NTSK

Image source: The Motley Fool. Wednesday, Sept. 2, 2026, at 5 p.m. ET Chief Communications and Investor Relations Officer-Michelle Spolver Chief Executive Officer and Co-Founder-Sanjay Beri Chief Financial Officer-Andrew Del Matto Operator: Thank you for standing by, and welcome to Netskope's Second Quarter Fiscal 2027 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Michelle Spolver, Chief Communications and Investor Relations Officer. Please go ahead. Michelle Spolver: Good afternoon, and thank you for joining us today. With me on the call are Netskope's CEO and Co-Founder, Sanjay Beri; and CFO, Andrew Del Matto. The press release announcing our financial results for the second quarter of fiscal 2027 was issued earlier today and is posted to our Investor Relations website at investors.Netskope.com, along with the supplemental presentation. Before we begin, let me remind everyone that certain statements we make on today's call are forward-looking, including statements related to our guidance for the third quarter and full 2027 fiscal year, market opportunity, growth prospects, sales ramping, competitive position, impact of AI and demand for AI security. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Additionally, these statements apply only as of today, and we undertake no obligation to update them in the future. For a detailed description of risks and uncertainties, please refer to our SEC filings as well as our earnings press release. Finally, unless otherwise noted, all financial metrics we discuss on this call other than revenue will be on an adjusted non-GAAP basis. We have provided reconciliations of these non-GAAP financial measures against the most directly comparable GAAP financial measures in our earnings press release. Now let me turn the call over to Sanjay to discuss our business momentum and highlights from our Q2 financial performance. Sanjay? Sanjay Beri: Thanks, Michelle. We had a strong second quarter with our results reflecting durable demand for Netskope's highly differentiated platform. In the age of AI, security and network modernization have become inseparable, and businesses can no longer afford to trade security for performance. As enterprises embrace AI and cloud, they need a modern architecture that understands the context and intent of today's internet, cloud and AI environments. This architecture must protect massive amounts of transactions and data spanning thousands of cloud and private applications and data stores, billions of websites and other destinations and a vast set of commercial and open-weight AI apps and models. It must inspect and control traffic in real time at high speed and with data sovereignty. The need for this architecture is becoming even more acute as the volume and velocity of transactions and data and the number of humans and AI agents originating these transactions and operating on data grows exponentially. Netskope uniquely delivers this modern, scalable, resilient and sovereign real-time architecture through the combination of our Netskope One platform and NewEdge Private Cloud network. This is why customers are choosing us as the trusted partner to help them say yes to AI. They want to capture the enormous potential of one of the most defining technologies of our lifetime without compromising security, performance or control. This positions us exceptionally well to address a massive $170 billion greenfield opportunity in AI security within our $336 billion total addressable market. I'll come back to that in a moment. First, a few highlights from the quarter. We ended Q2 with ARR of $899 million, up 27% year-over-year and delivered net new ARR of $54 million. Revenue grew 29% year-over-year to $221 million, ahead of our guidance, and our net retention rate, or NRR, increased to 114%. Our outperformance flowed through to the bottom line with our operating margin improving 11 percentage points year-over-year to negative 9%, significantly ahead of our guided range. Demand for our Netskope One platform of 25-plus security, networking, analytics and AI products remain strong as enterprises continue to modernize their infrastructure for the AI era. We were particularly encouraged by the traction from our recently announced AI security suite. While it's still early, we're seeing strong customer engagement and rapid pipeline generation for these products with some deals closed and many more currently in the proof of concept or POC stage. Enterprises globally remain strategically focused on modernizing their security and infrastructure, reducing technology sprawl, protecting sensitive transactions and data, ensuring data sovereignty and, of course, safely using AI. A hot topic in my daily dialogues with CXOs is the fact AI creates exponentially more transactions and data and a much more complex attack surface and how modernization and AI adoption go hand-in-hand. The Mythos moment this past spring underscored just how quickly the landscape is changing. The pace of innovation across frontier models and increasingly capable open-weight models is accelerating the ability to discover vulnerabilities and strengthen defenses at AI speed. But that same acceleration works both ways. These models are also lowering the barrier for attackers, compressing the time from discovery to exploitation and expanding the attack surface, not only through human adversaries, but increasingly through autonomous AI agents operating at machine speed. We are already seeing this play out with AI agents escaping isolated environments, exploiting vulnerabilities, escalating privileges, moving laterally and stealing credentials, even when they were not explicitly instructed to attack. They were simply asked to complete a cybersecurity benchmark, and when the intended route proved difficult, found another path to the answer. This is perhaps the clearest example yet of cyber risk extending beyond human attackers leveraging AI. Malicious intent is no longer the security threshold. An agent does not need to be prompted to be a bad actor. Instead, a stated task, enough autonomy in an environment that can be circumvented can be enough to do damage. All this reinforces that rogue agent risk is not an isolated incident or a mishap. It is a real and emerging control risk that CISOs face today and considerably broadens the security problem. And this is why AI security is becoming such a critical priority for enterprises. The challenge is no longer simply how to secure AI models or prevent employees from using AI. It's how to give enterprises the visibility, control, protection and performance they need as AI becomes deeply embedded across their people, applications, data and increasingly autonomous agents. I've had more than 100 conversations with customers this quarter. And in almost every one of them, a CISO or CIO comes back to the same question, how do we move faster with AI without losing control? Security, IT and infrastructure leaders don't want to say no to using AI. They want to say yes to it but do so safely. Let me share a few challenges they are facing and how Netskope is helping solve it. First, let's start with visibility. The majority of customers I talk to about AI security do not know what or how AI models and applications are being used, what corporate data is being fed into them, where agents are in their organization, what they have access to and what they are doing. Netskope's platform solves this problem by allowing companies to answer the question of what AI am I using, including providing full visibility into agentic and MCP traffic via our Agentic Broker. It bridges the gap between human or agent and LLM interactions or machine-to-machine workflows. Agentic Broker has been a natural starting point for customers securing AI and a game changer as they tackle unsanctioned and unmonitored AI usage in their organizations. In addition, our recently released AI Command Center provides customers with a unified, real-time, continuous and correlated view of where their AI risk is and makes policy and remediation recommendations that help them act on it. The second issue customers are grappling with is how to put the right defense layer around AI to prevent AI-specific threats like prompt injection and jailbreaking and to ensure models adhere to company policy, preventing misuse or unwanted responses. Imagine a scenario where an adversary attempts to override system rules through a multi-turn attack in order to exfiltrate data. Our AI Guardrails solution is designed precisely to help customers address this. In addition, our AI Gateway secures API traffic between private applications, autonomous agents and LLMs and can be deployed on-premises or in the cloud. Third, customers need a highly performing network that can handle the exceptional volume of AI transactions and data and the growing amount of highly interactive, latency-sensitive agentic communications while ensuring they're adhering to strict regulations, including data sovereignty. Our NewEdge Private Cloud spans more than 120 data centers around the globe, and we operate all our products in our unified platform in each location, creating distinct performance and sovereignty advantages. NewEdge also allows customers to define geo-based policies to control exactly where their AI, security and networking processing occurs, giving them sovereignty over their transactions and data wherever it lives or flows. Customers are seeing that today's AI environment has become a watershed moment for security. AI security-related pipeline is growing at a rapid pace and deals are moving into proof-of-concept phases. In fact, we estimate that approximately 1/3 of our AI security pipeline is already in or entering the important POC phase. In general, enterprises are following their structured budgeting, validation, executive approval and procurement life cycle, which typically takes 6 to 12 months. Let me share a few early AI security wins closed during the second quarter and the use cases we solve for customers. First, a global electronics manufacturer in EMEA needed visibility into agentic or MCP traffic, a way to understand the associated risk, enable governance and apply a control point to enforce policy. In Q2, they expanded their existing Netskope deployment with a broad AI security upsell, including AI Guardrails, our DLP AISecOps Agent, Agentic Broker and AI Gateway. They're putting the controls in place to safely embrace agentic AI rather than having to slow down or shut it off. In another example, a large auto insurer had a mandate from leadership to drive AI adoption companywide, but they recognized that they couldn't move at that pace without the right security and governance foundation. In Q2, they expanded their Netskope One platform with AI Guardrails, AI Gateway, Agentic Broker with DLP and Red Teaming, giving them the visibility, controls and guardrails to move forward with AI confidently. These wins showcase how we are enabling customers to say yes to AI today, letting them safely use, not block, AI and move faster with it, but with the confidence that their transactions and data are protected, their AI usage is governed, and their agents are operating within appropriate boundaries. Netskope delivers that AI runtime security with the guardrails and high-performance network customers need to adopt AI broadly without compromising security or user experience. As security leaders navigate an increasingly complex AI landscape from open-weight models to closed frontier models, from copilots to autonomous agents and from traditional AI applications to MCP-based interactions, they need a platform that can see, understand and govern all of it. That is what Netskope One was built to do. From inception, our AI-native platform was built to give customers granular visibility and real-time context and control of all their transactions, users, agents, tool calls, data and more. This includes dynamically and intelligently understanding the nature, intent and risk of those transactions, combined with a high-performance private cloud network that delivers both security and performance and