0001078075-25-000012
SEC filingQ2 FY26 revenue grew 15% YoY to $219M, gross margin improved to 80%, and net income rose to $25.8M from $9.0M on strong product mix and cost controls.
For the three months ended September 30, 2025 (Q2 FY26), NetScout reported total revenue of $219.0 million, a 15% increase compared to $191.1 million in the same period last year. The growth was driven by a 17% rise in product revenue ($94.7 million) and a 13% rise in service revenue ($124.3 million). Product revenue benefited from an acceleration of U.S. government agency orders originally expected in the second half of fiscal 2026, as well as increased licensing of software products. Service revenue growth was primarily due to timing of maintenance renewals and increases in professional and subscription services.
Gross profit increased 18% to $175.4 million, and gross margin improved 200 basis points to 80% from 78%. This margin expansion was driven by a more favorable product mix associated with higher software licensing, with product gross margin rising to 88% from 83%. Service gross margin remained stable at 74%.
GAAP operating income was $32.5 million compared to $14.1 million in the prior year, reflecting the revenue growth and lower restructuring charges ($0.3 million vs $2.4 million). Net income reached $25.8 million ($0.35 per diluted share) versus $9.0 million ($0.13 per diluted share) in Q2 FY25. The improvement was also aided by the absence of a $427.0 million goodwill impairment that occurred in the prior year period.
Revenue by product line showed strong performance: Service assurance revenue grew 18% to $144.0 million, driven by both enterprise and service provider customers. Cybersecurity revenue increased 8% to $75.0 million, with growth from both customer verticals but partially offset by a decline in cybersecurity service lines. By customer vertical, service provider revenue jumped 25% to $84.5 million, while enterprise revenue rose 9% to $134.5 million. International revenue increased 10% to $87.9 million, led by rest of world categories.
Management remains cautiously optimistic but acknowledges ongoing macroeconomic uncertainty, particularly in the service provider market, which may persist through fiscal 2026. The company expects net cash from operations combined with its $526.9 million cash position and $600 million credit facility to provide sufficient liquidity for at least the next twelve months. Key strategic priorities include driving product innovation, returning to annual revenue growth, and enhancing margins through disciplined cost management. No specific numerical guidance for upcoming quarters was provided.
NetScout's balance sheet remains fortress-like. Cash and cash equivalents stood at $483.4M as of September 30, 2025, up from $457.4M at March 31, 2025. Marketable securities (short- and long-term) totaled $43.5M, bringing total liquidity to $526.9M. The company has no outstanding debt under its $600M revolving credit facility (Third Amended and Restated Credit Agreement, expiring October 2029). Total shareholders' equity increased to $1.57B from $1.56B, driven by net income and share-based compensation, partially offset by treasury stock repurchases. Goodwill remained at $1.07B, with no impairment recorded in the current period.
Deferred revenue and customer deposits totaled $428.1M, of which $276.8M (65%) is expected to be recognized within 12 months and $151.3M thereafter. Operating lease liabilities (current and long-term) were $43.5M, with future minimum lease payments of $48.1M through fiscal 2030. The company has no material purchase commitments disclosed. Pension plan contributions are expected to be less than $1.0M for fiscal 2026. Restructuring liabilities of $89K remain from prior plans.
NetScout repurchased 1,502,230 shares for $31.6M during the six months ended September 30, 2025 under its 2022 Share Repurchase Program, leaving 21.5M shares authorized. No dividends were paid. Capital expenditures were $4.1M (1.0% of sales). The company made no debt issuances or repayments during the period. Share-based compensation totaled $33.5M.
The company operates as a single reportable segment. Geographic revenue for the six months: United States $231.7M (57.1%), Europe $64.3M (15.9%), Asia $30.3M (7.5%), Rest of world $79.4M (19.6%). Substantially all long-lived assets are located in the United States.
NetScout's cash flow from operations ($80.2M) significantly exceeded net income ($22.1M) in H1 FY2026, indicating strong cash generation quality. The prior year's net loss of $434.3M was heavily impacted by a $427.0M goodwill impairment, a non-cash charge. Excluding that, operating cash flow was still $34.7M. The $45.5M year-over-year improvement in CFO was driven by favorable working capital changes: accounts receivable decreased by $33.8M (vs. $73.7M in 2024), deferred revenue declined less sharply ($21.7M vs. $52.6M), and lower income tax payments. Capex of $4.1M (5.1% of CFO) remained low, highlighting a capital-light business model. While free cash flow is not explicitly stated, CFO less capex ($76.1M) comfortably covered share repurchases of $31.6M and tax withholdings of $15.2M. Investing activities included $50.6M in securities purchases, partially offset by maturities and equity sale proceeds. Financing cash outflows were primarily from share repurchases and debt repayment (none in 2025 vs. $25M in 2024). Overall, cash flow quality is high, with operating cash flows providing ample liquidity for reinvestment and shareholder returns.