Netskope (NTSK) Q1 2027 Earnings Transcript

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DATE

Wednesday, June 3, 2026, at 5 p.m. ET

Call participants

• Chief Executive Officer and Cofounder — Sanjay Beri
• Chief Financial Officer — Andrew H. Del Matto
• Chief Communications Officer — Michelle Spolver

Takeaways

• Annual Recurring Revenue (ARR) -- $845 million, rising 29% year over year; new logo ARR specifically grew approximately 60%.
• Net New ARR -- $34 million, down from $39 million in the prior year’s comparable quarter, reflecting a tough comparison due to multiple 7‑figure expansion deals last year.
• Revenue -- $201.6 million, an increase of 28% year over year and ahead of management's guidance; Americas up 27%, EMEA up 31%, APJ up 25%.
• Operating Margin -- Negative 14%, a 4 percentage-point improvement year over year and surpassing earlier guidance.
• Gross Margin -- 77%, up approximately 3 percentage points from the prior year’s comparable quarter, attributed to new edge architecture scale benefits.
• Net Retention Rate (NRR) -- 113%; management states gross retention rates (GRR) are at their highest in company history, consistently above the mid-90s.
• Remaining Performance Obligations (RPO) -- Up 33% to over $1.2 billion; contracted future billings climbed 71% year over year.
• Customer Metrics -- Customers with over $100 thousand in ARR rose 23% to 1,600; 57% of customers use 4+ products (up from 49%), and 28% use 6+ products (up from 23%).
• Sales Team Expansion -- Around 50% of quota-carrying sales reps are newly hired or still ramping; leadership expects increased productivity in the second half.
• AI Security Product Launch -- Five AI security products released this year; significant early pipeline growth and initial closed deals, including a fintech expansion, a major U.S. bank, and the launch of AI Command Center and AgentScope.
• Innovation Pace -- More than twice the typical number of major products delivered in under half a year, with the AI command center and AgentScope enabling new operational intelligence and security workflows.
• Guidance Update -- Q2 revenue expected between $213 million and $215 million (about 25% growth at the midpoint); updated full-year revenue outlook raised to $879 million-$883 million (approximately 24% growth), with operating margin guidance of negative 9.5%-10% and free cash flow margin of 2%-4%.
• Cash Position -- $1.1 billion in cash equivalents and marketable securities at quarter-end.
• CFO Transition -- Announcement of Andrew H. Del Matto’s planned retirement, with a formal search process underway; Del Matto remains CFO until his successor is appointed and will later serve in an advisory role.

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Risks

• Net New ARR Decline -- Net new ARR fell to $34 million from $39 million year over year, reflecting management’s reference to a “tough comp” and an outsized upsell quarter last year.
• Negative Free Cash Flow -- Free cash flow was negative $57 million as a result of transitioning customers to annual billing, which management states was as guided and expects to improve sequentially.
• Subdued First-Half Net New ARR Growth -- Leadership indicates net new ARR acceleration is anticipated for the second half, suggesting first-half growth could be lower.

Summary

Netskope (NASDAQ:NTSK) reported robust year-over-year ARR and revenue growth, underpinned by record gross retention and a surge in customer adoption of multiple products. The company launched five new AI security products and initiated early go-to-market success, with large initial customer wins and a rapidly expanding pipeline for its AI suite. Management increased full-year revenue guidance and expects accelerated ARR growth in the second half as recently expanded sales capacity becomes fully productive and new offerings are more widely adopted. The company’s new edge private cloud and unified platform architecture continue to drive both operating scale and product innovation, supporting Netskope’s positioning for large-scale AI security and networking opportunities. In addition, the planned CFO succession was announced, maintaining management continuity during the transition.

• Management highlighted that “we have an over 80% win rate when we get to POV. That has not changed,” with retention rates at a record high, reflecting strong customer satisfaction with product performance.
• Netskope’s collaboration with partners such as Anthropic, OpenAI, Google, and Deloitte was emphasized as central to its enterprise AI ecosystem positioning.
• AI security product pricing is transaction- or outcome-based, with management seeing this as “the pricing model for the future” for new products.
• Early adoption of recently introduced AI security modules is comparable to or faster than any prior Netskope product launch, supported by customer-driven development.
• The transition to annual billings is progressing faster than anticipated, improving contracted future billings visibility but impacting near-term cash flow.
• Though the company reports historic operating efficiency gains, it acknowledges a short-term impact from “ramping” half of its quota-carrying salesforce, with expected benefits peaking in the year’s second half.

Industry glossary

• SASE (Secure Access Service Edge): A cloud-based architecture converging networking and security functions into a unified service delivered primarily at the edge.
• SSE (Security Service Edge): Cloud-delivered security solutions focused on secure access and data protection for users, applications, and data, typically as a subset of SASE.
• GRR (Gross Retention Rate): The percentage of recurring revenue retained from existing customers, excluding expansion or upsell.
• NRR (Net Retention Rate): The percentage of recurring revenue retained and expanded from existing customers, including upsell and contraction.
• RPO (Remaining Performance Obligations): The total value of contracted future revenue — both billed and unbilled — that has yet to be recognized.
• MCP (Model Context Protocol): A technical standard for agent integrations within AI-powered enterprise systems.
• ZTNA (Zero Trust Network Access): Security technology enforcing strict access controls based on user, device, and context, applied under a zero-trust model.
• DLP (Data Loss Prevention): Tools and processes that detect and prevent unauthorized data transfers or leakage outside the organization.
• Agentic AI: AI agents capable of autonomous decision-making and integrating across workflows, requiring specific security and governance controls in enterprise environments.