enables real-time policy and security enforcement. That foundation is now becoming even more important in the AI era. We're excited to see this important validation of our product market fit and strategy resonating with our existing customers as well as a strong AI pipeline of opportunity with new customers. In addition to our early success in AI security, our platform selling motion continues to drive momentum across our SSE and SASE business with customers increasingly adopting more products across our Netskope One portfolio. The number of customers spending more than $100,000 in ARR during Q2 grew 23% year-over-year and 59% of our customers are now using 4 or more Netskope One products, up from 51% a year ago. During the second quarter, we had great new logo and expansion wins across geographies and key verticals like financial services, manufacturing, healthcare, telecom and government. Let me share a few that illustrate the key problems we solve for customers across key use cases. First, customers continue to select our Netskope One platform to modernize for the cloud and AI. As I mentioned previously, modernization is an important precursor to AI-safe adoption. As such, customers are adopting our SSE and SASE offerings as the infrastructure and foundation to then build on and adopt our AI security offerings. We saw this in a great new logo win with a U.S. financial services company in which cloud modernization and AI enablement are key initiatives driving their future growth and scale. Our platform differentiation across network and security helped us win a competitive deal in which they purchased 8 products across our SASE suite. In addition, they also landed with our AI Guardrails and Agentic Broker AI security products. Similarly, we landed another cloud modernization and AI deal with a leading technology company who needed to improve SaaS and cloud visibility and data protection, protect and govern AI usage, including shadow AI, and monitor and control MCP traffic. Again, our single unified platform and highly performant NewEdge network were the differentiating factors against competitors in this deal. We also continue to see customers replace legacy infrastructure with our modern SASE architecture built for scale. For example, a Fortune 500 healthcare provider selected Netskope to modernize security, replace fragmented legacy systems and consolidate vendor sprawl with a unified platform for a global distributed workforce. Doing so required protecting highly sensitive IP and other data for regulatory compliance and safely enabling and governing increased GenAI usage. Our highly granular contextual controls, unified data protection and NewEdge high performance were key drivers in winning the 7-figure multiproduct deal from an incumbent competitor. And finally, data sovereignty is increasingly important for customers in highly regulated industries and governments. For example, we expanded with a European government agency that chose us for our data sovereignty capabilities and bought our digital experience management to pair with our in-country NewEdge network for optimized user experience. Another example is a new win with a financial services company where data sovereignty is key to regulatory compliance. In addition to achieving this with our NewEdge Data Planes, which run all of our products at the Sovereign Edge, they also consolidated and modernized their legacy network security tools with Netskope's unified SSE platform. As these wins demonstrate, customers are gravitating to Netskope to modernize their network, become a core security platform for the cloud and AI era and eliminate the trade-off between security and network performance. Shifting gears a bit, we've long believed in openness, industry collaboration and integration across our ecosystem. Earlier this year, we joined Anthropic's Project Glasswing and OpenAI's Daybreak programs and released integrations with these and other cloud and AI partners. These partnerships demonstrate the important role Netskope plays within the broader AI and security landscape. In Q2, we continued to expand and deepen these collaborations in addition to announcing important new partnerships. We were pleased to join NVIDIA's Open Secure AI Alliance, a coalition of industry leaders committed to building open frontier AI tools that defenders can inspect, adapt and trust. The world needs both open and closed frontier models, orchestrated proactively and with care across the entire AI ecosystem to truly bring positive impactful outcomes to the world. NVIDIA has been a terrific partner to build alongside, and this initiative accelerates our commitment in building open AI tools, ensuring our enterprise customers can trust, adapt and securely deploy advanced AI across their environments. We were also pleased to join CrowdStrike's Project QuiltWorks, integrating real-time data from Netskope into Falcon's Next-Gen SIEM, giving critical insight across users, applications and data and helping defenders correlate risk automatically and prioritize action faster. We also continued to broaden our collaboration with Anthropic, integrating our industry-recognized DLP and threat scanning with Claude Enterprise. In addition, we announced an integration with Amazon Bedrock AgentCore, bringing Netskope AI Guardrails into agentic workflows for AWS customers. This lets organizations move AI agents into production with the confidence that what an AI agent is allowed to do and what it actually does are, in fact, the same thing. And finally, on the go-to-market partnership front, we launched the Netskope Catalyst Managed Service Provider program to streamline the delivery of managed services based on Netskope solutions. As we've mentioned in the past, we value our partnerships with MSPs around the globe and view them as an important vehicle and lever for growth within the mid-market. Last quarter, I talked about how Netskope is transforming how we operate and how AI is accelerating our product velocity. In Q2, we kept up our relentless pace of innovation. Let me share some of these innovations. Last month, we introduced Netskope One DataSec Command Center, a unified control plane that discovers, understands and protects sensitive data everywhere it lives, in the cloud, on the network, on-premises, on endpoints, in email and inside AI applications. It goes right at a problem I hear from CISOs everywhere. They still lack a central overview of their sensitive data. That fragmentation represents a large underserved market opportunity for a platform that can unify it. DataSec Command Center is built to do that by correlating signals from DLP, DSPM, CASB, SWG and more, so teams can go from finding a risk to fixing it in a few clicks instead of a multi-day investigation across disconnected tools. DataSec Command Center sits alongside the DLP AISecOps agent we introduced in AgentSkope last quarter. As customers scale their use of AI, they're increasingly focused on optimizing the cost and performance of each workload. This is creating a growing need for network optimization purpose-built for AI. In July, we announced the real-world results of our AI Fast Path technology. AI Fast Path optimizes the network path between users, sites, and agents to AI destinations for faster inference results and minimizes time to first token to accelerate agentic AI workflows. In real-world testing on our NewEdge network, AI Fast Path reduced latency by as much as 90%. NewEdge analyzes tens of millions of routes per day, evaluating latency, jitter, and packet loss, among other factors, and ultimately makes tens of thousands of route changes to identify the fastest, most reliable path for AI traffic. Beyond AI, we're continuing to innovate across our Netskope One platform, including delivering enhancements to our enterprise browser and Zero Trust access solutions during Q2. And finally, we enhanced our platform to address advances in quantum computing that are shrinking the timeline for Q-Day when some of the existing cryptography algorithms that are central to secure communications on the internet will be compromised. Sophisticated threat actors are pursuing the harvest now, decrypt later technique to store away encrypted packets now to decrypt it later when powerful quantum computers are available. These trends have resulted in government mandates throughout the world on hard timelines for implementing post-quantum cryptography algorithms. In order to address this, Netskope engineered and natively integrated NIST-approved post-quantum cryptography algorithms in its SASE platform across our more than 120 data centers globally in Q2, bringing quantum-resilient encryption to the globe. This helps our customers transition to a quantum-safe environment and meet regulatory mandates for their sensitive communications to SaaS and AI services worldwide. We strongly believe that we have and are continuing to build upon the right platform for the right moment. In Q2, we are proud to receive important third-party validation of our leadership in key markets. Netskope was again named a leader in the prestigious Gartner Magic Quadrant for both SSE and SASE for the fifth year and third year in a row, respectively. Correspondingly, in Gartner's companion Critical Capabilities report for SSE, Netskope ranked among the 2 highest-scoring vendors for all 4 category use cases, including essential SSE, advanced SSE, private application access and secure SaaS and AI enablement. And in the corresponding critical capabilities report for SASE, Netskope was the only vendor ranked as the highest-scoring for 3 key use cases, including foundational SASE platform, Zero Trust SASE platform and sovereign SASE. Additionally, in IDC's Worldwide SASE MarketScape report published last month, Netskope was recognized for SASE leadership, pointing to our single policy engine, common data model and NewEdge's distributed enforcement as significant differentiators. This also points to something crucial to understand. While AI is dominating the conversation, modern cloud and network security is the foundation for corporate AI adoption that is safe without compromising on performance. In fact, with growing agentic infrastructure, customers are increasingly recognizing that speed is a distinct competitive advantage and that Netskope offers the optimal path for inference. I've shared in the past, Netskope's AI-native philosophy, not only in how we build our market-leading platform, but in how we operate our business. Today, AI is accelerating how we work across the company, helping us innovate and expand our Netskope One platform faster than ever before, while also accelerating sales rep and SE training, streamlining customer support, recruiting and developing talent and automating other processes. Our teams have leaned into this new era, enabling us to move faster, operate more efficiently and scale with greater leverage. In closing, Netskope sits at the intersection of cloud, AI, networking and security, positioning us to address a massive market opportunity that we are still in the early stages of capturing. We are scaling our go-to-market engine well to capitalize on that opportunity while continuing to innovate rapidly and deepen our strategic position with customers and partners. Our goal is to be the essential adaptive fabric for the modern AI enterprise. And we believe our differentiated architecture, technology leadership and growing customer footprint create a durable structural moat that will compound over time. I am pleased with our second quarter outperformance across every key metric and proud of our team of Netskopers for continuously embodying the guts, resolve, integrity, and tenacity that define our culture and what we stand for. As well, I am grateful to the thousands of customers who trust Netskope to help steer them through 2 of the greatest technological revolutions in our lifetime, cloud and AI. With that, let me now turn the call over to Drew. Andrew Del Matto: Thank you, Sanjay. And as you just heard, demand for our business is strong. Our platform selling motion continues to gain