Group 1 - NetScout Systems, Inc. (NASDAQ:NTCT) is recognized as a small-cap tech stock that hedge funds were purchasing in Q2 [1] - RBC Capital analyst Matthew Hedberg has maintained a Hold rating on NetScout, with a consensus target price of $33 indicating a potential upside of 22% from current levels [1] - The company announced on September 25 that it is assisting cable providers and multi-system operators (MSOs) in reducing Fiber-to-the-Home (FTTH) deployment costs and mitigating subscriber churn through deep-packet-inspection-enhanced observability [2][3] Group 2 - NetScout's solution provides operational insights that support fault isolation, optimize network efficiency, and maintain service quality throughout the FTTH rollout lifecycle [3] - The capabilities of NetScout aim to reduce truck rolls, expedite issue resolution, and ensure a consistent user experience, which are critical as operators expand broadband access in competitive markets [4] - NetScout is a Massachusetts-based provider of network performance monitoring, cybersecurity, and service assurance solutions, utilizing deep packet inspection to serve enterprises, telecom operators, and public-sector clients [5]

Core Viewpoint - NETSCOUT Systems, Inc. is expanding its capabilities to support enterprise compliance requirements in cloud environments, focusing on providing essential visibility for compliance evidence, data protection, and secure operations [1] Group 1 - NETSCOUT is a leading provider of observability, AIOps, cybersecurity, and DDoS attack protection solutions [1]

Core Insights - NetScout Systems Inc. (NASDAQ:NTCT) is recognized as a promising tech stock by Wall Street analysts, particularly following the launch of the Omnis KlearSight Sensor for Kubernetes, which enhances observability in complex Kubernetes deployments [1][4] Product Launch - The Omnis KlearSight Sensor provides real-time insights into system performance, health, and cost drivers for cloud architectures, addressing visibility challenges in encrypted environments by capturing Kubernetes packets and SSL messages [2][3] - The sensor converts captured data into standard IT traffic, allowing visibility into application-layer communications without needing access to encryption keys, leveraging the company's expertise in network traffic analysis and Deep Packet Inspection [3] Market Position - NetScout Systems offers service assurance and cybersecurity solutions aimed at protecting digital business services from disruptions across various regions including the US, Europe, and Asia [4] - Despite the potential of NTCT as an investment, some analysts suggest that other AI stocks may present greater upside potential and lower downside risk [5]

Core Insights - NETSCOUT SYSTEMS, INC. has introduced an innovation to enhance observability in complex cloud environments, particularly for large Kubernetes deployments, addressing visibility challenges faced by organizations [1][2]. Product Innovation - The Omnis KlearSight Sensor for Kubernetes (KlearSight) provides real-time insights into system performance, health, and cost drivers, specifically designed for dynamic and distributed architectures [2]. - KlearSight captures Kubernetes packets and SSL messages from the Linux kernel's networking stack post-decryption, converting this data into standard IT traffic for enhanced application-layer visibility without needing encryption keys [2][3]. - The solution utilizes extended Berkeley Packet Filter (eBPF) technology for low-overhead access to granular system and application data, facilitating better understanding of system behavior and faster incident response [3]. Market Position and Recognition - NETSCOUT has been recognized for its leadership in network observability, receiving accolades such as the QKS Group's SPARK Matrix™ and the CRN Tech Innovators award for its nGenius Edge Sensors [4]. - The company aims to support large enterprises across various industries in making informed decisions to maintain resilience against disruptions, especially as AI and cloud complexities increase [4]. Industry Context - The increasing complexity of multi-cloud environments necessitates advanced observability solutions, as organizations struggle with visibility and incident diagnosis across diverse infrastructures [3]. - NETSCOUT's solutions are critical for organizations to manage and optimize their digital infrastructures effectively, ensuring reliable operations in a competitive landscape [4].

