Netskope, Inc.

and thank you for standing by. Welcome to NETSCOPE Third Quarter Fiscal 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press Start 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Start 11 again. I'd now like to hand the conference over to Michelle Spolver, Chief Communications and Investor Relations Officer. You may begin.

Good afternoon and thank you for joining us today. With me on the call are Netscope CEO and co-founder Sanjay Barry and CFO Drew DelMotto. The press release announcing our financial results for the third quarter of fiscal year 2026 was issued earlier today and is posted to our investor relations website at investors.netscope.com along with a supplemental presentation. Before we begin, let me remind everyone that some of the statements we make on today's call are forward-looking, including statements related to our guidance for the fourth quarter and full 2026 fiscal year, growth opportunities, and competitive position. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Additionally, these statements apply only as of today and we undertake no obligation to update them in the future. For a detailed description of the risks and uncertainties, please refer to our SEC filings as well as our earnings press release. Finally, unless otherwise noted, all financial metrics we discuss on this call, other than revenue, will be on an adjusted non-GAAP basis. We have provided reconciliations of these non-GAAP financial measures against the most directly comparable GAAP financial measures in our earnings press release. Now, let me turn the call over to Sanjay to discuss our business and high-level Q3 financial performance.

Thanks, Michelle. Welcome, everyone. And thank you for joining us to discuss Netscope's third quarter fiscal year 2026 results. I'm very pleased to be here on our first public earnings call following our IPO in September. Our founding vision was anchored in redefining security and networking for the modern era of cloud, and now redefining it for the modern era of cloud and AI. We see that vision realized every day. Netscope is the secure and fast on-ramp to everything enterprises access, from the internet, including websites, cloud, and AI, to their own infrastructure, private apps, LLMs, and data centers. We are helping thousands of enterprises modernize and operate safely in both cloud and hybrid environments. This is happening in the context of an ever-evolving landscape of sophisticated threats, exploding data volumes, and the fast accelerating revolution of AI. With a projected total available market size at 149 billion by 2028, Netskope's opportunity is massive, and we are truly just getting started. Turning to our Q3 metrics, I'm proud to say that we delivered very strong performance across all key metrics. Our team executed exceptionally well, continuing to expand our global footprint, innovate and extend our market-leading, fully converged security, networking, and analytics platform, and demonstrate accelerated top-line growth while generating incremental leverage from our foundational investments. This strong execution resulted in a 34% year-over-year increase in annual recurring revenue, reaching $754 million, and Q3 revenue growth of 33% to $184 million. Prior investments in our Netscope One platform and UEdge Global Private Cloud Network continue to demonstrate significant leverage. We built Netscope to scale, and that is reflected in our ability to generate $11 million in free cash flow in Q3, as well as improve operating margin by 11 percentage points year over year, and deliver free cash flow margin of 6%. Our Q3 results also showed robust performance across all geographies, driven by continued adoption of our Netscope One security, networking, and analytics platform of products. This adoption is reflected in a strong net retention rate of 118%. We also achieved broad vertical diversification, including expanding across financial services, healthcare, manufacturing, energy, retail, and government. Drew will give more color on our Q3 financials and other key metrics in a few minutes. But first, let me share some context on the trends shaping our business and driving our momentum. Cloud and AI have completely revolutionized work. We are more dispersed, more productive, and more automated than ever. And the pace of change is accelerating. Not since the internet has there been such a transformative shift. Organizations today gain competitive advantages by leveraging a dynamic ecosystem of devices, applications, and AI agents that interact and communicate using the modern language of the internet. These interactions are accelerating in speed, scale, and complexity generating massive amounts of data across tens of thousands of SaaS and AI apps, websites, public cloud, on-premises systems, email, endpoints, and data stores. The vast majority of this data sits outside corporate IT's visibility and control. And the rapid adoption of generative and agentic AI is like throwing gasoline onto the fire, creating even more data, more ways to misuse data, and more risk for data loss. Cloud and AI have also transformed the cyber threat landscape. Adversaries are finding new ways to trick organizations and their employees into downloading and opening high-risk file types, such as executables, archives, documents, and scripts while evading inspection. They are also targeting cloud and SaaS apps directly, stealing tokens and credentials, and luring victims into authorizing the attacker to directly access their data, bypassing the endpoint completely. These cyber threat actors are leveraging AI to accelerate their attacks, whether it be through deep fakes and social engineering or in finding zero-day vulnerabilities in software. This has created a need for modern security and networking solutions that enable organizations to use cloud apps and AI, but facilitate access in a way that doesn't put corporate assets at risk or degrade network performance. Legacy and first-generation cloud security and networking providers manage access to applications by giving administrators the binary