momentum, and we are innovating rapidly. Before I share more about our Q2 results, let me remind you that all financial comparisons are on both a year-over-year and non-GAAP basis, unless stated otherwise. Moving to our Q2 results. ARR grew 27% to $899 million. Net new ARR of $54 million grew 9%. Revenue grew 29% to $220.5 million, ahead of our guided range. Demand continues to be durable across all of our regions. Revenue in EMEA grew 37%, APJ grew 31% and the Americas grew 25%. We're also seeing the strength of our results reflected in our customer expansion and retention rates. NRR rose to 114%, and our gross retention rate, or GRR, hit another all-time high, ticking up again in Q2. Remaining performance obligations, or RPO, grew 36% year-over-year to $1.35 billion. Moving on to our customer metrics. As Sanjay noted, the number of customers generating more than $100,000 in ARR grew 23% year-over-year in Q2 to 1,686. These customers composed 87% of our total ARR, and adoption of our Netskope One platform continues to increase. At the end of Q2, 59% of our customers were using 4 or more products versus 51% a year ago and 41% were using 5 or more products, up from 35% a year ago. Our platform expansion continues to gain steam as we add more products to our Netskope One platform of over 25 products. This continuing innovation expands our market opportunity to $336 billion and extends our runway for growth. Turning to the rest of the income statement. Our investments remain disciplined. We are demonstrating the operating leverage that comes from our platform and infrastructure being built to scale. Gross margin was 77%, increasingly -- increasing approximately 2 percentage points year-over-year. This increase is driven by the scale benefits of our NewEdge architecture as we continue to progress toward our long-term target of 80% gross margin. Q2 operating margin was negative 9%, an impressive 11 percentage point improvement compared to Q2 of last year and significantly ahead of our guidance. This improvement was driven by operating leverage across the P&L as revenue grows. The biggest contributor was R&D, which improved approximately 8 points as a percent of revenue compared to last year. Netskope One's common platform architecture delivers the rapid product velocity Sanjay mentioned earlier, while we scale efficiently. Our AI investments are accelerating that velocity. Sales and marketing expenses were roughly flat year-over-year as a percent of revenue as we continue to ramp our existing sales force and invest in quota-carrying sales reps to address the massive market opportunity ahead of us. G&A expenses also improved by approximately 1 point as a percent of revenue compared to Q2 of last year, reflecting leverage across our infrastructure. Net loss per share was $0.03 using 405 million weighted average shares, exceeding our guidance. Fully diluted share count using the treasury stock method was approximately 511 million shares as of July 31, 2026. Negative free cash flow of $29.8 million was slightly ahead of our expectations. This benefit was driven by our outperformance on both the top and bottom line. Note that contracted future billings grew 75%, reflecting our transition to annual billings. As Sanjay noted, we are already seeing the impressive results that AI is delivering. This transformation includes shifting some of our investments to areas where we see the greatest opportunity and demand. As such, we reallocated spend toward our AI infrastructure and tokens in R&D and G&A. We made the hard decision to reduce around 5% of our workforce as we continue to drive AI-nativeness companywide. Finally, we maintain a strong balance sheet and ended the second quarter with $1.1 billion in cash, cash equivalents and marketable securities. Here are a few modeling points and assumptions underlying our Q3 and fiscal year 2027 outlook. First, on ARR. We continue to expect net new ARR to grow year-over-year in the second half of our fiscal year. This follows our typical second half quarterly cadence with a seasonally stronger fourth quarter. On billings, a reminder that we are transitioning customers to annual billings, which is proceeding faster than expected. We expect to be through the transition by the middle of next fiscal year. This shift temporarily defers cash collections but gives us strong forward visibility into cash flows and customer commitments. On cash flow, we expect between $10 million and $20 million of free cash flow in Q3. For the full year, we now expect capital expenditure of approximately 4% to 5% of revenue related to the continued infrastructure investments in our NewEdge network. We've noted these modeling points in the appendix of our investor presentation. I'll now share our guidance, which reflects the strong underlying demand, early traction with our AI security products and continued progress in sales reps ramping. As a reminder, these numbers are all non-GAAP, unless stated otherwise. For Q3 fiscal 2027, we expect revenue in the range of $227 million to $229 million, representing growth of approximately 24%, operating margin of approximately negative 8% and net loss per share of $0.03 to $0.04 using approximately 415 million weighted average common shares outstanding. For the full fiscal year, we are raising our guidance. We now expect revenue in the range of $888 million to $892 million, representing growth of approximately 26%. We are pleased to raise our full year revenue guidance by more than our Q2 revenue beat. This reflects our momentum and confidence in the durability of demand. Gross margin of approximately 77%, operating margin of approximately negative 9%, net loss per share of $0.15 using approximately 415 million weighted average common shares outstanding and positive free cash flow margin of approximately 2%. In summary, demand for Netskope solutions is strong. Our platform momentum continues to grow, and our rapid pace of innovation places us center stage for the age of AI. With that, operator, let's open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Matt Hedberg with RBC Capital Markets. Simran Biswal: This is Simran on for Matt Hedberg. Congrats on the quarter. First for me, as we think about ARR and the decel from last quarter, could you talk a little bit more about the important building blocks that could point to ARR acceleration from here? Sanjay Beri: Thanks for the question. And so first of all, we're obviously very happy with our Q2 performance and the growth in our pipeline across AI security and beyond. One of the key things for us, as we mentioned, is we see that AI security pipeline, and some of that closed in Q2, but we really see a lot of that in the back half, especially toward Q4. And with our reps ramping, obviously, that's a key for us. For growth, 50% roughly of our reps are ramping. And one of the key areas for us is not only the product innovation but continuing to grow that rep ramping count. And that will happen in the back half of the year, first in EMEA and APJ, where we really started growing our fully ramped reps first and then later in North America. Simran Biswal: Great. That's helpful. And then double-clicking on the AI piece. Is there a way to quantify a bit more and help us size this contribution? And then just more generally, why you are well positioned for the AI era... Sanjay Beri: Yes, it's a great question. Sure. I can't get in a conversation with our customers or prospects. I was running an AI Fast Lane event. It's events we run across cities across the world. I was in New York, had a large global media CIO on stage with me and beyond, and we're having those events everywhere. And why we're well positioned is really, one, when you look at our platform, and it really is a broad platform for over 1/3 now of the Fortune 100, we are their in-line processing point. They send their traffic through us. We have a public site, ai-index.netskope.com, where you can actually see what AI traffic is going through enterprises today. We're processing trillions of AI connections. And so why we're in a great footprint is a lot of this traffic, we already see. It already goes through NewEdge, which is the fastest path for inference for AI transactions. And so now these new products that we released, right, Agentic Broker earlier in the year, Guardrails, right, our AI Command Center last quarter, they really shine a light on that traffic to say, wait, what is that traffic? Is it from agents? Is it from users? Is it prompts, responses? What kind of data? So we give them the visibility that they want with, frankly, not a lot of deployment. It's very easy to get the visibility, and then we allow them to enforce real-time policy. And so really, for us, it's a combination of the things that we always highlight, the fact that we run one of the world's largest private cloud networks. We've released AI Fast Path. You combine that with our ability to be very granular in understanding the language of internet for cloud and AI and our data protection, and you have a perfect almost traffic point to govern AI. So that's one. The second question related to that, which you asked, was around AI growth pipeline and so on. So we started releasing a lot of our AI security products in Q1. We released some more in Q2. And we actually already announced one related to it, our DataSec Command Center in Q3 this quarter. And so really for us, those are getting in the POC. I think we announced that close to 1/3 of them are in proof of concept now. Enterprises follow their normal cycle, POC, right? Okay, after the POC, they go get budget, then they go through procurement and so on. And so we really see that normal 6- to 12-month cycle, and that's why we pointed to really the back half of the year where we see some of those deals closing in addition to the ones that will close this quarter. But good question. Operator: Our next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho: Hi, good afternoon... Operator: It looks like Jonathan's line has disconnected. We'll move on to the next one. [Operator Instructions] Our next question comes from the line of Brad Zelnick with Deutsche Bank. Unknown Analyst: This is [ Bob ] on for Brad today. Sanjay, I want to stick to the same theme on kind of your AI security suite. It's great to see the strong interest in the product. Can you maybe provide more details on which products are resonating the best with customers within the suite as they embark on these POCs? And more broadly, are you seeing these new capabilities help you get in front of more prospects that you might have been more difficult to get in front of otherwise? Sanjay Beri: Yes, it's a good question. So are the products that are resonating? I come back to always use cases. And if you're a CISO or CIO and you look today, you know that a large portion of your AI usage in your company is business unit-led or shadow, 90% of AI usage in many companies is of that ilk. And so the first question that you have in your mind is, well, wait a minute, tell me, what am I using? What AI exists in my company? What agents, what rogue agents, what sanctioned agents, what MCP servers, what -- give me that visibility. And then obviously enforces my policy. And so it's probably not surprising that the things that are resonating are, one, our Agentic Broker. What does that do? Shines a light on what agentic traffic and agents are in your company, right? Tell you what are those agents accessing? Are they going to my corporate Office 365, right? Are they accessing private data? What are they doing? And so, one, Agentic Broker. That is your way to understand agentic use, and then enforce policy because we're not a visibility platform. We're a real-time policy enforcement tool and platform as well. The second is Guardrails. Guardrails take a look at every prompt and every response and they say, well, wait, how do I make sure that in addition to what Netskope can give me on a granular context like tell me that's a corporate version of a Claude Code, a personal version and let me make governance decisions on what type of AI can be used. How do I also, when