Full Conference Call Transcript

Michelle Spolver: Good afternoon, and thank you for joining us today. With me on the call are Netskope CEO and cofounder, Sanjay Beri and CFO, Drew Del Matto. The press release announcing our financial results for the first quarter of fiscal 27 was issued earlier today and is posted to our Investor Relations website at investors.netscope.com along with the supplemental presentation. Before we begin, let me remind everyone that certain statements we make on today’s call are forward-looking, including statements related to our guidance for the second quarter and full 2027 fiscal year, market opportunity growth prospects, sales ramping, competitive position, impact of AI, and demand for AI security.

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 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 will 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 momentum and highlights for our Q1 financial performance.

Sanjay Beri: Thanks, Michelle. Welcome, everybody, and thank you for joining us to discuss Netskope's First Quarter of Fiscal 27 Results. Our results demonstrate that as customers are continuing their digital and AI transformation, moving to leverage AI in the cloud, and readying themselves for the reality of a large amount of autonomous AI agents in their environments. Nexcope is a mission-critical, innovative partner. for now and the future. As customers look to solve these challenges, they understand that not all solutions are created equal. And that legacy network and security products cannot fulfill today's modern requirements. With an exploding amount of data and a vastly widening attack surface, businesses are faced with a trade off between security and network performance.

That has seemed inevitable in the past. With Netskope as their trusted partner, they no longer have to make that trade off. Our ability to deliver best in class networking security analytics and AI with the unified common code base of our Netskope 1 platform built for the cloud and AI era and our high performance new edge private cloud, is what differentiates us. It is why customers are choosing Netskope across SSE, SASE, AI security, and more. And sets us up well for our massive $336 billion market opportunity. I will delve more into that in a bit. But let me first share a few highlights from our first quarter.

We ended Q1 with ARR of $845 million, up 29% year over year. and our net new ARR of $34 million. Revenue grew 28% year over year to $202 million ahead of our guidance. Our operating margin improved 4 percentage points year over year, to negative 14%, also ahead of our guidance and a reflection of our continued commitment to drive leverage in our model. Beyond the headline financial results, several operating metrics stood out. First, we had an exceptionally strong quarter with ARR from new logos. Which in Q1 grew approximately 60% versus new logo ARR in Q1 last year. Reflecting our continued success in landing larger deals. And selling the breadth of our Netskope 1 platform.

In addition to our success with new customers, we are also keeping existing ones very happy. And partnering to chart their course, to safe AI enablement and transformation We have consistently operated with gross retention rates above the mid-90s, and our GRR continues to improve with Q1 representing the highest in our company history. And finally, we continue to see broadening platform adoption by customers. The number of customers spending more than $100 thousand in ARR grew 23% year over year. And 57% of our customers are now using 4 or more Netskope 1 products. Up from 49%. A year ago.

On the execution front, we are continuing to hire sales reps and scale our go to market engine to capitalize on the significant opportunity ahead of us. Today, approximately half of our reps are either newly hired or still ramping. I am genuinely excited about the talent and energy this team brings. it is also worth noting that we are lapping a particularly strong Q1 upsell quarter last year. Which included several outsized 7 figure upsell deals. That set a very high upsell bar for comparison. We expect the increase in our number of reps to be a meaningful driver of growth in the back half of the year. As they continue to mature. and hit their stride.

I am pleased with what our team accomplished in the first quarter. And I believe we are very well positioned to build on this momentum through fiscal 27 and beyond. The underlying demand for our business and platform's unique ability to address customers' modern security, cloud, and AI needs. Is strong and growing. And recent investments in our Salesforce expansion are positioning us well to capitalize on our large opportunity. I now want to spend some time addressing the favorable industry tailwinds of a widening AI security gap and growing attack surface. That are driving durable demand for Netskope, how we are uniquely solving problems for our customers, and how our innovation engine, is revving at historic rates.

To extend our technology advantages and leadership. During the past few months, I have had countless discussions with CIOs and CSOs including nearly 100 at RSA alone. A constant in every conversation is safely and compliantly adopting AI at enterprise scale. They are excited about AI's potential to dramatically improve productivity and efficiency. At the same time, they recognize that attackers now have access to the same technologies and can exploit vulnerabilities at unprecedented speed and scale. We are already starting to see adversaries leverage AI to exploit vulnerabilities. Showing that the barrier to entry for attackers has largely disappeared. This makes defense in-depth more critical than ever before.

Every agent must be treated with least privilege principles under the concept of zero trust. And companies should apply data threat, and moderation guardrails. For employees for safe AI usage and data protection. The average global 2,000 company tracked in Netskope's AI index uses over 140 AI applications. Our AI Index also shows that approximately 90% of AI usage is led by business units, not IT. And as a result, most of this activity occurs through shadow AI, outside traditional governance controls. At the same time, AI is becoming a massive data generation engine. Netskope Research, indicates that for every gigabyte of data shared with AI tools, organizations may consume more than 4 gigabytes of AI generated content in return.