Core Insights - NETSCOUT Systems, Inc. is enhancing its solutions to help cable providers and multiple service operators (MSOs) improve customer experience while reducing operational costs [1][4][5] Industry Overview - The demand for high-speed, scalable Internet infrastructure is driven by streaming entertainment, gaming, interactive content, and home automation, with the number of IoT devices expected to grow from 19.8 billion in 2025 to over 40.6 billion by 2034 [2] - The fiber-to-the-home (FTTH) market is projected to grow from $56.03 billion in 2024 to $110.44 billion globally by 2030 [2] Company Solutions - NETSCOUT's Omnis™ AI Insights provides real-time network visibility and high-quality user experiences for video streaming and OTT services, helping MSOs lower operational costs by resolving issues remotely [4][5] - The solution supports AI and machine learning processes, enabling MSOs to predict and avoid service outages and prioritize support efforts based on the impact on subscribers [5][6] - Deep-packet inspection (DPI) technology is utilized to enhance customer experience metrics and reduce costs, which is crucial in the competitive content delivery landscape [6]

Group 1 - NetScout Systems, Inc. (NASDAQ:NTCT) is recognized as a strong investment opportunity in the cybersecurity sector, particularly due to its positioning to leverage artificial intelligence in network monitoring and security markets [1][2] - Analysts from B.Riley have reiterated a Buy rating for NetScout, setting a price target of $33, indicating confidence in the company's growth potential [1] - The company's proprietary technology and network monitoring solutions are gaining traction for their effectiveness in observability and AI operations, making it well-suited to counteract AI-driven denial-of-service attacks [2][4] Group 2 - NetScout's profitability, cash generation capabilities, and substantial cash reserves are highlighted as key factors supporting the Buy thesis, despite the stock's underperformance relative to other cybersecurity stocks [3] - The company's cybersecurity solutions focus on real-time network visibility and assurance, enabling organizations to monitor and protect their digital services from disruptions and threats [4]

Group 1 - The company maintains a Buy rating on NetScout (NASDAQ: NTCT) despite the stock being relatively flat since the last analysis [1] - The analysis is based on the company's Q1 FY26 results, indicating positive performance and potential [1] - The focus is on companies that combine strong fundamentals with real growth potential, particularly in tech, infrastructure, and internet services [1] Group 2 - The analyst emphasizes the importance of long-term returns over short-term market fluctuations [1] - The article aims to provide thoughtful breakdowns and investment ideas for investors interested in sustainable growth [1]