it's used, make sure that it isn't spewing out data or content that is not part of my acceptable use policy? I don't want it spewing out weapons content or content that is not applicable to what I want my company to hear. And so Guardrails is the second piece to that. And those were actually the first 2 really that we started releasing. And then really, we released last quarter our AI Command Center. That is a central governance point where you can see all agentic use in your company. And so we foresee over time that, that will be another big driver for us. Unknown Analyst: I guess just one follow-up for Drew. Just in terms of the net new ARR ticking up sequentially from last quarter. Can you maybe talk about the drivers of that uptick and if there's anything that stands out there? Andrew Del Matto: No, I think just overall strong demand in the business. There were a few -- there were some AI deals. But I think overall, it was demand in the business. AI funnel remains strong. It's something we expect really, I think, driving over the long term and just strong durability of demand over the longer term. Operator: Our next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho: I'm back. Hopefully, I can answer your question this time. I wanted to dig a little bit more into sort of your commentary around quantum-proof cryptography. Can you talk a little bit about that capability? And is this opening up either new opportunities for you or increasing your ability to see win rates? I just want to get a little bit more color there. Sanjay Beri: Yes. Great question. So when you think about what we have implemented now across the world, it really allows our customers. So either they're a user or they're coming from a manufacturing floor or they're coming from any system, it allows them to talk to Netskope using quantum-resilient encryption. And we're using Lattice-based encryption, which is pretty much the standard that NIST recommends. And as a result, that critical part, right, communicating out to the internet, right, is protected. And so what does that open up for us? Well, really, it allows us to be well ahead of the timeline for when it is recommended people implement quantum-resilient encryption. And so for us and our customers, that means, well, wait a minute, if I'm a financial services company, I'm a healthcare organization, I know that without doing anything, really, like if you are a Netskope customer, you don't actually really have to do anything now to enable quantum resilient encryption, right? You have Netskope, you have the platform, and we've built that in there for you. And so really, it allows us to do that. And then as websites and AI applications adopt more and they support quantum, Netskope is ready, right? That site, when it supports it or that app, Netskope is going to be able to communicate with it using quantum-resilient encryption. So it's future proofing. It's now allowing people to meet their regulatory environments, and it's allowing people to use it now. And so that's really, for us, a key. We always want to skate to where the puck is going, and that's a good example of that. And so that will help us, obviously, in proof of concepts, continue our high win rates, which are above 80% when we get to a POC. That's probably a good way to look at it. Jonathan Ho: Excellent. And can you give us a little bit of an update in terms of the federal government space and some of the opportunities that you have with either FedRAMP High or some of your sponsoring agencies as well as some new opportunities that are coming up, especially with Zero Trust programs with the government side? Sanjay Beri: Yes. Great. So we feel we're very well positioned for the federal market. For us, as you know, we became FedRAMP certified, FedRAMP High certified. We started building our federal team. We brought on our federal leader this year in the U.S. federal market. And then we've really just been ramping our sales team and building them. And so for us, federal is a small part, a small piece of our business, but a very important growing one where we have a great platform for it. And so we feel really good about that and being able to serve both the commercial and beyond side of the federal for years to come. Operator: [Operator Instructions] Our next question comes from the line of Richard Poland with Wells Fargo. Richard Poland: Sanjay, I'm just curious, I think the AI commentary in general about how it's progressing was really encouraging. I think you mentioned 1/3 of the AI security pipeline is already entering kind of the POC phase and the general sales cycle 6 to 12 months. I guess from the POC phase, is there typically a rough ballpark of how far into the 6 to 12 months we are? And just kind of any visibility you might have into what the uplifts have looked like so far for the ones that have closed or just kind of contextualizing how the monetization side, while probably not too important yet, just any early indications you have on that side? Sanjay Beri: Yes, it's a great question. And we are seeing AI security wins. We talked a little about them in my opening. And so either across financial services, either across tech companies and beyond. So we're seeing good traction in people really adopting our AI security. But a lot of -- if you just look back, we really released our AI security products. We started releasing them in Q1 of this year. We released some more in Q2 like AI Command Center. And then we released even a related product, our DataSec Command Center this quarter, just 3, 4 weeks ago. And when you think about a typical cycle for an enterprise, what they do is they evaluate. They look, OK, what's my problem? It's, OK, uncovering AI, understanding it, let me evaluate something, they go to POC. And then what they do is they, in many cases, for AI, they go ask for budget. It could be out of stream where they have a committee meeting every quarter and they ask, OK, I have to go get budget for this, get approved and then you move forward. That's just a normal enterprise sales cycle. And that really falls in that 6- to 12-month sales cycle process. And so for us, we converted and have converted some of our earlier beta customers because they got to look at it earlier, right? But really, we see some of that pipeline that has entered POC really in the back part of the year, right, more toward the end of the year, where some of that's converting. We expect to convert some of our more beta customers and beyond in Q3. But we see that pipeline building. We see the POCs building. And then as a result, we see the ARR building. And that's how I'd look at it. The last comment I'd make is AI security for us; it's not a product. It is a part of our platform, and it's composed actually of multiple products. And so customers also, over time, will bite off pieces of it. And so for us, we're really building a big pillar of Netskope where you have many products over time. And as you grow in sophistication of AI security, you'll grow with Netskope. And our goal is obviously to release that functionality and new product well in advance of when you need it. So that's a good way for you to think about it. Operator: Our next question comes from the line of Meta Marshall with Morgan Stanley. Unknown Analyst: Yes. Great. This is Ryan on for Meta. Any additional details you could provide around the sale of the AI product portfolio and how that's impacting sales cycles? Are you seeing them compress as customers look to evolve their security stack much quicker or elongate given the potentially more complex cycle? Just any additional details there would be helpful. Sanjay Beri: Sure, absolutely. So if you look at AI security, for us, there is -- there are existing customers and then there's obviously net new, and we go after both. And so if you're an existing customer to adopt our Guardrails and Agentic Broker, one of the beauties is we're an organically built platform, right? We built ground up. We release things when they're truly integrated, right? We don't just price-list integrate them. We actually integrate them with a common GUI, common policies, one data protection engine, one threat protection engine. That organic approach of being purely building properly a platform, that enables customers to adopt these products and implement them from a technical point of view in a very easy way. And so like the Agentic Broker and the Guardrails, you can enable that. You actually -- if you're deployed, for example, with our next-gen SWG product, you just enable it, and you can try it out. And so that's the beauty of having it. It's a common GUI and DLP. And so that's one. There's the other set of products like the AI Gateway, where that's meant for east-west coverage of your AI traffic maybe within your public cloud or your data center. Obviously, you're going to install that, right? And so that's -- you're going to deploy it. And so our goal is just make it as easy as possible, make sure we cover North-South, East-West and all one GUI, common policies. And so I think that makes it easier for customers to technically deploy. They still have their sales cycle, though, right, outside of that. And -- but our goal is to make the POC part as easy as you can. Operator: Our next question comes from the line of Brian Essex with JPMorgan. Unknown Analyst: This is John on behalf of Brian. I just wanted to just touch on the CapEx part. You mentioned the full year CapEx is now expected to be around 4% to 5% of revenue tied to NewEdge. So I'm just curious, is this step-up primarily demand-driven capacity? Or is it a prebuild ahead of the anticipated agentic traffic? And just curious, as those traffic grows, should we assume the CapEx to scale with it? Or would there be -- over time, would the architecture absorb the volume at a lower incremental cost? Andrew Del Matto: No. Great question, John. Look, it's continued infrastructure investment. We've seen -- again, we see strong demand going forward. We've always kind of said it'd be low single digits. I think we said somewhere between 3% and 5%. We're saying 4% and 5% -- between 4% and 5%. So I think we're pretty consistent with what we've said all along. Quite honestly, we've seen some growth, some -- we're overperforming a little bit. And so just maybe it scales up a little bit of that. The ARR comes in before the revenue. So just think of that in that sense. So I think we're well within the typical expectations what we had. The other considerations really aren't a factor as of yet, and we'll obviously update more on that front as we go forward. Operator: Our next question comes from the line of Shrenik Kothari with Baird. Zachary Schneider: This is Zach on for Shrenik. So great to see NRR tick back up to 114% and 59% of customers now using 4 or more, 29% using 6 or more products. And so you guys offer still more than 25 products. So I guess the question is, how should we think about the natural ceiling for NRR, especially as AI security, data security, SD-WAN, other modules mature? And does the breadth of the portfolio create a path back toward sustainably higher expansion? Or does the increasing enterprise scale naturally constrain NRR despite stronger dollar expansion? Sanjay Beri: Yes. I think from an NRR perspective, we mentioned before, it can fluctuate quarter by quarter. The range we're kind of in, right? We have 113, 114, 115. That range, which we've seen in the past quarters is -- that's what we've seen historically. And -- while we don't guide on NRR, I think qualitatively, we know that with average customers having 4 or 5 products, we have a lot of ability to upsell for many, many, many years. Customers and enterprises, as you know, with a platform like ours, which is quite broad, they often will start with 1 or 2 core use cases and then they'll grow the year after and the year after. And so we feel like what we have built with the platform and the number of products is just a durable right platform, which will grow with them. And AI security absolutely will be a part of that NRR in different timelines for different customers and verticals. But