With context and data as the most valuable commodity in today's digital world, generative and agentic AI becomes not just a technology challenge, but a complex security imperative. That spans data identity, real time traffic, and governance. Organizations are facing a fast widening gap between the speed of AI adoption and the security architecture needed to adopt it securely. This is precisely what Netskope was built for. From inception, we architected Netskope as an AI native platform. Designed to understand the modern language and context of the Internet. Including API and JSON traffic. Which is also the language of AI.

As a result, while legacy vendors rely heavily on out of band inspection, and post event analysis, We understand the semantic context and intent behind them. Enabling customers to apply granular dynamic policy controls without compromising user, agent experience, or performance. Our platform intelligence has been forged over more than 10 years of processing real world traffic, across AI, web, cloud, private applications, and more. Understanding it, not just at the network layer, but at the deepest level of content and context. Including APIs, data payloads, and behavioral patterns. The aggregate anonymized insights and data derived from that experience are embedded throughout our platform.

And represent a significant and compounding proprietary advantage that we believe is very difficult for existing or any new entrants to replicate. Our Netskope 1 platform unifies more than 25 security, networking, analytics, and AI products, through 1 engine, 1 console, 1 network, and 1 code base. Underpinning all of this is our new edge private cloud. Which runs Netskope's full stack of products at high speed and resilience with dynamic orchestration at our more than 120 data centers. With New Edge, we also deliver globally distributed and highly regulated customers, the data sovereignty, and regulatory compliance, that they require. Importantly, the same architecture that differentiates us and SSC and SASE also distinctly positions us in AI security.

We talked about being the secure and fast on ramp for everything enterprises access today. While the nature of that traffic is changing. And the volume is growing exponentially, The highway it uses is the same. And no 1 understands that flow of traffic at a deeper level than Netskope does. In today's enterprises, AI powered assistants connect enterprise systems through a range of pathways. From APIs and CLIs to model context protocol or MCP, which has quickly become the dominant standard for agent integrations. As enterprises move deeper into Generative AI adoption, the need for independent, real time granular security enforcement. Becomes even more critical. And the opportunity for Netskope becomes even more compelling.

The frontier model releases we have seen, including Anthropic's Claude 3.5 Sonnet and OpenAI's GPT-4.5, are genuine inflection points for the industry. And will deliver real and important progress in upstream software. Operating systems, browsers, and critical open source libraries. However, they do not touch the vector that is already active inside environments now. The data flowing through AI agents, cloud applications, and enterprise workflows that authenticate Azure users, operate at the privilege level of your people, and move sensitive information to destinations your security team has never reviewed. The security industry has spent years evolving security and network architectures, to assume breach, for human users. But that same rigor has not been applied.

To the AI agents now operating inside organizations. Our Netskope 1 platform is optimally positioned to solve this problem. Because of both where we sit and what we can see, Most security and networking systems see that a connection is happening. Our new edge infrastructure sees what is deep inside it and brings deep context to it. All this is backed by Netskope AI Labs. Which develops more than 190 domain-specific models. Deployed throughout our products. Applied where they can make the greatest difference across data protection, threat defense, AI security, and more. The pace of Agentic AI adoption makes our role more essential every quarter.

Every transaction, regardless of whether it originates from a person, a device, or an agent, needs to be inspected. Governed, and controlled in real time at the point where it happens. This is what we do. Across trillions of transactions for enterprises around the world. At Netskope, we have always believed defense is never about 1 layer. And the most important layer is the 1 closest to the data. Our Netskope Threat Labs data shows that the median enterprise is now running 60 distinct AI apps and power users are interacting with more than 500. Sensitive data is flowing in and out at a pace and scale most security teams simply cannot see.

Attackers have always wanted data, and that data and real time transaction problem 1 where context matters. Is growing more urgent by the day as AI adoption accelerates. The depth of our AI ecosystem involvement reflects how central Netskope has become, to how the industry is responding to this moment. We have joined Anthropic's Project Glasswing, in which we will use our access to Claude Mythos preview to identify vulnerabilities and harden our own defenses. For our customers. In addition, we will share our findings with the Glasswing coalition and the security community. Our technology collaboration with Anthropic also includes integration with the cloud compliance connecting our unified data governance and compliance controls directly to cloud usage.

Giving shared customers real time visibility, policy enforcement, and data security across their cloud deployments. Additionally, we are also a member of OpenAI's Daybreak program using GPT-4.5 with trusted access for cyber. Recognizing us alongside a select group of security vendors as a trusted defender of critical enterprise infrastructure for the AI era. Addition, we partnered with the Google, and introduced AI guardrails powered by Google Cloud TPUs and Vertex AI. Enabling enterprises to deploy high performance generative AI, agentic workflows with in line safety checks and local data processing at scale. Our AI Guardrail solution is also natively optimized to run on NVIDIA GPUs.

And with Netskope products available on the AWS, Azure, and the Google Cloud marketplaces, enterprises are building and running their AI workloads. Netskope is the security layer they can reach for. Now let's dive deeper into our own rapidly developing AI security product suite. The combination of network reach, deep context, and content intelligence, and the ability to take dynamic action at the moment of risk is what allows us to detect sensitive data moving towards models, or unauthorized agents and stop it. Without slowing down valid users or agents performing valid actions or disrupting their workflows. This allows our customers to move beyond blunt block or allow decisions, and instead give their organizations the confidence to embrace AI fully.

