Netskope Q2 Earnings Call Highlights

Key Points

• Netskope exceeded its fiscal Q2 targets, with revenue up 29% year over year to $220.5 million and ARR rising 27% to $899 million. Adjusted operating margin improved to negative 9%, while net retention reached 114%.
• Demand for the company’s AI security offerings is building, with about one-third of its AI security pipeline in or approaching proof-of-concept stages. Platform adoption also expanded, as 59% of customers used four or more Netskope One products.
• Netskope raised its full-year outlook to revenue of $888 million–$892 million, approximately 26% growth, and expects a positive free-cash-flow margin of about 2%. The company also announced a workforce reduction of roughly 5% while reallocating investment toward AI infrastructure and products.

Netskope NASDAQ: NTSK reported second-quarter fiscal 2027 results that exceeded its revenue and operating-margin guidance, as the cloud and AI security company cited demand for its platform and early traction for recently introduced AI security products.

Chief Executive Officer and Co-Founder Sanjay Beri said enterprises are increasingly treating security and network modernization as linked priorities as they adopt artificial intelligence. He said customers are seeking visibility into AI applications, agents and data flows, along with controls that can be applied in real time without sacrificing network performance or data sovereignty.

“Security, IT, and infrastructure leaders don't want to say no to using AI,” Beri said. “They want to say yes to it, but do so safely.”

Second-Quarter Financial Results

Annual recurring revenue rose 27% year over year to $899 million, while net new ARR was $54 million, up 9%. Revenue increased 29% to $220.5 million, ahead of the company’s guidance range. Netskope reported revenue growth of 37% in EMEA, 31% in Asia-Pacific and Japan, and 25% in the Americas.

Net retention rate increased to 114%, and gross retention reached another all-time high, according to Chief Financial Officer Drew Del Matto. Remaining performance obligations grew 36% to $1.35 billion.

• Adjusted gross margin was 77%, up about two percentage points from a year earlier.
• Adjusted operating margin was negative 9%, an 11-percentage-point improvement year over year and ahead of guidance.
• Net loss per share was $0.03, based on 405 million weighted-average shares.
• Free cash flow was negative $29.8 million, slightly ahead of company expectations.
• Netskope ended the quarter with $1.1 billion in cash equivalents and marketable securities.

Del Matto said the improvement in operating margin reflected leverage across the business as revenue expanded, with research and development expense improving by approximately eight percentage points as a percentage of revenue. The company said sales and marketing expense was roughly flat as a percentage of revenue while it continues to ramp sales representatives and invest in quota-carrying personnel.

Netskope also said it reduced approximately 5% of its workforce while reallocating spending toward AI infrastructure and tokens in research and development and general and administrative functions.

AI Security Pipeline and Product Adoption

Management highlighted customer interest in its AI security suite, including Agentic Broker, AI Guardrails, AI Gateway and AI Command Center. Beri said Agentic Broker gives organizations visibility into agentic and model-context-protocol traffic, while AI Guardrails is designed to inspect prompts and responses for threats such as prompt injection, jailbreaking and policy violations.

The company estimated that roughly one-third of its AI security pipeline is already in or entering the proof-of-concept stage. Beri said enterprise buyers generally follow a six- to 12-month process involving validation, budgeting, executive approval and procurement, suggesting a larger contribution from the pipeline could occur later in the fiscal year.

“We see that pipeline building, we see the POCs building, then as a result, we see the ARR building,” Beri said in response to an analyst question.

Netskope said it closed AI security expansion deals during the quarter with a global electronics manufacturer in EMEA and a large auto insurer. It also cited a U.S. financial services company that bought eight SASE products as well as AI Guardrails and Agentic Broker, and a technology company that selected the platform for cloud visibility, data protection and AI governance.

Platform adoption continued to rise. The number of customers generating more than $100,000 in ARR increased 23% to 1,686, representing 87% of total ARR. At quarter-end, 59% of customers used four or more Netskope One products, compared with 51% a year earlier, while 41% used five or more products, up from 35%.

Network, Partnerships and Product Developments

Beri said Netskope’s NewEdge private cloud network, which spans more than 120 data centers, is designed to support AI-related traffic while allowing customers to establish geographic policies for data processing. The company said its AI Fast Path technology reduced latency by as much as 90% in real-world testing on the NewEdge network.

During the quarter, Netskope also said it integrated NIST-approved post-quantum cryptography algorithms across its SASE platform and global data-center footprint. Beri said the capability enables customers to use quantum-resilient encryption for communications to the internet and will help address regulatory requirements as quantum computing develops.

The company cited expanded ecosystem efforts, including participation in NVIDIA’s Open Secure AI Alliance, CrowdStrike’s Project Quiltworks, integrations with Anthropic’s Claude Enterprise and Amazon Bedrock AgentCore, and the launch of its Netskope Catalyst Managed Service Provider program.

On the federal market, Beri said Netskope is FedRAMP High certified and has been building its U.S. federal sales organization. He described federal as a small but important and growing part of the company’s business.

Raised Full-Year Outlook

For the third quarter of fiscal 2027, Netskope forecast revenue of $227 million to $229 million, representing approximately 24% growth. The company expects an operating margin of about negative 8% and a net loss per share of $0.03 to $0.04, based on approximately 415 million weighted-average common shares.

For the full fiscal year, Netskope raised its outlook and now expects revenue of $888 million to $892 million, representing approximately 26% growth. The company forecast gross margin of approximately 77%, operating margin of approximately negative 9%, net loss per share of $0.15 and positive free-cash-flow margin of approximately 2%.

Del Matto said the company continues to expect net new ARR to grow year over year during the second half, with the fourth quarter expected to be seasonally stronger. Netskope is also moving customers to annual billing, a transition that is proceeding faster than expected and is expected to be completed by the middle of the next fiscal year. The shift temporarily defers cash collections, the company said, while improving visibility into future cash flows and customer commitments.

About Netskope (NASDAQ:NTSK)

We are redefining security and networking for the era of cloud and AI. The cloud and AI have completely revolutionized work. We are more dispersed, more productive, and more automated than ever before, and the rate of change is only accelerating. Not since the internet has there been such a transformative tectonic shift. But, with it has come collateral damage-traditional security and networking are now broken. We founded Netskope to address this revolution. We built Netskope One, our unified, cloud-native platform from the ground up to solve the challenge of securing and accelerating the digital interactions of enterprises in this new era.

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