for us, it is a big pillar, and we feel really good about our position there, and that will help us drive expansion. Operator: Our next question comes from the line of Aidan Perry with Piper Sandler. Aidan Perry: This is Aidan on for Rob. I realize things may still be early, but can you talk about how customers are responding to the transaction-based pricing on the new AI products now that deployments are starting to scale? And are usage levels supporting larger commitments than initially expected? Sanjay Beri: Yes. So on the transaction-based pricing part, when you think about how we price, like take an example, the Agentic Broker, an agent, right, it's not a user. And so we try to price in the way that makes sense for what we're actually doing. And so if you think about the Agentic Broker, it's covering agent transactions. And so we price by transaction. And I think a lot of what we'll see on the internet will be nonhuman. And as a result, perhaps user pricing, right, even just subjectively wouldn't make sense. And so for us, I think people get it. They get the transaction-based pricing, makes sense. That's how agents think. They are used to inference pricing tokens. Transactions are sort of a prompt and a response. And what we have been trying to do is make sure they have visibility into it. So they can see how many transactions are happening. right? And as a result, they have a sense of, OK, what's that going to look like, right, when I buy. So I think the key is with your customers, just make sure that you're transparent, you're giving a way for them to see it and then price in what makes sense from a usage perspective. And so yes, I think the transaction model has been received well. You've seen some of our other products like AgentSkope, which is our AI agents separate than AI security, right? We started releasing some of our AI agents like our DLP SecOps Agent. That's more outcome-based pricing. It's based on, for example, how many cases across the thousands or millions of DLP incidents do we create and find that needle in the haystack for you. And that's the outcome you want. And so for us, we're committed to the models of transaction-based and for AgentSkope, outcome-based pricing. Operator: Our next question comes from the line of Eshaan Shetty with KeyBanc Capital Markets. Eshaan Shetty: This is Eshaan on for Eric Heath. Apologies in advance for the background noise. Sanjay, how do you view the current competitive landscape in SASE today? And particularly, do you think demand right now is healthy enough to support multiple scale vendors over the long term? And then just maybe a quick follow-up to that. In the competitive bake-offs, what are some of the primary reasons customers are choosing Netskope over competitors? And conversely, where are you seeing competitors win against Netskope? Congrats on the quarter. Sanjay Beri: Yes. If you look at SASE, we have 25-plus products. They span everything from how to govern cloud and on-prem databases and to edge firewalls, to digital experience management, to enterprise browsers. I mean, if you think about the word SASE, it keeps expanding. More and more is being put into SASE. In fact, there used to be like 20, 30 vendors that you're consolidating now, right, into SASE. And so really, the way I think more about it is one of the biggest markets in security and networking was data and network security, right? And you used to buy boxes and appliances and different data protection systems and different VPNs and different edge firewall. And all of that sort of is being converged and consolidated for simplicity, modernized from a security perspective, right, into SASE. And so yes, absolutely. SASE is a durable, I think, long-term market, supports multiple vendors, given especially what you're doing is you're converging so many things. In addition to that, you look at what we are talking about for some of this call, AI security. Well -- OK, well, is that really part of just SASE? Is that a totally new market? And we think about it as a pillar, right, that's even outside of SASE. And so for us, we know we have a very durable, long, good CAGR market in SASE. We're a leader. You saw that in all the analyst reports. SASE itself keeps growing in terms of what it encompasses. And so you get more and more TAM as SASE naturally subsumes more and more markets. And then we've entered AI security, which is a completely new TAM and a massive TAM. And then you have AgentSkope, which is our AI agent. So look, we don't lack for TAM for a long, long time. And as always, to be blunt, in security and networking, most CIOs you talk to, they don't want one platform for all of security and networking, right? They don't. They want a few that are open. And that's what we're committed to being an open platform that converges many different systems, but integrates with the others, like your EDR, like we announced CrowdStrike, for example, some new integrations and beyond. And so we feel really good about that for the future and now. Operator: Our next question comes from the line of Ittai Kidron with Oppenheimer & Company. Nolan Bruce Jenevein: This is Nolan Jenevein on for Ittai Kidron. I just kind of wanted to double-click on some of the commentary around the sales force ramping. I think you had said earlier that roughly about 50% were ramped at this point and expecting that to improve through the year. Can you maybe just confirm, is that an increase sequentially when we think about the percentage of ramped reps? And any more color there would be great. Sanjay Beri: The second half of the year, if you just take us -- take back to like last year and toward the end of the year, we started investing, obviously, in new reps and ramping them. And we started there in EMEA and APJ, and you've seen the growth, obviously, in those regions. And then later on in NAM, right? Because obviously, we were getting some of the leadership pieces in NAM for the next level of scale done last year. And that will result in an increased number of fully ramped reps. That's probably a better way to think about it. And over time, just continue to grow our capacity. Now in addition to that, we also announced, for example, on our earnings call, just earlier, the Catalyst program for managed services. That's just another sign of what we're continuing to growing our partnerships as well. Yes, we're growing more feet on the street and more reps and more SEs, and we're ramping them and that capacity is coming live later in the year and next year, but we're also expanding our partnerships. And that's very important to us. The AI partnerships, Anthropic, right, for example, we talked about the Amazon partnership. We talked about the NVIDIA Open Secure AI Alliance. We talked as well about our partnerships with MSPs, SPs, SIs. All of those are also big pieces of our strategy and plan as we ramp and grow our go-to-market team, right? With such a great win rate, it's natural that we do that. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Michelle for closing remarks. Michelle Spolver: Thank you, and thank you, everyone, for joining us today. We're pleased with our Q2 results and the momentum we're seeing across the business. We remain focused on helping enterprises with their cloud and AI transformation journeys, driving continued innovation across our robust platform and executing against a significant opportunity ahead of us. We appreciate your continued support and look forward to speaking with many of you over the coming weeks and months. With that, we'll close the call. Thanks again. Operator: That concludes today's conference call. Thank you for your participation. You may now disconnect. Before you buy stock in Netskope, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Netskope wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $414,015!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,385,459!* Now, it’s worth noting Stock Advisor’s total average return is 960% — a market-crushing outperformance compared to 213% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of September 9, 2026. This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy. Netskope (NTSK) Q2 2027 Earnings Call Transcript was originally published by The Motley Fool

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Performance was driven by the convergence of security and network modernization, as enterprises increasingly view modern architecture as a prerequisite for safe AI adoption. Management attributes outperformance to the Netskope One platform's ability to provide granular visibility and real-time policy enforcement across trillions of AI connections. The 'Mythos moment' served as a catalyst, highlighting how AI agents can autonomously exploit vulnerabilities, shifting the security focus from human intent to machine-speed control risks. Operational leverage improved significantly, with operating margins rising 11 percentage points year-over-year, primarily due to R&D efficiencies and the scale of the NewEdge architecture. Strategic positioning is centered on 'saying yes to AI,' moving beyond simple blocking to providing the visibility and guardrails necessary for governed enterprise usage. Data sovereignty emerged as a critical competitive differentiator, particularly in EMEA and for government agencies requiring localized processing via the NewEdge Private Cloud. The company is undergoing an internal transformation to become 'AI-native,' which included reallocating resources toward AI infrastructure and a 5% workforce reduction to drive efficiency. Full-year revenue guidance was raised based on durable demand and confidence in the back-half seasonal strength, particularly in the fourth quarter. Management expects net new ARR to accelerate in the second half of the year as a significant portion of the sales force, currently 50% ramping, reaches full productivity. The AI security pipeline is expected to convert over a 6-to-12-month cycle, with approximately 1/3 of current opportunities already in the critical proof-of-concept phase. The transition to annual billings is proceeding faster than anticipated and is expected to be complete by the middle of next fiscal year, providing better long-term cash flow visibility. Future growth assumes continued expansion of the Netskope One platform, targeting a $336 billion total addressable market that includes a $170 billion greenfield opportunity in AI security. A 5% workforce reduction was implemented to reallocate investment toward AI infrastructure, tokens, and R&D to accelerate product velocity. The company integrated NIST-approved post-quantum cryptography algorithms across its global data centers to address 'harvest now, decrypt later' threats. Capital expenditure is projected at 4% to 5% of revenue, reflecting continued infrastructure investments in the NewEdge network to support growing AI traffic volumes. Contracted future billings grew 75%, a metric management highlighted to reflect the structural shift toward annual billing cycles despite temporary impacts on cash collections. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management noted that roughly 50% of the sales force is currently ramping, with productivity gains expected first in EMEA and APJ followed by North America. The back half of the year is expected to benefit from the conversion of AI security pipeline deals that entered the 6-to-12-month enterprise sales cycle earlier in the year. Netskope is utilizing transaction-based pricing for its Agentic Broker, aligning costs with non-human 'inference' and 'token' usage patterns common in AI workflows. For AI agents, the company is moving toward outcome-based pricing, such as charging based on the number of critical security incidents identified by the DLP SecOps Agent. Management emphasized that their 'organically built' platform allows for easier technical deployment compared to competitors who integrate via price lists rather than common code. Win rates remain above 80% when deals reach the proof-of-concept stage, driven by the platform's ability to handle North-South and East-West traffic in a single GUI.