option of blocking or allowing applications, thus creating a difficult trade-off between employee productivity and corporate security. These solutions were built during prior eras when security and networking requirements were different, users worked differently, and attackers themselves were far less sophisticated. All of this reinforces why enterprise buyers are highly focused on making smarter investments in platforms built for the modern world of cloud and AI. They strive to spend more intelligently by cutting operational overhead and investments in legacy products that cannot address today's problems. Today, IT security and networking teams need a comprehensive yet adaptive approach to protecting their users and data while safely enabling the use of cloud and AI. And that is why Netscope was created. That is exactly what we deliver. and that is what is driving our growth and market leadership. For those new to the Netskope story, let me explain. Netskope sits at the intersection of security, networking, cloud, and AI. We uniquely enable enterprises to modernize their security networks and use the cloud and AI securely in their organizations, all while delivering an exceptional end-user experience. Our Netskope One platform was designed for a world where users, devices, applications, and AI agents can access anything from anywhere. Our platform reads the language of the modern internet, including APIs, JSON-based data flows, and machine-to-machine protocols. It understands visual interactions at a granular level, determines who or what is involved, what they're trying to do, and with which data. We can then enforce granular policies and put appropriate guardrails in place to allow IT business leaders to safely say yes instead of no to unleash innovation, business efficiencies, and intelligence from the cloud, web, SaaS apps, private apps, and AI, including generative AI. We also understand data and data-run actions with unmatched precision and context. We discover, classify, analyze, and protect data in real time, in motion, and at rest, either in SaaS apps public cloud, generative AI apps, agentic AI workflows, websites, email endpoints, data lakes, or on-prem apps. We can track movement of that data across different parts of an organization and make sure it's being used in the right way by enabling organizations to implement granular policies around their most sensitive data based on risk and context. We do all this through our Netscope One platform of over 20 security, networking, and analytics products. that were purpose-built organically from the ground up to be unified. One engine, one console, one client, one gateway, and one global network that all operates seamlessly and simply together to deliver the best security and performance with fewer resources to implement and operate. This is an important distinction for Netskope and our customers. It means that when customers adopt one of our Netskope One products, it's much easier and efficient for them to implement and operate the second, third, and subsequent products. Our customers view this as a tremendous benefit and realize that all platforms are not created equal. A platform isn't merely a collection of organic and inorganic products bundled under one price list. A true platform is defined by genuine integration and seamless unification. Customers also get an exceptional end user experience from Netskope. This is in part due to the fact that our Netskope One products all run on our new edge private cloud network. which is one of the world's most connected and high-performing networks. New Edge has been architected to be an intelligent, highly scalable, low-latency global network, with each data center designed to run our full stack of integrated products at high speed to every customer worldwide. In security, there's always been a paradox that if you add functionality, it makes things slower and the end-user experience worse. Netscope shatters this paradox. with New Edge and our Netscope One platform. By converging security, networking, and analytics in a unified platform on New Edge, with shared context, intelligence, and policy enforcement, we reduce latency for end users, even in the largest, most complex environments, and also provide data sovereignty not afforded with other infrastructures. To do this correctly, we also recognize that network infrastructure and operations teams need advanced capabilities And so we built products like Netscope One DNS as a Service, Cloud Packet Stream, and dedicated egress IP addresses so that our customers could regain control over how traffic gets managed. In many cases, New Edge becomes our customer's new network, ensuring high security without degrading network performance or the user experience. Finally, it's important to point out that AI is foundational to the Netscope One platform. It is not an add-on or a feature. It is fundamental to how we operate and even innovate. AI is intrinsically woven into our platform for superior threat detection, proactive data protection, digital experience management, and the enablement of the adaptive real-time policy enforcement I just mentioned. Our commitment in this area is powered by two distinct world-class internal teams that work closely together and have been in place for many years. Our Netscope Threat Labs a team whose experts have discovered over 1,400 zero-day threats in the wild, and Netscope AI Labs, which has created more than 170 proprietary AI and ML models and holds over 50 patents specific to AI and ML applications in security. These teams ensure that our platforms remain technologically superior and ahead of the constantly evolving cyber threat curve. I've spent a lot of time over the past months in one-on-one small group and advisory board meetings with customers and prospects around the world. Across my many discussions, one theme stood out, how to safely adopt cloud and AI at scale. Organizations want to modernize their security and infrastructure, reduce technology sprawl, safeguard sensitive data, ensure data sovereignty, and manage Gen AI and AI safely. The