PART I: FINANCIAL INFORMATION [Item 1. Unaudited Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) NetScout reported $186.7 million in revenue, a 7% increase, and a net loss of $3.7 million, a significant improvement from the prior year's $443.4 million loss, driven by the absence of a goodwill impairment [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased slightly to $2.16 billion, driven by lower accounts receivable, while liabilities and equity also saw minor shifts Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $489,572 | $457,415 | | Accounts receivable, net | $92,200 | $163,654 | | Goodwill | $1,070,155 | $1,076,383 | | **Total Assets** | **$2,157,426** | **$2,186,578** | | **Liabilities & Equity** | | | | Deferred revenue (current) | $293,911 | $301,753 | | **Total Liabilities** | **$609,875** | **$626,183** | | **Total Stockholders' Equity** | **$1,547,551** | **$1,560,395** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Revenue increased 7% to $186.7 million, while net loss significantly improved to $3.7 million due to the absence of a prior-year goodwill impairment Quarterly Statement of Operations (in thousands, except per share data) | Metric | Q1 FY2026 (ended Jun 30, 2025) | Q1 FY2025 (ended Jun 30, 2024) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $186,747 | $174,565 | +7.0% | | Gross Profit | $143,325 | $130,196 | +10.1% | | Loss from Operations | $(6,564) | $(463,324) | N/A | | Goodwill Impairment | $0 | $426,967 | -100% | | Net Loss | $(3,679) | $(443,376) | N/A | | Diluted Net Loss per Share | $(0.05) | $(6.20) | N/A | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased to $73.6 million, contributing to a $32.2 million rise in cash and cash equivalents despite investing and financing outflows Quarterly Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,552 | $38,428 | | Net cash used in investing activities | $(17,291) | $(3,094) | | Net cash used in financing activities | $(28,778) | $(62,157) | | Net increase (decrease) in cash | $32,157 | $(27,461) | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail revenue recognition, the prior-year's $427.0 million goodwill impairment, credit facility status, share repurchases, and geographic revenue distribution - At June 30, 2025, the company had total deferred revenue of **$445.8 million**, with an expected recognition of **$293.9 million (66%)** within the next 12 months[42](index=42&type=chunk) - In Q1 FY25 (quarter ended June 30, 2024), the company recorded a **$427.0 million** goodwill impairment charge due to a decrease in its stock price and market capitalization; no such charge was recorded in the current quarter[70](index=70&type=chunk) - The company repurchased **761,249 shares** for **$15.0 million** during the quarter; as of June 30, 2025, **22.3 million shares** remained available for purchase under the current program[110](index=110&type=chunk)[111](index=111&type=chunk) Revenue by Geography (in thousands) | Region | Q1 FY2026 (ended Jun 30, 2025) | Q1 FY2025 (ended Jun 30, 2024) | | :--- | :--- | :--- | | United States | $100,504 | $99,949 | | Europe | $30,714 | $31,394 | | Asia | $15,050 | $11,890 | | Rest of the world | $40,479 | $31,332 | | **Total** | **$186,747** | **$174,565** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes 7% revenue growth to cybersecurity and enterprise demand, with net loss improving due to the absence of a prior-year goodwill impairment, maintaining strong liquidity [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Total revenue increased 7% driven by product and cybersecurity growth, while operating expenses significantly decreased due to the absence of goodwill impairment and lower restructuring charges Revenue by Type (in thousands) | Revenue Type | Q1 FY2026 | Q1 FY2025 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Product | $72,993 | $61,169 | $11,824 | 19% | | Service | $113,754 | $113,396 | $358 | —% | | **Total** | **$186,747** | **$174,565** | **$12,182** | **7%** | Revenue by Product Line (in thousands) | Product Line | Q1 FY2026 | Q1 FY2025 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Service assurance | $118,330 | $116,733 | $1,597 | 1% | | Cybersecurity | $68,417 | $57,832 | $10,585 | 18% | | **Total** | **$186,747** | **$174,565** | **$12,182** | **7%** | Revenue by Customer Vertical (in thousands) | Customer Vertical | Q1 FY2026 | Q1 FY2025 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Service provider | $75,969 | $80,475 | $(4,506) | (6%) | | Enterprise | $110,778 | $94,090 | $16,688 | 18% | | **Total** | **$186,747** | **$174,565** | **$12,182** | **7%** | - The decrease in net loss by **$439.7 million** was primarily due to a **$427.0 million** decrease in goodwill impairment charges and a **$16.0 million** decrease in restructuring charges compared to the prior year[129](index=129&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity strengthened with cash and investments increasing to $543.5 million, supported by strong operating cash flow and an undrawn $600 million credit facility - Cash provided by operating activities increased to **$73.6 million** from **$38.4 million** in the prior-year quarter, primarily due to a significant reduction in net loss after excluding the non-cash goodwill impairment from the prior year[171](index=171&type=chunk) - In October 2024, the company amended its credit facility, resulting in a new five-year, **$600.0 million** senior secured revolving credit facility expiring in October 2029, with no amounts outstanding as of June 30, 2025[180](index=180&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk) - During the quarter, the company used **$15.0 million** for treasury stock repurchases and **$13.8 million** for tax withholdings on vested restricted stock units[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate and foreign currency fluctuations, which are mitigated by hedging strategies and not deemed materially impactful - The company is not exposed to interest rate risk on its credit facility as there was no debt outstanding as of June 30, 2025[199](index=199&type=chunk) - As of June 30, 2025, the company held foreign currency forward contracts with notional amounts totaling **$11.9 million** to hedge against currency fluctuations, primarily in the Euro, British Pound, Canadian Dollar, and Indian Rupee[200](index=200&type=chunk)[201](index=201&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period[202](index=202&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[203](index=203&type=chunk) PART II: OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial condition or operations - In management's opinion, none of the current legal proceedings are expected to have a material adverse effect on the company[205](index=205&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K - The company directs investors to the risk factors discussed in its most recent Annual Report, stating there have been no material changes since its filing[206](index=206&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 1,358,364 shares at an average price of $21.19, with 761,249 shares under the formal repurchase program Issuer Purchases of Equity Securities (Q1 FY2026) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | April 2025 | 742,923 | $19.66 | 742,670 | | May 2025 | 149,487 | $22.70 | 18,579 | | June 2025 | 465,954 | $23.14 | 0 | | **Total** | **1,358,364** | **$21.19** | **761,249** | - An aggregate of **597,115 shares** were transferred from employees to satisfy minimum tax withholding obligations related to vested restricted stock units; these are not part of the formal repurchase program[208](index=208&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) Director Michael Szabados adopted a Rule 10b5-1 trading plan on May 23, 2025, to sell up to 16,000 shares of common stock - Director and Senior Advisor Michael Szabados adopted a Rule 10b5-1 trading plan on May 23, 2025, to sell up to **16,000 shares**[211](index=211&type=chunk)