This article first appeared on GuruFocus. Annual Recurring Revenue (ARR): $899 million, up 27% year-over-year. Net New ARR: $54 million, up 9% year-over-year. Revenue: $220.5 million, up 29% year-over-year, ahead of guidance. Net Revenue Retention Rate (NRR): Increased to 114%. Gross Margin: 77%, up approximately 2 percentage points year-over-year. Operating Margin: Negative 9%, an 11 percentage point improvement year-over-year. Net Loss Per Share: $0.03 using 405 million weighted average shares. Free Cash Flow: Negative $29.8 million, slightly ahead of expectations. Remaining Performance Obligations (RPO): $1.35 billion, up 36% year-over-year. Customers with >$100,000 ARR: 1,686, up 23% year-over-year, representing 87% of total ARR. Platform Adoption: 59% of customers using 4 or more products (up from 51% a year ago); 41% using 5 or more products (up from 35%). Regional Revenue Growth: EMEA up 37%, APJ up 31%, Americas up 25%. Cash Position: $1.1 billion in cash, cash equivalents, and marketable securities. Warning! GuruFocus has detected 2 Warning Sign with NTSK. Is NTSK fairly valued? Test your thesis with our free DCF calculator. Release Date: September 02, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Netskope Inc (NASDAQ:NTSK) delivered strong Q2 results with ARR growing 27% year-over-year to $899 million and revenue up 29% to $220.5 million, exceeding guidance. The company is seeing strong early traction with its AI security suite, with approximately one-third of its AI security pipeline already in or entering the proof-of-concept phase. Platform adoption is increasing, with 59% of customers now using 4 or more Netskope One products, up from 51% a year ago, and the net retention rate improved to 114%. Netskope Inc (NASDAQ:NTSK) achieved significant operating leverage, with operating margin improving 11 percentage points year-over-year to negative 9%, and gross margin expanding to 77%. The company continues to innovate and differentiate, launching new products like the AI Command Center and DataSet Command Center, and integrating post-quantum cryptography across its global network. Netskope Inc (NASDAQ:NTSK) received strong third-party validation, being named a leader in the Gartner Magic Quadrant for both SSE and SASE and recognized in IDC's Worldwide SASE MarketScape. Netskope Inc (NASDAQ:NTSK) made the difficult decision to reduce approximately 5% of its workforce as part of its shift towards AI-native operations. The company's net new ARR growth decelerated, growing only 9% year-over-year to $54 million, and the company expects a typical second-half cadence with a seasonally stronger Q4. Netskope Inc (NASDAQ:NTSK) is transitioning customers to annual billings, which is temporarily deferring cash collections and impacting free cash flow, though it expects to be through the transition by mid-next fiscal year. The company's operating margin remains negative at -9%, and it continues to generate negative free cash flow of $29.8 million in the quarter. Netskope Inc (NASDAQ:NTSK) faces a competitive landscape in SASE, and while it sees a large market opportunity, it must continue to differentiate against other scale vendors. The company's AI security products are still in early stages, with sales cycles typically taking 6 to 12 months, meaning significant revenue contribution from these products may not materialize until later in the fiscal year. Q: Can you discuss the key building blocks that could point to ARR acceleration from here, given the deceleration from last quarter?A: Sanjay Beri (CEO): We are very happy with our Q2 performance and the growth in our pipeline across AI Security and beyond. We see a lot of AI security pipeline closing in the back half, especially towards Q4. A key factor for growth is our sales reps ramping; roughly 50% of our reps are currently ramping. We expect this to improve in the back half of the year, first in EMEA and APJ where we started growing fully ramped reps first, and later in North America. Q: Can you provide more detail on which products within the AI security suite are resonating best with customers as they embark on POCs, and are these capabilities helping you get in front of prospects that were previously difficult to reach?A: Sanjay Beri (CEO): The products resonating most are driven by the need for visibility into shadow AI usage. The Agentic Broker is a key product as it shines a light on agentic traffic and agents within a company, showing what they are accessing and enforcing policy. AI Guardrails is the second key product, examining every prompt and response to ensure models adhere to acceptable use policies. The AI Command Center, released last quarter, is also expected to be a big driver as a central governance point for all agentic use. Q: Can you talk about the quantum-proof cryptography capability and whether it is opening up new opportunities or increasing win rates?A: Sanjay Beri (CEO): We have implemented quantum-resilient encryption using lattice-based cryptography, the NIST-recommended standard, across our platform. This allows customers to communicate with Netskope securely and future-proofs them for when websites and AI applications support quantum encryption. It helps customers meet regulatory mandates and is a differentiator in proof-of-concepts, contributing to our high win rates of above 80% when we get to a POC. Q: Regarding the AI security pipeline, how far into the 6- to 12-month sales cycle are the deals in the POC phase, and what are the early indications on monetization or uplifts for deals that have closed?A: Sanjay Beri (CEO): We are seeing AI security wins across financial services and tech companies. Since we started releasing AI security products in Q1 and Q2, enterprises are following their normal cycle of evaluation, POC, and budget approval, which takes 6 to 12 months. We expect some of the pipeline currently in POC to convert in the back part of the year. AI security is not a single product but a part of our platform composed of multiple products, allowing customers to adopt pieces over time as their sophistication grows. Q: Can you provide details on how the sale of the AI product portfolio is impacting sales cycles, and are they compressing or elongating?A: Sanjay Beri (CEO): For existing customers, adopting products like AI Guardrails and Agentic Broker is technically easy because our platform is organically built with a common policy and data protection engine. Customers can enable these products without complex deployments. Other products like the AI Gateway are meant for east-west traffic and require installation. Our goal is to make the POC process as easy as possible, though customers still have their own sales cycles to navigate. Q: Is the step-up in CapEx to 4%-5% of revenue primarily demand-driven capacity or a prebuild ahead of anticipated agentic traffic, and should we assume CapEx scales with traffic growth?A: Drew Matto (CFO): The CapEx is continued infrastructure investment in our NewEdge network, driven by strong demand. We have consistently said it would be in the low single digits, between 3% and 5%, and we are now guiding to 4%-5%. This is consistent with our expectations, and the slight increase reflects ARR coming in before revenue. Other considerations are not a factor as of yet. Q: With NRR back up to 114% and 59% of customers using 4 or more products, how should we think about the natural ceiling for NRR, especially as AI security and other modules mature?A: Sanjay Beri (CEO): NRR can fluctuate quarter-by-quarter, and we have seen it in the 113-115% range historically. While we don't guide on NRR, we have significant ability to upsell customers who currently use an average of 4-5 products. Enterprises often start with one or two core use cases and grow year after year. AI security will be a big pillar driving expansion, and we feel good about our position to help drive NRR growth over time. Q: How are customers responding to the transaction-based pricing on new AI products, and are usage levels supporting margin commitments?A: Sanjay Beri (CEO): We price products like the Agentic Broker by transaction because it covers agent transactions, not users. Customers understand this model as it aligns with how agents are used and inference pricing for tokens. We ensure transparency by giving customers visibility into transaction volumes. For other products like our DLP SecOps agent, we use outcome-based pricing based on the number of cases resolved. We are committed to transaction-based and outcome-based pricing models for our AI products. Q: How do you view the current competitive landscape in SASE, and what are the primary reasons customers choose Netskope over competitors?A: Sanjay Beri (CEO): SASE is a durable, long-term market that supports multiple vendors as it continues to subsume more markets like data and network security. We are a leader in this space, and the TAM keeps expanding. Most CIOs do not want one platform for all security and networking; they want a few open platforms that integrate with others. We are committed to being an open platform that converges many systems while integrating with partners like CrowdStrike. We have a massive TAM opportunity with SASE and the new AI security market. Q: Can you confirm if the percentage of ramped reps increased sequentially, and provide more color on the sales force ramp?A: Sanjay Beri (CEO): We started investing in new reps and ramping them last year, beginning in EMEA and APJ, which is reflected in the growth in those regions. We later invested in North America after securing leadership. This will result in an increased number of fully ramped reps in the second half of the year. We are also expanding partnerships For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Annual Recurring Revenue increased 27% year-over-year to $899 million Q2 revenue increased 29% year-over-year to $221 million Results exceeded guidance across every metric SANTA CLARA, Calif., Sept. 02, 2026 (GLOBE NEWSWIRE) -- Netskope, Inc. (NASDAQ: NTSK) a leader in modern security and networking for the cloud and AI era, today announced financial results for the second quarter of fiscal year 2027 ended July 31, 2026. “We are pleased with our strong second quarter performance, exceeding our guidance across every metric. Our results were driven by continued differentiating organic innovation, and durable customer demand for our Netskope One platform across security, networking, analytics and AI,” said Sanjay Beri, CEO of Netskope. “We are encouraged by early traction with our AI Security solutions, validating that Netskope sits right at the intersection of cloud, AI, networking and security and is becoming part of the essential, adaptive fabric for the modern enterprise to adopt AI safely. With our rapid product innovation, we are well positioned to go after our massive market opportunity.” Second Quarter Fiscal 2027 Financial Highlights Annual Recurring Revenue (ARR): ARR grew 27% year-over-year to $899 million as of July 31, 2026. Revenue: Q2 revenue was $220.5 million, an increase of 29% year-over-year. Gross Profit and Margin: GAAP gross profit was $163.0 million, compared to $123.2 million for the second quarter of fiscal 2026, and GAAP gross margin was 74%, compared to 72% for the second quarter of fiscal 2026. Non-GAAP gross profit was $169.1 million, compared to $127.3 million for the second quarter of fiscal 2026, and non-GAAP gross margin was 77%, compared to 75% for the second quarter of fiscal 2026. Loss from Operations and Operating Margin: GAAP loss from operations was $(89.8) million, compared to a loss of $(46.0) million for the second quarter of fiscal 2026, and GAAP operating margin was (41)%, compared to (27)% for the second quarter of fiscal 2026. Non-GAAP loss from operations was $(19.3) million, compared to a loss of $(34.0) million for the second quarter of fiscal 2026, and non-GAAP operating margin was (9)%, compared