Netskope Q2 Earnings Call Highlights

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.

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. 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. 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...