 2027 due to a May 1 close. The company expects a non-GAAP effective tax rate of about 20% and weighted average diluted shares outstanding of roughly 74 million to 75 million shares.

Piazza also offered first-quarter fiscal 2027 expectations, calling for revenue growth in the mid-single digits and EPS growth “at approximately twice the rate of revenue growth” compared with the same quarter last fiscal year.

On the macro environment, management said it had seen limited direct impact so far. In response to an analyst question, the company said there were “general concerns about what could happen tomorrow,” but “the direct impact has been minimal,” including tariff impacts, while noting continued caution given geopolitical uncertainty.

On federal business, Piazza said performance was strong in fiscal 2026. He said federal revenue typically runs in the “mid to high single digits” as a percentage of total revenue and was at the high end of that range in fiscal 2026, with a “strong pipeline,” while also noting the company is watching for potential normalization.

Addressing demand for its newer sensor and streamer offerings, management said revenue was “somewhere between 10 and 15” (million dollars) for fiscal 2026, mostly in the second half after the product introduction at the company’s ENGAGE conference in October. Piazza said the company was “pleased with the first year out” and described “tremendous interest,” while adding that customers are still working through AI strategy and execution.

In discussing industry actions against botnets, Singhal said such efforts were “backward-looking” and “too late” to fully help affected organizations, adding that it does not reduce the need for NetScout’s solutions or the threat landscape. Piazza added that, based on threat reports, AI is “accelerating” the threat landscape over time.

About NetScout Systems NASDAQ: NTCT

NetScout Systems, Inc is a leading provider of network performance management, service assurance and cybersecurity solutions. The company designs and delivers hardware and software platforms that capture and analyze real-time and historical packet data, enabling IT teams and service providers to monitor application performance, troubleshoot network issues and defend against distributed denial-of-service (DDoS) attacks. NetScout's flagship offerings include the nGeniusONE service assurance platform and the InfiniStream packet broker, which together provide end-to-end visibility across hybrid and multi-cloud environments.

Founded in 1984 and headquartered in Westford, Massachusetts, NetScout has built a reputation for scalable and resilient monitoring infrastructure.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.