What we call CAI Fastlane. Last quarter, we announced the first 4 products of our AI Security suite, all built on and extending the Netskope 1 platform. Our Agentic broker provides visibility and control over all MCP transactions. AI Guardrails defends against AI specific threats like prompt injection and jailbreak. An AI gateway inspects and enforces policies across AI applications and LLMs. These products are priced per transaction, meaning each prompt and its response. Making them straightforward to deploy and scale. The market response has been immediate. These new AI security products generated significant excitement and early pipeline right out of the gate. Translating into some initial early deals closed with beta customers.

Among these early wins was a US fintech customer that expanded to purchase our full suite of AI security products. AI gateway, AI Guardrails, Agentic Broker, and red teaming. To solve the issue of legacy proxies lacking visibility, context, and control, into AI traffic flows. We also expanded with a large US bank who is an early beta customer of the AI security products, and deployed Netskope AI guardrails for real-time visibility and control. DLP enforcement, user behavior analytics, and in line threat protection. To prevent exposure of sensitive financial information. Enabling them to safely adopt AI and meet strict regulatory and compliance requirements.

While still early from a financial standpoint, since these solutions were just released this past quarter, We are extremely encouraged by customer engagement and response. And the growth in our AI security product pipeline which is the fastest we have seen for any new product category, in our history. We will continue to innovate and broaden our AI solutions. Earlier this week, we announced the release of our AI command center. Which brings end to end operational intelligence that broadens and unifies how customers discover AI, manage its risk, and autonomously remediate issues across the entire enterprise AI ecosystem. Our AI command center does 3 things. First, it provides complete visibility across an organization's entire AI footprint.

AI lives and communicates on endpoints, networks, clouds, the Internet, and private infrastructure. Is embedded in servers, consumed through third party services, and woven throughout supply chains. Making visibility a complex challenge. Our enhanced discovery capabilities extend visibility across our customers' entire AI landscape. Capturing managed tools and shadow AI alike. To identify AI operating inside and outside, your security program. Second, helps customers gain a real time connected view of risk. Discovery alone does not tell you where risk lives. Netskope's AI command center unifies AI assets, data flows, and model connections across an enterprise into a single real time view.

Giving security leaders the context to understand, not just what AI exists in their environments, but how it behaves, what data it touches, and where exposure is greatest. and third, it guides customers to act on risks. Identified risks are automatically prioritized. By recommending contextual policy optimizations and providing remediation workflows to mitigate or remediate. The identified risks. For security teams struggling to keep up with the speed at which AI can introduce risk to tools and data, This represents a fundamental shift from reactive tactical firefighting to preemptive policy driven autonomous operations. We also recently unveiled AgentScope, an architectural foundation built into our Netskope 1 platform.

That allows organizations to deploy AI agents capable of running end to end security and networking workflows autonomously to assist SecOps and NetOps teams bogged down by capacity constraints complexity, and manual triage. Our recent release announcing AgentScope, Anthropic head of cybersecurity products, was quoted saying that Netskope AgentScope brings the platform data and SecOps expertise to apply it across security workflows. AgentScope is a strong example of how the 2 can help teams keep pace with today's threats. The first of 6 AgentScope agents we released is a DLP AI SecOps agents. Which evaluates millions of alerts and potential violations to find the needles in the haystack and bring forward a small set of meaningful contextualized risks.

In the system to the customer. It can then agentically triage, investigate, and drive remediation actions to dramatically reduce mean time to resolution for risks. During our beta trials, a global consulting firm that was generating over 14 million alerts and 2 million incidents per 100 actionable cases for human review. Using the Netskope DLP AI SecOps agent. Dramatically improving operational efficiency. We also introduced 5 more Netskope agents, including agents for digital user experience troubleshooting and insights, which distills millions of telemetry data points including from the New Edge Network, into a clear view of digital health. To proactively surface critical incidents, performance bottlenecks, and macro trends before they can impact workforce productivity.

In addition, an agent for accelerating Zero Trust migration and auditing, and a supply chain risk assessment agent for SaaS and AI apps. And finally, as data sovereignty becomes increasingly critical in the AI era, Netskope continues to enhance our new edge private cloud. We enable organizations to enforce local data processing for any type of traffic and entity generating Customers can define geo based policies to control exactly where their security networking processing occurs, giving them increased sovereignty over their data. Wherever it flows. Through our new edge network spanning more than 120 data centers across every major region in the world, No other platform can match this combination of global reach, and granular control.

I talked a bit about the growing number of customers adopting Netskope's differentiated Netskope 1 unified platform. Let me share a few Q1 wins across some common use cases. During the quarter, we landed a 7 figure network and security modernization deal with a Fortune 500 US financial services company, that showcased the breadth of our Netskope 1 security networking analytics and AI platform. The customer purchased 15 Netskope products. The deciding factor for this competitive win was our ability to provide a modern platform, with robust DLP controls that could be applied to multiple channels. Endpoint, email, Internet, cloud, data at rest in motion, as well as visibility into and control. Of AI usage.

We also landed a leading utility company in Latin America that will use Netskope to modernize their infrastructure, enable secure and flexible remote improve data visibility and control, and enables Zero Trust at scale. In a competitive displacement deal, they chose Netskope over several other competitors for our unmatched depth and breadth of data protection across their expansive environment, which is key for meeting local data privacy laws. And a leading telecom and managed service provider in APJ, chose Netskope for a large SASE branch modernization project.

