NetScout's September profit got a lift from an October summit
Lower expenses lifted quarterly operating profit despite modest sales growth. Software capitalization and event timing explain part of the improvement, while first-half cash flow weakened.
NetScout's operating profit grew much faster than its sales in the quarter ended September 30. Lower expenses did most of the work, including software costs recorded as assets and a change in the timing of its annual customer event.
The network-monitoring and cybersecurity company reported a 16.9% operating margin, up from 14.8% a year earlier. That is the share of sales left after operating expenses. Revenue increased just 1.4% to $222.2 million.
| Quarter ended September 30 | 2026 | 2025 |
|---|---|---|
| Revenue | $222.2 million | $219.0 million |
| Operating profit | $37.6 million | $32.5 million |
| Operating margin | 16.9% | 14.8% |
What lowered the expense bill
Operating expenses fell $3.9 million, providing most of the $5.1 million increase in operating profit. Gross profit, the amount left after the direct cost of products and services, rose only modestly.
NetScout's filing explains two important parts of the expense relief. It capitalized $2.4 million more software-development costs than a year earlier, helping lower research spending recorded as an expense. Capitalization records qualifying work as an asset and spreads its expense over later periods.
Trade-show and other event costs also fell $3 million because of timing. Management said its ENGAGE summit took place in October, shifting the expense into the December quarter from last year's September quarter. Lower legal and professional-service spending helped administrative costs, while personnel and software-license costs rose. Its adjusted profit measures remove costs such as stock compensation and acquired-intangible amortization, but retain the software-capitalization and event-timing effects.
There was stronger business underneath the slow sales growth. Service revenue rose 6.4% to $132.3 million, with maintenance renewals and cloud services supporting demand. Product revenue fell 5.1%. Management said government orders that had benefited the previous quarter shaped the comparison.
Cash tells a different part of the story
The September quarter used $15.1 million of operating cash. After spending on fixed and intangible assets and capitalized software, the company reported negative free cash flow of $17.8 million.
Operating cash flow for the first six months of fiscal 2027 fell to $35.6 million from $80.2 million. Working capital, the cash tied up in day-to-day operations, absorbed $77.6 million. The filing points to lower deferred revenue, payments of accrued compensation and higher inventories and deferred costs. NetScout said it bought components to address possible supply constraints and support expected demand.
The business still had substantial financial resources: $438.4 million of cash and cash equivalents, plus marketable securities, and a fully undrawn $600 million revolver. It spent about $77 million on share repurchases during the half and paid $55 million for DigiCert's denial-of-service protection business in May.
The annual outlook has not moved. NetScout still expects revenue of $885 million to $915 million and adjusted earnings of $2.65 to $2.80 a share for the year ending March 31, 2027, matching its original May forecast. That forecast already included the acquired business.
For the December quarter, management expects revenue of $240 million to $250 million and adjusted earnings of $0.90 to $0.95 a share, including the summit expense. It also faces a comparison with last year's December quarter, which management says included about $15 million of revenue brought forward from the following quarter.
The NetScout company profile tracks the original targets, cash position and acquisition history.