Reports Solid Q4 ’25 Results and Provides Positive Outlook for FY ‘26

NetScout reported solid fiscal Q4 ’25 results. Revenues exceeded our estimate and the consensus due to robust growth in the enterprise vertical and continued traction for the company’s cybersecurity products. Interestingly, NetScout secured a mid-seven figure deal with a cloud hyperscaler to help secure their network edge and data centers. As cloud service providers continue to invest in new AI initiatives, we believe this represents a meaningful market opportunity for NetScout from both a service assurance and cybersecurity perspective. Also worth noting, NetScout exited Q4 with a higher product backlog than it started with, which further points to a better demand environment than anticipated. Perhaps the only knock on the quarter was that the flow through to earnings from the strong top line performance was somewhat limited due to higher incentive compensation arising from large deal closures and an unrealized loss on a foreign investment. That said, adjusted EBITDA still compared favorably with our estimate and the consensus, while non-GAAP EPS were in line despite a $0.03 headwind from the non-operating loss.

Aside from the results, NetScout also announced the retirements of two long-tenured executives, CFO Jean Bua and COO Michael Szabados, effective May 31, 2025. In their stead, Deputy COO Sanjay Munshi and Deputy CFO Tony Piazza have been appointed to the COO and CFO roles, respectively. Considering the Deputy roles and internal promotions, we believe the succession plan has been in place for awhile and anticipate a smooth transition.

Turning to the outlook, management’s initial guidance for FY ’26 was ahead of Street expectations and in line with our projections heading into the print. Importantly, the guidance reflects a return to positive revenue growth on an annual basis along with continued margin and earnings expansion. Reflecting only minor adjustments to our model, our estimates move nominally higher for this year and next. Our price target also increases from $41.00 to $43.00, primarily reflecting the significant influx of cash during Q4 and an unchanged FY ’26 EV/EBITDA multiple of 12x.

Despite the solid results and favorable outlook for the new fiscal year, shares of NTCT have thus far traded lower, a reaction we find puzzling to say the least. After all, the company delivered another strong revenue and bookings quarter even though several significant deals were pulled forward into Q3. With management’s guidance contemplating an acceleration in revenue growth this year, and commentary suggesting no material impact from tariffs on either supply chain costs or customer demand, we think the stock is compelling at current levels.

Exhibit I: Quarterly Results and Guidance Versus Expectations

Sources: FactSet Estimates; K. Liu & Company LLC; NetScout Earnings Release

Q4 revenue of $205.0 million (+0.8% Y/Y) exceeded our estimate of $197.7 million and consensus of $195.0 million. Relative to our model, product sales of $89.5 million (+0.1% Y/Y) accounted for the upside and more than offset slightly lower service revenue of $115.5 million (+1.3% Y/Y). By product, revenue from service assurance solutions comprised 64% of revenue and decreased 1% Y/Y, while cybersecurity sales comprised the remaining 36% of sales and increased 4% Y/Y. By vertical, revenue from service providers comprised 35% of total revenue in Q4 and declined 32% Y/Y, while enterprise customers accounted for 65% of revenue with a corresponding 34% Y/Y increase in revenue.

Non-GAAP gross margin of 80.0% was ahead of our 79.3% assumption. Total operating expenses were above our forecast, principally due to higher incentive compensation arising from large deal closures. Regardless, both non-GAAP operating income of $47.3 million (23.1% margin) and adjusted EBITDA of $50.3 million (24.5% margin) beat our estimates of $46.3 million and $49.3 million, respectively. Non-GAAP EPS of $0.52, which included an unrealized loss on a foreign investment of $0.03 per share that was not factored into our model, were in line with our estimate of $0.52 and a penny above consensus of $0.51.

Cash and investments at quarter-end totaled $492.5 million, and NetScout fully repaid the $75.0 million in debt outstanding at the start of Q4, leaving the company with a clean balance sheet. In Q4, NetScout generated $141.5 million in cash flow from operations and used $1.4 million for capital expenditures. For the full year, the company generated $217.6 million in cash flow from operations and used $5.4 million for capital expenditures.

Management’s initial guidance for FY ’26 calls for revenue of $825.0-$865.0 million and non-GAAP EPS of $2.25-$2.40. Prior to revisions, we were projecting revenue and non-GAAP EPS of $835.9 million and $2.34, respectively, while the consensus stood at $826.1 million and $2.25. For Q1, management anticipates 3%-5% growth in both revenue and non-GAAP EPS, implying $179.8-$183.3 million and $0.29-$0.30, respectively. We were previously projecting Q1 revenue and non-GAAP EPS of $182.1 million and $0.27, respectively, while the consensus was higher at $187.2 million and $0.32.

Exhibit II: Estimate Revisions

Source: K. Liu & Company LLC

Our estimates move nominally higher for Q1, FY ’26 and FY ’27 as we fine-tuned our revenue mix assumptions and made minor tweaks to our operating expense estimates. We continue to expect an acceleration in revenue growth, along with over 100bps of operating and EBITDA margin expansion, for both this year and next.

Our report with model and disclosures is available here.

Disclosure(s):

The analyst, a member of the analyst’s household, and/or an account in which the analyst exercises discretion hold(s) a long position in the common stock of NetScout Systems (NTCT).