This customer purchased Netskope's SD WAN appliances and SSE products for deployment in over 5 thousand managed sites for hundreds of customers who migrate away from legacy SD WAN and firewall solutions onto Netskope's advanced SASE offering. We won this deal over several competitors, for our ability to deliver both advanced SD WAN and SSC. And finally, a large manufacturer chose Netskope to modernize its infrastructure, protect against advanced threats, prevent data loss, improve visibility, into and control of AI usage. And address security needs globally. In a competitive bake off, Netskope outperformed 2 direct competitors for this deal. Which included our full SSC suite Endpoint DLP enterprise browser, digital experience management, and remote browser isolation products.

These and many other wins demonstrate our customers are gravitating towards Netskope, for ability to modernize their security and networking infrastructure. Eliminate the burden of disjointed legacy and first generation cloud security solutions. Consolidate vendors onto a unified platform, and migrate to our high performance private cloud. As they adopt more AI and cloud. This also applies to our growing ecosystem of telcos and MSP partners. Who are using Netskope products as the foundation for a variety of managed security service offerings for thousands of businesses around the world.

In Q1, for example, we expanded our alliance with Deloitte to include a managed SASE service for enterprise customers seeking to transform their infrastructure, modernize security and networking, and drive secure AI adoption. As AI transforms every industry and operating, we also are transforming how Netskope itself operates. When we founded the company, we architected our platform to be AI native. Today, we are applying that same philosophy internally. Particularly in R&D. AI is accelerating how we work across the entire development life cycle. From how we identify customer needs and prioritize the road map to how we architect, develop, test, and iterate on solutions. Projects that historically required large teams and extended time lines, can now move significantly faster.

Allowing us to respond to customer needs more rapidly and bring platform expanding products to market at a pace that would not have been possible before. To put this into context, historically, Netskope launched 2 to 3 major products annually. Less than halfway through this year, we have already delivered more than double that pace. This is what it means to be a truly AI native company. Not just building for the AI era. But running in it. In closing, I want to leave you with a few takeaways. First, the durable tailwinds of digitization, the move to cloud, and the transformational impact of AI. Mean customers no longer have the option of compromising on security or performance.

Every entity generating traffic users, devices, and AI agents, needs to be governed and protected in real time. Wherever they are. They are turning to Netskope to relieve them of that burden. And we are uniquely built to do it. Second, the AI ecosystem we have built. Including Anthropic, AWS, Google Cloud, Microsoft, OpenAI, and more, reflects how central Netskope has become to enterprises safely adopting AI. That trust is not easily replicated. Third, our new edge network and data sovereignty capabilities give us a structural and global advantage, that is increasingly a requirement in the AI era. Not a nice to have. And lastly, we are well on our way to scaling our go to market organization.

To capitalize on the massive opportunity the AI super cycle has created. Our hiring is tracking according to plan, and we expect productivity to ramp and deliver further benefit from these investments in the second half of the year. We are very encouraged by our strong pace of innovation and the excitement building around our platform expansion and new AI security products. The plumbing of the AI era, is being laid right now. Our strategy is built for the long haul, And as the market catches up to the reality of the AI super cycle, Netskope is primed to be the foundation they stand on. We are only just getting started on our journey.

Not just as a public company, but in building what we believe can be a legendary company. Before I turn the call over to Drew, I would like to share an update regarding our long term succession planning. As we announced today, Drew, working closely with me and the rest of our board, has announced his intention to retire following more than 7 years with Netskope. I want to thank Drew for his partnership, leadership, and many contributions. During his tenure, he has played a critical role in helping us scale to where we are today, including leading the company through its recent IPO, strengthening our financial and strategic foundation, and building a world class finance organization.

We will be initiating a formal search for an exceptional financial leader to help guide our next phase of growth. Importantly, Drew remains fully committed to Netskope and will continue serving as chief financial officer. Through the search process and hiring of his eventual successor. And will transition to an advisory role for Netskope. Thereafter. This planned transition does not change our strategy, our priorities, or our confidence in the opportunities ahead. I look forward to continuing to partner closely with him. Over the months ahead. With that, let me now turn the call over to Drew.

Andrew H. Del Matto: Thank you, Sanjay, and hello, everyone. As Sanjay shared, Netskope had a strong first quarter to start our new fiscal year. Underlying demand for our business remains healthy, Our platform continues to gain momentum. And our sales reps are ramping as we innovate at a rapid pace. Before I share more about our Q1 results, let me remind you that all financial comparisons are on both a year over year and non GAAP basis, unless stated otherwise. Moving on to the Q1 results. Importantly, ARR grew 29% to $845 million at the end of Q1. we saw strong ARR growth from new logos, which increased 59% year over year.

Net new ARR was $34 million compared to $39 million in Q1 of last year. As Sanjay mentioned, we faced a tough year-over-year comparison with Q1 26 benefiting from multiple 7 figure expansion deals that drove outsized net new ARR growth of 79% year over year. Q1 revenue grew 28% to $201.6 million ahead of our guidance. We experienced strength across geographies. In Q1, revenue in the Americas grew 27%, EMEA grew 31%, and APJ grew 25%. Our Q1 net retention rate, or NRR, was 113%. Remaining performance obligations or RPO grew 33% year over year to over $1.2 billion. With contracted future billings growing 71%. Moving on to our customer metrics.

