0001628280-25-038913
SEC filingRevenue grew 7% YoY to $186.7M, gross margin improved to 76.7%, and net loss narrowed sharply due to absence of goodwill impairment.
NetScout's fiscal Q1 2026 (ended June 30, 2025) showed a notable turnaround from the prior year. Total revenue increased 7% to $186.7M, driven by a 19% surge in product revenue ($72.9M) which offset modest service revenue growth of 0.3% ($113.8M). Gross profit rose 10% to $143.3M, and gross margin improved 200 bps to 76.7%, benefiting from product mix shift toward higher-margin cybersecurity offerings and lower product/support costs. On a GAAP basis, operating loss narrowed sharply from $463.3M to $6.6M, and net loss decreased from $443.4M to $3.7M, primarily due to the absence of a $427.0M goodwill impairment booked in the prior year. Non-GAAP income from operations increased to $26.6M (14.2% margin) from $14.0M (8.0% margin), and non-GAAP net income rose to $24.7M, or $0.34 per diluted share, versus $20.6M, or $0.28 per share. Operating cash flow more than doubled to $73.6M, aided by working capital improvements.
Revenue mix continued shifting toward cybersecurity, which grew 18% to $68.4M (37% of total) versus service assurance growth of 1% to $118.3M (63% of total). Cybersecurity product revenue saw broad-based strength from both enterprise and service provider customers, while service revenue also increased. Service assurance product revenue grew from enterprise customers but declined from service providers. By customer vertical, enterprise revenue rose 18% to $110.8M, now representing 59% of total, while service provider revenue dropped 6% to $76.0M due to ongoing macroeconomic constraints and cautious spending. Geographically, U.S. revenue was essentially flat (+1%), while international revenue surged 16% to $86.2M, led by strong gains in Asia (27%) and Rest of World (29%).
Management remains cautiously optimistic amid persistent macroeconomic uncertainty and constrained service provider spending. The company continues to focus on product innovation, returning to annual revenue growth, and margin enhancement through disciplined cost management. Cost-control measures include managing discretionary spending and hiring, while investing in growth areas such as cybersecurity and AI. Liquidity remains solid with $543.5M in cash and marketable securities, and a $600M undrawn revolving credit facility. The company repurchased 761,249 shares for $15M during the quarter. No formal quantitative guidance was provided, but the tone suggests a steady path toward improved profitability.
NetScout's balance sheet remains robust. Cash and cash equivalents totaled $489.6 million at June 30, 2025, up from $457.4 million at March 31, 2025. Including short-term marketable securities ($42.9M) and long-term marketable securities ($11.0M), total liquidity stands at $543.5 million. The company has no outstanding debt under its $600 million revolving credit facility (Third Amended and Restated Credit Agreement, expiring October 2029), providing substantial additional liquidity. Shareholders' equity was $1.55 billion, down slightly from $1.56 billion due to net loss and share repurchases. Goodwill remains at $1.07 billion after a $427.0 million impairment in the prior-year quarter.
The Notes disclose no material purchase commitments or contractual obligations beyond operating leases. Operating lease liabilities total $41.5 million (present value), with future minimum payments of $45.6 million. The company has $445.8 million in deferred revenue and customer deposits, of which $293.9 million (66%) is expected to be recognized within 12 months. There are no material variable consideration, return, or warranty obligations. The company also has $3.0 million in unrecognized accounts receivable/deferred revenue from billed but not yet recognized transactions.
NetScout repurchased 761,249 shares for $15.0 million during Q1 FY2026 under its 2022 Share Repurchase Program, bringing total repurchases under the program to $56.6 million (2.7 million shares). At June 30, 2025, 22.3 million shares remained available for repurchase. The company also withheld 597,115 shares for $13.8 million for tax withholding on RSU vesting. No dividends were declared or paid. Capital expenditures were $1.9 million (1.0% of revenue). The company repaid $25.0 million of debt in the prior-year quarter but had no debt outstanding at June 30, 2025. No new debt was issued.
The company operates as a single reportable segment. Geographic revenue for Q1 FY2026: United States $100.5M (53.8%), Europe $30.7M (16.4%), Asia $15.1M (8.1%), Rest of World $40.5M (21.7%). Substantially all identifiable assets are located in the United States. No single customer or channel partner accounted for more than 10% of revenue or accounts receivable.
Net cash provided by operating activities surged to $73.6 million in Q1 FY2027, compared to $38.4 million in the prior-year quarter, a 91.7% increase. This improvement occurred despite a net loss of $3.7 million (versus a $443.4 million loss in Q1 FY2026, which included a $427.0 million goodwill impairment). The primary driver was a $71.8 million reduction in accounts receivable and unbilled costs, indicating strong cash collection. Depreciation and amortization ($14.5 million) and share-based compensation ($20.0 million) were the main non-cash add-backs. Deferred income taxes provided a $6.4 million benefit.
Capital expenditures remained low at $1.9 million, reflecting a capital-light business model. Free cash flow (operating cash flow minus capex) was approximately $71.7 million, more than covering the $15.0 million in treasury stock repurchases and $13.8 million in tax withholdings on restricted stock units. The company also invested $29.0 million in marketable securities, partially offset by $13.6 million in proceeds from sales and maturities. Overall, cash and cash equivalents increased by $32.2 million to $489.6 million, supported by a $4.7 million favorable foreign exchange effect. The strong operating cash flow and low capex underscore high cash conversion, though working capital swings (particularly the large AR decrease) may not be sustainable quarter-to-quarter.