NetScout (NTCT) Q2 2027 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• VP of Corporate Finance – Scott Dressel
• President and Chief Executive Officer – Anil Singhal
• Executive Vice President and Chief Financial Officer – Tony Piazza

TAKEAWAYS

• Total Revenue — $222.2 million, representing 1.4% growth year over year despite the timing of federal government orders accelerated into the first quarter.
• Non-GAAP EPS — $0.71, an increase from $0.62 in the prior year period.
• Non-GAAP Operating Margin — 28.3%, expanding from 26.5% due to cost discipline and the shift of the ENGAGE User Summit from the second quarter to the third quarter.
• Product Revenue — $89.9 million, a 5.1% decrease reflecting the acceleration of certain federal government orders earlier in the fiscal year.
• Service Revenue — $132.3 million, increasing 6.4% year over year.
• First Half Total Revenue — $432.6 million, an increase of 6.6% compared to the first half of the prior fiscal year.
• First Half Service Assurance Revenue — grew 8.2%, accounting for 66% of total revenue.
• First Half Cybersecurity Revenue — grew 3.8%, accounting for 34% of total revenue.
• First Half Enterprise Revenue — increased 9.1%, representing 62% of total revenue.
• First Half Service Provider Revenue — increased 2.8%, representing 38% of total revenue.
• Product Backlog — $20.9 million as of Sept. 30, 2026, including $15.4 million of fulfillable backlog.
• Cash and Marketable Securities — $571.3 million as of Sept. 30, 2026, a decrease from $705.1 million at the end of fiscal year 2026.
• Share Repurchases — 2 million shares of common stock for approximately $77 million during the second quarter.
• Fiscal Year 2027 Revenue Guidance — $885 million to $915 million, reaffirmed by management.
• Fiscal Year 2027 Non-GAAP EPS Guidance — $2.65 to $2.80, representing 9.9% growth at the midpoint.
• Third Quarter Revenue Guidance — $240 million to $250 million, reflecting a difficult comparison due to $15 million in orders pulled forward in the prior year.
• Third Quarter Non-GAAP EPS Guidance — $0.90 to $0.95.
• Inventory and Deferred Costs — $30 million as of Sept. 30, 2026, compared to $13.3 million at the end of the prior fiscal year.
• Federal Revenue — low teens as a percentage of total revenue for the first half, exceeding the historical range of mid-to-high single digits.
• Strategic Win — a high seven-figure order with a leading U.S. financial institution to build out infrastructure for customer-facing networks.
• Cybersecurity Win — a low seven-figure order with a leading global service provider for managed DDoS services and Adaptive DDoS Protection.
• Non-GAAP Effective Tax Rate — approximately 20% for the full fiscal year.

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RISKS

• Singhal stated, “Service provider spending remains disciplined and tight,” noting that consolidation and macroeconomic factors continue to challenge the segment.
• Singhal warned of a “big challenge in the supply chain” where server prices have risen two to three times over the prior year.
• Singhal noted that revenue in certain Middle Eastern regions is “definitely impacted” by regional conflicts.

SUMMARY

NetScout Systems, Inc. (NTCT -18.39%) reported second-quarter financial results aligned with its internal forecasts, supported by expansion in non-GAAP operating margins and earnings per share. Management reported that top-line growth was influenced by the timing of federal government orders that were accelerated into the first quarter. The company maintained its full-year guidance while executing on its capital return strategy through significant share repurchases. Strategic focus centered on expanding the Smart Data platform into AIOps and agentic workflows to address the evolving AI needs of its enterprise and service provider clients.

• Management announced a planned name change for the Service Assurance segment to Network Observability starting in fiscal year 2028 to align with industry terminology.
• Singhal stated, “Our 5G observability solution gives them end-to-end visibility for standalone 5G networks and supports emerging use cases, including fixed wireless access and network slicing.”
• The company reported the resignation of Sanjay Munshi as Chief Operating Officer, effective Oct. 22, with members of the existing leadership team assuming his responsibilities.
• Singhal noted, “Customers are buying AI solutions designed for Service Assurance and using them for cybersecurity applications, bringing the two areas closer together.”
• Management highlighted the launch of nGenius Copilot, a conversational AI tool designed to convert natural language queries into evidence-based answers.
• The company executed a strategic inventory build to $30 million to mitigate potential supply chain disruptions and volatile hardware costs.

INDUSTRY GLOSSARY

• AIOps: The application of artificial intelligence and machine learning to automate and enhance IT operations and decision-making processes.
• ATLAS Intelligence Feed: NetScout’s threat intelligence data source used to identify and combat network threats and DDoS attacks.
• DDoS: Distributed Denial of Service; a type of cyberattack that attempts to crash a network or service by flooding it with traffic.
• DPI: Deep Packet Inspection; a method of examining the data part of a packet as it passes an inspection point to manage traffic or detect threats.
• MTTK: Mean Time to Knowledge; the average time required to identify the root cause of a network or service issue.
• Smart Data: Contextualized, real-time evidence derived from packet data used to power analytics, cybersecurity, and AI reasoning.

Full Conference Call Transcript

Operator: Thank you for standing by, and welcome to NetScout’s second quarter fiscal year 2027 financial results conference call. At this time, all parties are in a listen-only mode. A question-and-answer session will follow the management team’s prepared remarks. As a reminder, this call is being recorded. If you require operator assistance at any time, please press star zero. I would now like to turn the call over to Scott Dressel, NetScout’s VP of Corporate Finance. Scott, please go ahead.

Scott Dressel: Thank you, operator, and good morning, everyone. Welcome to NetScout’s second quarter fiscal year 2027 conference call for the period ended September 30, 2026. Joining me today are Anil Singhal, NetScout’s President and Chief Executive Officer, and Tony Piazza, NetScout’s Executive Vice President and Chief Financial Officer. Please note that a slide presentation accompanies our prepared remarks. You can advance the slides in the webcast viewer to follow our commentary. Both the slides and the prepared remarks can be accessed in multiple areas within our investor relations section of our website at www.nets

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