The number of customers generating more than $100 thousand in ARR in Q1 grew 23% year over year to 1.6 thousand. Enterprise and large enterprise customers are our focus, and more than 85% of our ARR comes from $100 thousand-plus ARR customers. This is indicative of our success in both securing significant new enterprise deployments and expanding in our existing installed base. Adoption of our Netskope 1 platform continues to increase. At the end of Q1, 57% of our customers were using 4 or more products, versus 49% a year ago, and 28% were using 6 or more products, up from 23% a year ago.

We are pleased with this progress, and believe our broad platform of more than 25 products gives us a clear opportunity to land both larger deals and continually expand with our growing customer base. Moving on to the rest of the income statement, where we continued to see the benefits of Netskope being built to scale. Gross margin was 77% an increase of approximately 3 percentage points from Q1 of last year as our new edge architecture continues to deliver scale economies Q1 operating expenses totaled $184 million improving 4 percentage points year-over-year to -14%.

R&D expenses improved about 300 basis points year over year to 37% of revenue as we continue to unlock the structural leverage and velocity of our unified common code fabric. Sales and marketing expenses increased as a percent of revenue as we continued to invest in quota carrying sales reps. Our consistent improvement in gross margin and operating margin reflect the leverage we have unlocked as our strategic investments in infrastructure and talent begin to compound. Net loss per share was $0.06 using 400 million weighted average shares outstanding. Fully diluted share count using the treasury stock method was approximately 508 million shares as of April 30, 2026.

Free cash flow was negative $57 million in line with our guidance as we continue to transition customers with multiyear contracts to annual billing. More on that in a moment. And finally, we ended the first quarter with $1.1 billion in cash equivalents, and marketable securities. Before I share the details of our guidance for the second quarter and fiscal year 27, here are a few modeling points in assumptions underlying our outlook. As Sanjay noted, we continue to ramp many sales reps into the second half of this fiscal year. Impacting our year over year Q2 comparison.

We expect to return to more historical ARR growth trends in fiscal 27 with a larger portion of our net new ARR to come in the second half of the year. Additionally, the transition to annual billings I referenced earlier continues to progress faster than we initially expected. Which shifts cash collections into later periods and creates predictable, future cash flows. We expect Q1 free cash flow was the low watermark of that transition with an improvement in Q2 relative to Q1 and a return to positive quarterly free cash flow in the back half of the year. For the full year, we still expect to have positive free cash flow margin of 2% to 4%.

The benefit of the transition is illustrated in the future collections visibility of our 71% growth in contracted future billings. We have highlighted these modeling points in the appendix of our investor presentation. As our results show, we continue to be focused on driving efficiencies across Netskope. We remain committed to delivering leverage in our model while at the same time investing for future growth. Our disciplined, high impact, and high ROI investments position us as a significant beneficiary of the AI super cycle. At the same time, we are early in the year and as discussed, still have a large portion of our sales reps ramping.

Let me now provide our guidance for Q2 and updated outlook for the full fiscal 27. As a reminder, these numbers are all non GAAP unless stated otherwise. For Q2 fiscal 27, we expect revenue in the range of $213 million to $215 million representing growth of approximately 25% at the midpoint. Operating margin of approximately negative 14% to 15% and net loss per share of $0.06 to $0.07 using approximately 410 million weighted average common shares outstanding. Moving on to our updated guidance for the full year, fiscal 27, we now expect revenue in the range of $879 million to $883 million representing growth of approximately 24% at the midpoint.

We are pleased to be able to raise our full year revenue guidance by more than our revenue beat in Q1. This reflects the confidence in our business and durability of demand. Gross margin of approximately 77% operating margin of approximately negative 9.5% to 10%, net loss per share of $0.18 using approximately 415 million weighted average common shares outstanding, and positive free cash flow margin in the range of 2% to 4%. In closing, I would like to briefly comment on today's announcement. It has been 1 of the great privileges of my 40-year career to be part of Netskope's journey over the past 7 years.

Helping scale the company from approximately $70 million of ARR to where we are today. I want to thank Sanjay for his confidence partnership, and friendship as well as our employees, board, customers, partners, investors, and analysts for their support throughout this journey. I remain fully committed to Netskope and will continue to serving as CFO throughout this transition to help ensure a seamless handoff to my successor. Finally, demand for the Netskope 1 platform remains strong Momentum across the business continues to build and our pace of innovation remains high. I have never been more confident in Netskope's future or its ability to help define the future of cybersecurity. With that, operator, let's open the line for questions.

Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press 1, 1 on your telephone, then wait for your name to be announced. To withdraw your question, please press 1, 1 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Brad Zelnick with Deutsche Bank. Your line is open.

Analyst (Brad Zelnick): Gregg. Thank you so much for taking the question. And Drew, congrats on your retirement it is been a wild run. I feel like we know each other. it is nearly 20 years. But I know you are committed until you hit the golf course more regularly. So again, 1 wonderful run. Wonderful run.

Andrew H. Del Matto: Thank you very much, Brad.