adoption of Gen AI and custom AI tools is occurring at lightning speed And with it comes even more data, a new and more complex attack surface and the need for internal resources to manage and secure these tools. IT leaders want to responsibly allow employees to use productivity enhancing AI apps and tools safely and with appropriate granular guardrails to reduce risk while actively fostering innovation and efficiency. They also want to safely use AI models and apps to connect to internal and external tools and data sources, allowing the AI to perform actions like accessing files, querying databases, or calling APIs. Netskope has a distinctive ability to help customers achieve this balance based on the technology differentiators I just explained. This includes understanding the modern language of GenAI apps and their detailed digital interactions with both humans and non-humans at a very granular level. For example, the preciseness and depth of our ability to recognize the AI application, trusted originating device, browser, user, or agent, the instance of the app, the activity being performed, the data being transacted with and returned, and the normal behavior expected, and troublesome deviations. This all leads to broad and precise discovery, visibility, and protection, and granular adaptive policy enforcement for AI. We have over 1,000 customers using us today, to protect GenAI interactions, and this number is continuing to grow quickly. When securing AI end-to-end, it helps to use the analogy of a house. AI has a basement, a back door, and a front door. The basement is the AI platform itself, which must be scanned for vulnerabilities, misconfigs, and unintended access, and includes proprietary data used by LLMs that requires granular controls to keep sensitive information locked down. The back door, represents interactions with external data, LLMs, MCP, and other agent to agent traffic, which must be monitored and secured in real time. The front door is where users and agents interact with AI in production, requiring granular controls on prompts and responses to prevent data leakage and block malicious behavior. And of course, every other entry point must be protected so that AI systems and data are accessed only as intended. Our current platform enables customers to protect key areas of this AI house, and we have many exciting innovations on the horizon in this area. Let me now pivot to some of our key achievements during the third quarter, beginning with go-to-market. We saw significant customer wins across verticals and geographies. We landed important net new and expansion wins with customers seeking to modernize their security and infrastructure address greenfield use cases, consolidate vendors, and replace legacy and first-generation cloud security products with our Netscope One platform. Common use cases included enabling fast and secure cloud web and AI access and secure application usage, including for generative AI apps, achieving highly effective and efficient unified data awareness, protection, and loss prevention, both for data in motion and at rest, and simplifying and modernizing infrastructure, including replacing legacy VPNs with our Zero Trust architecture, branch firewalls with our SD-WANs, and migrating their networks to our high-performance private cloud. Notable wins during the quarter included a Fortune 200 biotechnology company that replaced multiple legacy and first-generation cloud security tools with a unified SASE deployment. of over a dozen Netscope One products. Also, a Fortune 50 global pharmaceutical retailer that selected Netscope to redesign their internet edge connectivity, supporting 50,000 employees in 8,000 locations. They purchased several Netscope One products to construct the zero trust architecture for their globally distributed enterprise environment and safe AI cloud and SaaS app usage, including generative AI. We also won a global manufacturing and energy conglomerate that chose Netskope for data protection, secure cloud access, and new edge global scale connectivity to meet strict data sovereignty requirements. And finally, a financial institution that previously attempted to modernize its environment using another cloud security vendor, but was unable to get the implementation operational due to platform complexity and architectural overhead. They selected Netskope for true platform unification from network to gateway to client and to console across all their use cases, including secure web access, data security posture management, zero trust application access, cloud firewall, and SD-WAN. All these new logos were won against primary competitors. due to Netscope's superior technology that shined in bake-offs. And all were platform wins that included multiple Netscope One products. Multi-product adoption has been increasing and is a key driver of our accelerating ARR and strong NRR. As of the end of Q3, 53% of our customers were using more than four Netscope One products and 26% were using more than six. Expanding with existing customers through cross-sell and up-sell of more products, as well as more regions, more applications, or more users, represents a large growth driver for us. And we continue to execute well on this in Q3. A few notable expansion wins were a major FSE contract with one of the largest U.S. federal civilian agencies that increased from a piloted project of a few Netsco products for 7,000 users to eight products for for 300,000 users. Netskope was selected to address critical security needs, meet M2131 cybersecurity requirements across levels EL1, 2, and 3, and protect sensitive data across all cloud apps. We delivered a single FedRAMP high platform with no reliance on VPNs. That enables efficient, modern zero trust, advanced security, and meaningful cost savings. And we also won another sizable multi-product expansion deal for a large SASE deployment. This customer, a leading supplier to the global automotive industry, began its journey with us two years ago, initially purchasing a small footprint of core products for a small portion of its geographic footprint. In