Netskope Inc. (NTSK) Earnings & Analysis

Latest quarter

Netskope reported Q2 FY2027 revenue of $220.5 million, above the $214.3 million consensus and up 29.2% from $170.8 million a year earlier. Its filing attributed approximately half of the revenue increase to new customers and half to expansion within existing accounts.

The company reported a diluted loss per share of −$0.27, compared with −$0.84 a year earlier. CFO Drew Del Matto said the non-GAAP net loss per share was $0.03.

Gross margin rose to 73.9% from 72.2%. The filing attributed the improvement to revenue growth outpacing costs and to efficiencies in data center and cloud infrastructure operations. Operating margin fell to −40.7% from −26.9%; the filing said expenses included stock-based compensation and related payroll taxes recognized when a vesting condition was met upon the IPO.

Netskope reported free cash flow of −$29.8 million, compared with −$19.7 million a year earlier. Del Matto said the company’s transition to annual billing temporarily defers cash collections.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Sanjay Beri said enterprises were seeking ways to adopt AI while maintaining visibility and control over their data. He estimated that approximately a third of Netskope’s AI security pipeline was in or entering proof of concept, and described customer wins including an electronics manufacturer and an auto insurer that expanded their existing deployments.

Asked about the timing of AI deals, Beri said enterprises typically move through evaluation, budget approval and procurement over six to 12 months. He expected some earlier customers to convert in Q3 and more of the pipeline under proof of concept to convert toward the end of the year. CFO Drew Del Matto said the quarter’s demand extended beyond the AI deals completed.

On adoption, Del Matto said 59% of customers used four or more products at quarter-end, compared with 51% a year earlier. He said net retention rose to 114%, while annual recurring revenue grew 27% to $899 million.

Asked about pricing, Beri said Netskope prices its Agentic Broker by transaction because it covers agent traffic rather than individual users. He said customers can see transaction volumes, while the company’s separate AI agents use outcome-based pricing.

Del Matto said non-GAAP gross margin reached 77%, supported by scale benefits from the NewEdge architecture. He said the company redirected spending toward AI infrastructure and tokens and decided to reduce its workforce by around 5% as it pursued company-wide AI adoption.

On the quarter ahead, Del Matto said the annual-billing transition was progressing faster than expected and should be complete by the middle of next fiscal year. He said the shift “temporarily defers cash collections” and forecast $10 million to $20 million in Q3 free cash flow.

Guidance

Netskope raised its FY2027 revenue outlook to $888.0 million–$892.0 million from its prior $879 million to $883 million. It now expects a non-GAAP operating margin of approximately −9.00%, compared with its earlier outlook of negative 9.5% to 10%, and a non-GAAP loss per share of −$0.15 rather than the previous $0.18 loss.

The company now expects a positive free cash flow margin of approximately 2.00%; its previous outlook was 2% to 4%.