Analyst (Brad Zelnick): You got it. Listen. Sanjay, Netskope's technology is super well regarded by every practitioner we speak to. As you say, you are uniquely positioned for the AI super cycle. But how can you be confident that your product market of your product market fit in the AI era and that SSC is not commoditizing as we are seeing AI companies literally add tens of billions of dollars in run rate revenue in Q1 alone. And your net new ARR, appreciate that you are up against a tough comp. But even on a just a whole dollar basis, it is the lowest dollar amount in nearly 2 years.

Despite your sales and marketing spend up nearly 50% or so over that time?

Sanjay Beri: Yep. Great question. A couple of things. If you look at our AI security products, we actually just released those last quarter. And we just released today or just earlier this week our AI command center. And so we have used the AI super cycle and securing it in its infancy. Often, security catches up. From the perspective of AI adoption, and that is why we are so excited about it. For us, we have an over 80% win rate when we get to POV. That has not changed. So for us, when customers try our technology, they love it. We have the highest GRR we have ever had in our history. We grew new logos by, close to 60%.

Year on year. And so for us, new logos are great. Our customers are happy. They want more from us. And from a product perspective. And that is what we have given them. And so that is why we mentioned with over half of our reps ramping, and we will see that in the second half where those products hit stride. And our reps hit stride. And so really, what we are seeing is that net acceleration, net new ARR acceleration will happen in the second half.

Analyst (Brad Zelnick): Thank you. that is really helpful. Maybe just a quick follow-up for Drew. Drew, how are you feeling about the full year ARR plan? Relative to 90 or so days ago? And any hints that you can share around seasonality. Would be great. Thanks again.

Andrew H. Del Matto: Yeah. I the way the rep ramping aligns with the product announcements, again, we announced 5 new products since the beginning of the year, all AI, and we are seeing nice demand build for those. So, I think Sanjay just said we expect to see net new ARR acceleration in the Second half. You know, look, we guided up on revenue, by the revenue beat in Q1. Plus about the same amount for the year. And we still expect ARR to be within a point of revenue growth ARR growth to be within a point of revenue growth.

Analyst (Brad Zelnick): Perfect. Thanks again.

Operator: Thank you. Our next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open.

Analyst (Meta Marshall): Great. Thanks. Maybe building on that question. Just I would imagine with the 5 new modules that have kind of come out earlier in the year, that you are seeing kind of good adoption there. But can you just speak to kind of adoption trends of kind of the other portions of the portfolio and any trends that you are seeing there? And then just kind of as a second question, just are those kind of modules easier for reps to sell or just the packages that the reps are Having the most success within selling? Thanks.

Sanjay Beri: Yeah, great question. So first of all, from the AI security perspective, we released those products just this last quarter. We have never seen a product pipeline grow like it has for the AI security products. And so every conversation I am in, within 6 minutes, they want to talk about And so, obviously, that is why we are very energized and enthused about the pivotal role we will play in the AI super cycle. The proof is sort of in that growth that we see both in pipeline and then also even the early adoption from our beta customers. Right? 1 of the large financials adopting those products.

Now when you look at the other product areas for us, you see that the average customer now has over 4 products, and that continually kind of marches upwards. Every year. And that comes from those other products. right, since we just released the AI security ones. Our next gen secure web gateway product with our unified data protection our ZTNA product, for example, our digital experience management product. We gave an example in the earnings call. Of our win on the enterprise browser side. All of these really, for us, are 1 platform and that is what is unique about us. All of our growth is organic.

If you look at our products, they run on the same console, same network, same it is the same. Right? We do not ask people to have 3 consoles and 3 networks. And what does that mean? it is the answer to your question. It is very easy for us and our customers to adopt new products for us. Because when they buy 1 or 2, they do not have to move to a different framework for policies or our graphical user interface or our network. And we wanna make it operationally easier. And so these new AI security products they run on the same platform. They were organically built.

And as a result, they will be, easy for people to operate.

Analyst (Meta Marshall): Great. Thanks.

Operator: Thank you. Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Your line is open.

Analyst (Matt Hedberg): Hey, guys. This is Simran on for Matthew Hedberg. Thanks for taking our question. I guess to start, could you double click a bit on the competitive landscape and how you are thinking about these new products from a pricing perspective.

Sanjay Beri: Yeah. it is a great question. So, you know, first of all, all the new AI security products are priced by transaction. So a transaction is like a prompt and a response. And if you look at the product we announced this week, the AI command center, in a similar framework. Right? it is really based on the number of agents you have, and beyond. And so for us, pricing in the way that people consume things that is been our philosophy. If you look at AgentScope and our AI agents, right, which is a whole separate product line, that we just announced as well, which is our first AI agent. it is outcome based pricing.

Which is if you look at our DLP AI SecOps agents, how's it priced? it is priced by the outcome. The value. Right? How many, incidents and cases do we solve? And so that is kind of the pricing model. I think that is the pricing model for the future for new products, and that is what we have adopted. In addition to that, I mentioned, you mentioned that from a competitive perspective, Our win rates from a POV POC are over 80%. So our whole focus, and that includes, you know, across all our products.

And so, really, for us, it is just continuing that march of getting those 50% of our sales reps, which are ramping, getting them ramped, expanding the partnerships like we announced by expanding the Deloitte partnership from a SASE perspective and our managed service partnerships. We know that when a customer tests and tries and they see our AI security and our command center products, we will maintain those win rates. And so for us, the focus is get in there and get the at bat.