to (20)% for the second quarter of fiscal 2026. Net Loss Per Share: GAAP net loss per share was $(0.27), compared to $(0.84) in the second quarter of fiscal 2026. Non-GAAP net loss per share was $(0.03), compared to $(0.32) in the second quarter of fiscal 2026. Cash Flow: Net cash used in operations was $(16.5) million, compared to $(16.9) million used in operations in the second quarter of fiscal 2026 and operating cash flow margin was (7)%, compared to (10)% in the second quarter of fiscal 2026. Free cash flow was $(29.8) million, compared to $(19.7) million in the second quarter of fiscal 2026 and free cash flow margin was (14)%, compared to (12)% in the second quarter of fiscal 2026. Cash, Cash Equivalents, and Marketable Securities: Total cash, cash equivalents, and marketable securities at the end of the second quarter of fiscal 2027 was $1.1 billion. Recent Business Highlights Named a Leader in the Gartner® Magic Quadrant™ for Secure Access Service Edge (SASE) Platforms for the 3rd Year in a Row. Netskope was positioned highest in Ability to Execute in Gartner’s report. In the corresponding Critical Capabilities report, Netskope is the only vendor ranked as the highest scoring for three Use Cases, including: Foundational SASE Platform Use Case, Zero Trust SASE Platform Use Case, and the new Sovereign SASE Use Case. Named a Leader in the Gartner® Magic Quadrant™ for Security Service Edge for the 5th Year in a Row. Netskope has been named a Leader in every year this report has been published since its inception, consistently recognized both for its vision and its ability to execute. Netskope joined NVIDIA’s Open Secure AI Alliance, a coalition of industry leaders committed to building open, frontier AI tools that defenders can inspect, adapt, and trust. Continued to lead in innovation with new product releases, including: Financial Outlook Netskope is providing the following guidance for the third quarter and full year fiscal 2027: For the third quarter of fiscal 2027, we expect: Revenue of $227 million to $229 million Non-GAAP operating margin of approximately (8)% Non-GAAP net loss per share of $(0.03) to $(0.04), using approximately 415 million weighted average common stock outstanding For the full year of fiscal 2027, we now expect: Total revenue of $888 million to $892 million Non-GAAP gross margin of approximately 77% Non-GAAP operating margin of approximately (9)% Non-GAAP net loss per share of $(0.15), using approximately 415 million weighted average common stock outstanding Free cash flow margin of approximately 2% These statements are forward-looking, and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, reconciling items that may be incurred in the future, such as stock-based compensation and related employer payroll taxes, the effect of which may be significant. Conference Call Netskope will host a conference call at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time today to discuss its financial results and outlook. The conference call will be available via live webcast and replay at the Investor Relations section of Netskope’s website at investors.netskope.com. Supplemental Financial and Other Information Supplemental financial information can be accessed through Netskope’s investor relations website at investors.netskope.com. Conference Participation Schedule Netskope will participate and present at the following upcoming investor conferences. Details of the events are as follows: Piper Sandler 2026 Growth Frontiers Conference - Tuesday, September 15, 2026, 1:00 p.m. Pacific Time / 3:00 p.m. Central Time J.P. Morgan 2026 Software Forum - Friday, October 2, 2026, 10:00 a.m. Pacific Time About Netskope Netskope (NASDAQ: NTSK), a leader in modern security and networking for the cloud and AI era, addresses the needs of both security and networking teams by providing optimized access and real-time, context-based security for the AI ecosystem inclusive of agents, applications, tools, LLMs, people, devices, and data. Thousands of customers, including more than 30 of the Fortune 100, trust the Netskope One platform, its Zero Trust Engine, and its powerful NewEdge network to reduce risk and gain full visibility and control over cloud, AI, SaaS, web, and private applications – providing security and accelerating performance without trade-offs. Learn more at netskope.com, netskope.ai, on LinkedIn, and Instagram. Forward-Looking Statements This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our GAAP and non-GAAP guidance and financial outlook for the third quarter of fiscal 2027 and full year fiscal 2027, market opportunity and the demand for AI security products. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, geopolitical events, operations and financial results and the economy in general; risks associated with scaling our business and managing our rapid growth; our ability to expand our partner relationships; our ability to identify and effectively implement the necessary changes to address execution challenges; our limited experience with new products and the risks associated with new product offerings, including adoption by customers and the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products as well as existing products; rapidly evolving technological developments in the market for security, networking, analytics and AI products and our ability to innovate and remain competitive; length of sales cycles; risks related to the use of AI in our platform; and general market, political, economic and business conditions, as well as those risks and uncertainties included in filings we make with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are based on information available to Netskope as of the date hereof, and we undertake no obligation to update these forward-looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current financial quarter. Non-GAAP Financial Measures In addition to GAAP financial measures, this press release includes non-GAAP financial measures that we use to evaluate our business performance, identify trends affecting our business, formulate business plans and make strategic decisions. These non-GAAP financial measures include non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, free cash flow and free cash flow margin, and their respective definitions are presented below. There are limitations to the non-GAAP financial measures included in this press release, and they may not be comparable to similarly titled measures of other companies. The non-GAAP financial measures included in this press release should not be considered in isolation from or as a substitute for their most directly comparable GAAP financial measures. Our management believes that our non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and income that may not be indicative of our ongoing core operating performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and when planning, forecasting and analyzing future periods. For a reconciliation of the non-GAAP financial measures presented for historical periods to their most directly comparable GAAP financial measures, please see the tables captioned "Reconciliation of GAAP to Non-GAAP Financial Information" included at the end of this press release. We encourage you to review the reconciliation in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future periods, we may exclude similar items, may incur income and expenses similar to these excluded items and may include other expenses, costs and non-recurring items. Non-GAAP Gross Profit and Non-GAAP Gross Margin We define non-GAAP gross profit as GAAP gross profit excluding stock-based compensation expense and related taxes, and amortization of acquired intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue. Non-GAAP Loss from Operations and Non-GAAP Operating Margin We define non-GAAP loss from operations as GAAP loss from operations excluding stock-based compensation expense and related taxes, amortization of acquired intangible assets, and restructuring costs. We define non-GAAP operating margin as non-GAAP loss from operations as a percentage of revenue. Non-GAAP Net Loss We define non-GAAP net loss as GAAP net loss adjusted to exclude stock-based compensation expense and related taxes, amortization of acquired intangible assets, restructuring costs, gain or loss on fair value changes in convertible notes, and non-GAAP provision for (benefit from) income taxes. Non-GAAP Net Loss Per Share We define non-GAAP net loss per share as GAAP net loss per share adjusted to exclude stock-based compensation expense and related taxes, amortization of acquired intangible assets, restructuring costs, gain or loss on fair value changes in convertible notes, and non-GAAP provision for (benefit from) income taxes. Free Cash Flow and Free Cash Flow Margin We define free cash flow as net cash provided by (used in) operating activities less purchase of property and equipment and capitalized internal-use software. Free cash flow margin is determined by dividing free cash flow by revenue. We believe free cash flow and free cash flow margin serve as valuable indicators of liquidity, as they provide our management, board of directors, and investors with insight into our ability to generate cash from our operations, strategic initiatives, and strengthening our balance sheet. Annual Recurring Revenue We define Annual Recurring Revenue (ARR) as the annualized value of our cloud subscription contracts that are active as of the measurement date, assuming any contract that expires during the next 12 months is renewed on its existing terms. Provided that we are actively negotiating a renewal or new agreement with a customer after the expiration of a contract, we continue to include that contract's annualized value in ARR until the customer notifies us of their decision not to renew. ARR excludes non-recurring components of revenue such as professional services, training, sales of hardware, and other non-recurring revenue. Gartner Disclaimer Gartner, Magic Quadrant for Security Service Edge, John Watts, Thomas Lintemuth, Theo de Feligonde, Jonathan Forest, 29 July 2026. Gartner, Magic Quadrant for SASE Platforms, Jonathan Forest, Andrew Lerner, John Watts, 28 July 2026. Gartner, Critical Capabilities for Security Service Edge, Thomas Lintemuth, Theo de Feligonde, John Watts, Jonathan Forest, 3 August 2026. Gartner and Magic Quadrant are trademarks of Gartner, Inc. and/or its affiliates. Gartner does not endorse any company, vendor, product or service depicted in its publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner publications consist of the opinions of Gartner’s business and technology insights organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this publication, including any warranties of merchantability or fitness for a particular purpose. Investor Relations Contact:Floris van der VeerDirector of Investor Relations, [email protected] Media Contact:Tim WhitmanDirector of Global Corporate Communications, [email protected]

Interested in Netskope Inc.? Here are five stocks we like better. 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. → AST SpaceMobile Is Down 54%—Can FCC Progress and BlueBirds Reverse the Slide? “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.” 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. → Palo Alto’s Rally Has One Big Problem Ahead of Earnings 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. → Securing AI: 5 Most-Upgraded Stocks From the Q2 Reporting Season 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. 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%. 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. 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. 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. 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 [email protected]. The article "Netskope Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for September 2026.