Financial Data and Key Metrics Changes - Revenue for the first quarter was approximately $187 million, representing a 7% year-over-year increase driven by strong growth in the cybersecurity area [6][18] - Non-GAAP diluted earnings per share was $0.34, an increase of approximately 21% year-over-year [6][19] - Gross profit margin increased by 1.6 percentage points to 78.7% in the first quarter [18] Business Line Data and Key Metrics Changes - Service Assurance revenue increased approximately 1% year-over-year, driven by enterprise customer investments, while service provider revenue declined [7][20] - Cybersecurity revenue grew approximately 18% year-over-year, supported by strong demand from both enterprise and service provider customers [10][20] Market Data and Key Metrics Changes - 54% of revenue was generated from the United States, with the remaining 46% from international markets [22] - The enterprise customer vertical accounted for approximately 59% of total revenue, while the service provider vertical accounted for 41% [20] Company Strategy and Development Direction - The company is focused on driving product innovations, returning to annual revenue growth, and enhancing margins through disciplined cost management [14] - The introduction of AI-backed enhancements and integrated solutions aims to strengthen the company's position in both cybersecurity and service assurance markets [10][11] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously optimistic amid ongoing macroeconomic uncertainty, with a solid pipeline supporting the fiscal year outlook [14][25] - The company anticipates year-over-year second quarter revenue growth in the range of 4% to 6% and non-GAAP earnings per share between $0.43 and $0.45 [26] Other Important Information - Free cash flow for the quarter was $71.7 million, and the company repurchased approximately 761,000 shares for about $15 million [22] - The company has no outstanding balance on its $600 million revolving credit facility as of June 30, 2025 [22] Q&A Session Summary Question: Can you talk about the macro environment relative to ninety days ago and the outlook around service provider spending? - Management noted that the external environment related to tariffs is still uncertain, but the software business is less impacted. The spending climate appears similar to last year [29][30] Question: Can you provide insights on the security portfolio and demand for newer products? - The integration of Arbor DDoS into the main business is a key growth area, with advancements in adaptive DDoS and partnerships enhancing cybersecurity offerings [31][32] Question: How did spending among federal government customers trend in the first quarter? - Federal government spending was strong, with mid-teens growth, and there is optimism for continued opportunities in this sector [41][42] Question: How are investments in AI data centers impacting enterprise business? - The expansion of the service assurance market into larger observability markets is increasing legitimacy and market size, with AI driving product improvements [43][44] Question: What are you hearing from service provider customers regarding potential incremental investments? - There has been no specific feedback from service providers regarding investments this year, and past changes have not significantly impacted business [46]

Financial Performance - Total revenue reached $186.7 million, a 7% year-over-year increase[12, 20] - Product revenue grew significantly by 19.3% year-over-year, reaching $73.0 million[20] - Service revenue saw a slight increase of 0.3% year-over-year, totaling $113.8 million[20] - Non-GAAP gross profit margin improved to 78.7%, up 1.6 percentage points year-over-year[12, 20] - Non-GAAP operating margin increased to 14.2%, a 6.2 percentage point increase year-over-year[12, 20] - Non-GAAP diluted net income per share (EPS) rose to $0.34, a 21% increase year-over-year[12, 20] Geographic Performance - International revenue increased by 15.6% year-over-year, reaching $86.2 million[28] - Revenue from Asia experienced substantial growth of 26.6% year-over-year, reaching $15.1 million[28] - Revenue from the Rest of World region increased by 29.2% year-over-year, reaching $40.5 million[28] FY'26 Outlook - The company reaffirms its fiscal year 2026 revenue outlook to be between $825 million and $865 million[17, 33] - The company anticipates non-GAAP EPS to be between $2.25 and $2.40[33]