NetScout Systems (NasdaqGS:NTCT) Q3 2026 Earnings call February 05, 2026 08:30 AM ET Company ParticipantsAnil Singhal - President and CEOKevin Liu - Founder and CEOScott Dressel - VP of Corporate FinanceSimran Biswal - Equity Research Senior AssociateTony Piazza - EVP and CFOConference Call ParticipantsErik Suppiger - Managing Director and Senior Research AnalystOperatorThank you for standing by and welcome to NETSCOUT's third quarter fiscal year 2026 financial results conference call. At this time, all par ...

Financial Performance - For Q3 FY2026, total revenue was approximately $251 million, consistent with the same period last fiscal year, and diluted earnings per share totaled $1, reflecting a 6% year-over-year increase [5][17] - For the first nine months of FY2026, revenue reached approximately $656 million, a 6% year-over-year increase, with diluted earnings per share of $1.96, up 15% from the previous year [5][20] - Gross profit margin for Q3 was 82.8%, consistent with the prior year, while operating margin increased to 35.9% from 35.6% year-over-year [19] Business Line Performance - Service assurance revenue increased approximately 5% year-over-year for the first nine months, driven by growth in enterprise customer verticals, particularly from government-related spending [6][20] - Cybersecurity revenue grew 9% year-over-year during the same period, reflecting strong demand in response to a complex cyber threat landscape [9][20] - Product revenue for Q3 was $121.7 million, down from $128.2 million the previous year, while service revenue increased by 4.1% to $129 million [18] Market Insights - The U.S. market represented 57% of total revenue, while international markets accounted for 43% during the first nine months of FY2026 [21] - The enterprise customer vertical accounted for approximately 58% of total revenue, with a 9.4% growth, while service provider vertical revenue grew 2.2% [20] Company Strategy and Industry Competition - The company is focused on product innovation, achieving annual revenue growth, and enhancing margins through disciplined cost management [14] - The competitive landscape in the service provider sector is characterized by price pressures and budget constraints, particularly in the context of 5G initiatives [44] Management Commentary on Operating Environment and Future Outlook - Management expressed cautious optimism regarding demand signals, noting that while demand remains strong, supply chain challenges could impact order timing [26][28] - The company raised its revenue outlook for FY2026 to a range of $835 million to $870 million, reflecting solid execution and continued demand for its solutions [23] Other Important Information - The company ended Q3 FY2026 with $586.2 million in cash and cash equivalents, representing an increase of $93.7 million since the end of FY2025 [21] - Free cash flow for the quarter was $59.4 million, with no outstanding balance on the $600 million revolving credit facility [21] Q&A Session Summary Question: Can you comment on demand trends and any improvements? - Management noted that demand signals are similar or improving, but supply chain challenges could delay order timing [26][27] Question: Can you quantify the pull-ins this quarter? - Approximately $15 million in pull-ins were noted, impacting both product and service revenue [29] Question: How did customer budgets work in pulling orders from one quarter to another? - Customers often pull orders based on their fiscal year-end budgets, which can lead to demand in one quarter being fulfilled from budgets allocated for another [34] Question: What AI use cases are driving the service assurance business? - Traditional service triage and enhanced data usage for AI-related applications are key drivers, with a noted contribution of about $15 million for the nine months [36][39] Question: How is the service provider business impacted by competitive dynamics? - There is no direct competitive pressure from smaller players, but budget constraints and price pressures are present [44] Question: How are supply chain issues affecting product growth margins? - Supply chain issues primarily affect timing rather than margins, as the company focuses on software solutions [46][48]