It has been about a month since the last earnings report for Netskope (NTSK). Shares have added about 16.8% in that time frame, outperforming the S&P 500. Will the recent positive trend continue leading up to its next earnings release, or is Netskope due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. •    Revenue: $201.6 million in Q1 fiscal 2027, up 28% year over year.•    Non-GAAP EPS reported at a loss of 6 cents, improved from a loss of 28 cents per share in Q1 fiscal 2026.•    ARR: $845 million, up 29% year over year.•    Remaining performance obligations: over $1.2 billion, up 33% year over year; contracted future billings grew 71%.•    Customers with more than $100,000 in ARR: 1,600, up 23% year over year. Revenue rose 28% in Q1 fiscal 2027 to $201.6 million, ahead of guidance, supported by demand across regions. Management noted a strong new-logo engine, with ARR from new customers up roughly 60% year over year. Net new ARR of $34 million compared with $39 million in first-quarter fiscal 2026, reflecting a difficult prior-year upsell comparison that included several outsized expansions. Net retention was 113%, and gross retention reached a company high, underscoring healthy customer satisfaction and continued platform expansion. The company reported the fastest pipeline build in its history for a new product category with its AI Security suite and noted early conversions. New launches included AI Command Center, AgentSkope AI agents, AI Gateway, AI Guardrails, Agentic Broker and Red Teaming. Roughly half of sales reps are new or still ramping, which is expected to support a back-half acceleration in net new ARR. The expanded Deloitte alliance aims to strengthen pipeline and implementation capacity. Indirect channels remain primary, with $194.9 million of fiscal first-quarter revenues via partners versus $6.7 million direct. Non-GAAP gross margin reached 77%, aided by NewEdge scale. Non-GAAP operating margin improved to (14)% from (18)% a year ago, reflecting some operating leverage despite ongoing investment in R&D and field capacity. GAAP cost of revenue rose 11% year over year, with higher network and colocation expenses partly offset by lower intangible amortization; IPO-related stock-based compensation also affected cost lines. Enterprise adoption broadened: customers with >$100k ARR rose 23% to 1,600, 57% use four or more products (vs. 49% a year earlier), and 28% use six or more (vs. 23% a year earlier). These trends, together with 113% NRR, support the cross-sell narrative across the more-than-25-product portfolio. First-quarter fiscal 2027 operating cash flow was negative $53.9 million versus $25.6 million in first-quarter fiscal 2026. Negative free cash flow was $57.2 million with a negative 28% margin, compared with $17.5 million and 11% a year ago. Management characterized fiscal first-quarter free cash flow as the low watermark of the transition to annual billings, which shifts collections later and increases visibility into future cash flows. Cash, cash equivalents, and marketable securities totaled about $1.1 billion. Deferred revenues were $652.8 million, and remaining performance obligations exceeded $1.2 billion, with 54% expected to be recognized in the next 12 months. For second-quarter fiscal 2027, revenues are guided in the range of $213-$215 million (about 25%-26% growth), with non-GAAP negative operating margin of 14% to 15% and non-GAAP EPS at a loss of 6 cents to 7 cents on roughly 410 million shares.For fiscal 2027, revenues are expected in the band of $879-$883 million (about 24%-25% growth), with non-GAAP gross margin of 77%, non-GAAP negative operating margin of 9.5% to 10%, non-GAAP loss of 18 cents on 415 million shares, and free cash flow margin of 2-4%. Management expects ARR growth to be within about one point of revenue growth and continues to call for a second-half acceleration as newer reps mature and AI Security ramps. In the past month, investors have witnessed a upward trend in estimates review. The consensus estimate has shifted -266.67% due to these changes. At this time, Netskope has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock has a grade of F on the value side, putting it in the fifth quintile for value investors. Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in. Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Interestingly, Netskope has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months. Netskope belongs to the Zacks Internet - Software industry. Another stock from the same industry, Box (BOX), has gained 4.2% over the past month. More than a month has passed since the company reported results for the quarter ended April 2026. Box reported revenues of $305.94 million in the last reported quarter, representing a year-over-year change of +10.7%. EPS of $0.37 for the same period compares with $0.30 a year ago. Box is expected to post earnings of $0.40 per share for the current quarter, representing a year-over-year change of +21.2%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged. The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Box. Also, the stock has a VGM Score of B. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Netskope Inc. (NTSK) : Free Stock Analysis Report Box, Inc. (BOX) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

This article first appeared on GuruFocus. Annual Recurring Revenue (ARR): $845 million, up 29% year-over-year. Net New ARR: $34 million. Revenue: $202 million, a 28% increase year-over-year. Operating Margin: Improved by 4 percentage points to negative 14%. Gross Margin: 77%, an increase of approximately 3 percentage points from the previous year. Net Retention Rate (NRR): 113%. Remaining Performance Obligations (RPO): Grew 33% year-over-year to over $1.2 billion. Customers with $100,000+ ARR: Grew 23% year-over-year to 1,600. Free Cash Flow: Negative $57 million. Cash Equivalents and Marketable Securities: $1.1 billion. Q2 Revenue Guidance: $213 million to $215 million, representing approximately 25% growth. Full Year Revenue Guidance: $879 million to $883 million, representing approximately 24% growth. Warning! GuruFocus has detected 1 Warning Sign with NTSK. Is NTSK fairly valued? Test your thesis with our free DCF calculator. Release Date: June 03, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Netskope Inc (NASDAQ:NTSK) reported a 29% year-over-year increase in Annual Recurring Revenue (ARR), reaching $845 million. Revenue grew 28% year-over-year to $202 million, surpassing guidance expectations. The company achieved a gross retention rate above the mid-90s, marking the highest in its history. Netskope Inc (NASDAQ:NTSK) saw a 60% year-over-year growth in ARR from new logos, indicating strong new customer acquisition. The company launched several new AI security products, which have generated significant excitement and early pipeline growth. Net new ARR was $34 million, a decrease from $39 million in the same quarter last year, indicating a slowdown in ARR growth. Operating margin remained negative at 14%, although it showed improvement from the previous year. Free cash flow was negative $57 million, reflecting ongoing challenges in cash flow management. The net retention rate was 113%, which was lower than some expectations, suggesting potential challenges in upselling to existing customers. Despite increased sales and marketing expenses, net new ARR was the lowest in nearly two years, raising concerns about the efficiency of sales investments. Q: Sanjay, how can you be confident about your product market fit in the AI era, given the rapid growth of AI companies and the challenges in net new ARR? A: Sanjay Beri, CEO: Our AI security products were just released last quarter, and we are in the early stages of the AI supercycle. We have an over 80% win rate when customers try our technology, and our GRR is at its highest. We expect net new ARR acceleration in the second half as our products and sales reps hit their stride. Q: Drew, how are you feeling about the full-year ARR plan relative to 90 days ago? A: Drew Matto, CFO: We expect to see net new ARR acceleration in the second half due to the ramping of sales reps and strong demand for our new AI products. We have raised our full-year revenue guidance, reflecting confidence in our business and demand durability. Q: Can you speak to the adoption trends of the new AI modules and other parts of the portfolio? A: Sanjay Beri, CEO: The AI security products have seen unprecedented pipeline growth, and our existing products continue to see increased adoption. Our platform's unified nature makes it easy for customers to adopt new products, and we are seeing strong interest in our AI security offerings. Q: How are the new AI security products priced, and how do they fit into the competitive landscape? A: Sanjay Beri, CEO: The AI security products are priced per transaction, such as a prompt and response. Our pricing model is based on consumption and outcomes, which we believe is the future for new products. Our win rates remain over 80% in POCs, and we focus on getting more opportunities for customers to test our products. Q: How do you see the role of hardware in Netskope's business, given the company's cloud-native origins? A: Sanjay Beri, CEO: Organizations are more distributed, and they want to consume security and networking everywhere without relying on traditional hardware. Our NewEdge infrastructure acts as their new network cloud, providing better performance and connectivity, which is crucial in the AI supercycle. For the complete transcript of the earnings call, please refer to the full earnings call transcript.