Q3, they expanded to seven products across the NetScope One platform and tripled the number of global locations. As these and many other customer wins validate, Our differentiated technology, innovative vision, and customer-first philosophy are key elements in our success. They are also consistently validated by important technology industry analysts who have broadly recognized Netskope as a leader across several key markets. Netskope's placement as a leader in both the 2025 Gartner Magic Quadrant for Secure Services Edge for four consecutive years and a leader in the 2025 Magic Quadrant for SASE platforms for two consecutive years, serves as an undeniable testament to this. In Q3, we were also named a leader in the Forrester Wave for SASE, scoring the highest overall among all vendors, as well as scoring highest within its strength of offering category. And Netscope was also recognized as a leader in Giga Ohms Radar Reports, for both data loss prevention and SD-WAN solutions, all testament to our superior technology competitive advantage and astute and innovative vision. Our market leadership and industry recognition stems largely from our strong focus on innovation. I've long believed that in security networking, companies either innovate or die. Netskope innovates. We innovate constantly to help our customers stay ahead in the relentless battle against cyber criminals and navigate the ever-evolving digital threat landscape. Our customers appreciate the organic, built ground up, and truly integrated benefits of our offerings and the Netskope One platform. During the third quarter, we delivered several security networking and AI innovations, including advancing our universal zero trust network access solution to extend zero trust to IoT and OT devices. improve dynamic risk assessment, and enable the consolidation of legacy technologies beyond just VPN to also include network access control and virtual desktop infrastructure. We also continued our AI-powered innovations that improve the efficiency and effectiveness of security teams. This included an integrated AI agent for Netscope One Private Access that provides insight into existing ZTNA network topologies and private application configurations for automated natural language policy recommendations. This helps administrators reduce their attack surfaces and optimize network operations. Additionally, we began a limited release of our model context protocol server, which leverages this common language of AI to enable customers to easily and securely share Netskope security context with major LLMs like Cloud Desktop, Microsoft Copilot, Google Vertex, or Amazon Bedrock to enhance critical enterprise workflows. On the networking side, we expanded our New Edge private cloud with new data centers in Malaysia, Toronto, Hawaii, and Oman to meet growing customer demand and our continued commitment to delivering best-in-class network performance. New Edge now covers close to 80 major metropolitan areas, with over 120 data centers globally. Remember, Netskope New Edge was uniquely and meticulously designed. We do not play marketing games with how many regions or data centers we have. Unlike others, all our regions and data centers are available to every customer and all have full edge compute and run all services. We also released several new products stemming from our technology alliances with Microsoft and CrowdStrike. Netscope One now uniquely fully integrates with Microsoft Purview, combining Netscope's deep DLP enforcement with Purview's data classification policies. We also announced general availability of Netscope One, advanced SSE for Microsoft Entra Global Secure Access, and new protections for Microsoft 365 co-pilot conversations, including GenAI queries, responses, and AI-generated content, all using our market-leading data and threat protection, delivered through our new CASB API for Microsoft 365 Co-Pilot. Together, these integrations help Microsoft customers accelerate their Zero Trust journey while protecting users' data and applications without compromising performance or experience. And finally, through our strong technology alliance with CrowdStrike, we released a new direct-to-Zero Trust app which provides out-of-the-box integration between Netscope One and CrowdStrike Falcon to enable the bidirectional sharing of indicators of compromise without the need for extensive manual integration work by the customer. We operate in a market where superior technology matters a lot. We often get asked, what sets Netscope apart from others? What drives customer adoption satisfaction and what fuels our market leadership? As market analysts and our thousands of customers validate, the core of our differentiation is our technology and the vision that it was born from. Innovation is the heartbeat of Netskope. We are committed to continuing to invest in R&D to drive innovations that expand our industry-leading security, networking, and analytics platform, and help our customers safely unleash the power of cloud and AI to stay ahead of the cyber security curve. In closing, I'm pleased with our Q3 performance and proud of our team for demonstrating the guts, resolve, integrity, and tenacity that are at the core of Netskope's culture to execute incredibly well in our first quarter as a public company. Our innovation engine is delivering seamlessly integrated products that are pushing boundaries in AI security, data protection, networking, and analytics. And our roadmap has many exciting solutions in these areas on the horizon. At the same time, our go-to-market engine and machine is revving. We continue to attract top industry talent to support growing demand, ramp our reps swiftly, leverage and expand our technology and channel partnerships, and grow our brand awareness to drive incremental at-bats. We look forward to the exciting road ahead, and thank our customers, partners, and you and longstanding investors for their support. With that, let me now turn it over to Drew to provide financial details on the third quarter and our outlook for the fourth quarter and fiscal year 2026.