Analyst (Matt Hedberg): Okay. Got it. that is super helpful. And then just from a guidance perspective, it seems like you raised the 2027 revenue guide a bit higher than the beat in the quarter. Can you just talk a little bit about what is driving the increased confidence around the guide, and any additional commentary on the visibility that you have?

Andrew H. Del Matto: Look. Sure. We see again, we have the bulk of our hiring, really the peak of our hiring, last year on the sales reps was in the second half of the year. And so we believe we will start to see the return of that as they become fully productive. And so it is the ramping of the reps as we have mentioned many times before. Then the other thing is Sanjay just mentioned, we are seeing strong demand in the AI. it is an uptake of the 5 new AI products released.

And so our expectations is that will provide a benefit And as I just noted, we expect net new ARR to reaccelerate in the second half of the year.

Analyst (Matt Hedberg): Okay, great. Thanks, guys, and congrats, Drew. Thank you very much.

Operator: Our next question comes from the line of Shaul Eyal with TD Cowen. Thank you. Good afternoon, everyone.

Analyst (Shaul Eyal): Drew, it was still his pleasure working with you over the past decade and congrats on, what comes next.

Sanjay Beri: Sanjay, maybe more of a philosophical, maybe strategic question here. with the renewed momentum we are seeing on the hardware side of things, how do you see that capitalizing Netskope's business given it is a company that was originally born in the cloud? So I think a couple of things. 1 is, when you think about organizations, they are more distributed than ever. And, agents are more distributed than ever. Right? They run on laptop servers. And beyond what they are using, is distributed. And so for us, we are firm believers in this notion that people will wanna consume their security and networking everywhere. They do not wanna do truck rolls into offices and branches and so on.

They are modernizing their edges to put as much as possible outside And so that is sort of what we see. The infrastructure that we run, New Edge, it is the, you know, world's most performant. Infrastructure from a private cloud network perspective. And so for us, you can think about the new edge infrastructure. It is their new network hardware. Right? It is their new network cloud. And it gives you better performance, better connectivity. And I remember sitting with a CISO, and a CIO a few weeks ago in the East Coast. He told me, Sanjay, like, I am so distributed. Right? I got contractors, partners. I got new places I am building up.

May have private data centers. I may use cloud. I do not I do not wanna have a network. I wanna use your network. And know, you provide it to me globally. Right? You take care of that. I can focus on my core competency. And so for us, 1 of our big advantages is that we modernize and consolidate your infrastructure which includes your edge, and your network. And so that is what we are seeing. Over time, and that is what we continue to see. And I think with the AI super cycle, it becomes more important. AI, when you look at agentic traffic, it is back and forth. Back and forth. Right? Highly distributed.

You got agents making tool calls. To cloud apps, private apps, everywhere. And so the AI fast path that we introduced which is the fastest way for inference that is another big benefit for us. From a network perspective. Thank you so much.

Operator: Thank you. Next question comes from the line of Brian Essex with JPMorgan.

Analyst (Brian Essex): Drew, congratulations from me. As well. Well deserved.

Sanjay Beri: Maybe, Sanjay, for you, just 1 question. I would love to get your insight of with access to the foundation models that you have had, how have you utilized that in the platform? Any kind of initial observations, and then what kind of value has that access provided to the Netskope platform? So if you look at the foundation models, both part of Daybreak program, Glasswing, and to be blunt, even leveraging the open weight models. What we do is we build a harness, and we basically leverage them all. And we use that in terms of our internal development cycles. Right, to test to validate, as part of our pipeline. And that is kind of what you should do.

And you already did that, with other systems, and now you have these capabilities in the frontier models to find vulnerabilities early, and integrate that into your CICD process. And so that is what we do. And like I mentioned, we have a harness that does that so we can leverage many, many models. Over time. Because as you have seen, right, there is a new frontier model every 4 to 6 weeks. And you wanna be able to have diversity. And you wanna be able to leverage them to, frankly, drive quality and security. And so we leverage that And then as far as externally, we have our AI labs team We have had 8-plus years.

We have 190-plus of our own deep learning and other models. You know, 1 of the proprietary advantages we have is over the decade, we have processed at a most granular fashion for enterprises across the world. Their access to cloud, now AI, to their private apps, Probably the most granular level you would see if any company in the world. And what we have gained and the gleaned insights from that and the behaviors that is proprietary data. And that lets us develop, some amazing deep learning models that we leverage across data threat our network acceleration, and beyond.

And so really, for us, I mentioned this in the earnings, just previous to this, that we have transformed and are transformed really into this, not only AI first from how we build our products, and how we test them, but also just from our mindset. Right, of how we develop how we market, And, I think that is a journey that we are highly committed to, and we feel very energized by it.

Analyst (Brian Essex): Alright. Helpful color. Thank you very much.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Keith Bachman with BMO. Your line is open.

Analyst: Hi. Many thanks. And, Drew, I also echo congratulations I hope your golf game improves in the process. 2 things for me. 1 related, Sanjay, for you is I did spend, 2 days down at Gartner Group's, security conference this year, and seemed to surface more so in past years is obviously some tech trends, but also the notion of consolidation of spend. And the even the Gartner groups were advocating this more so in past years. And so I am wondering as you think about your competitive landscape, when folks like Palo Alto are using their platform to crowd out, other areas, how do you think about pricing? Has pricing been any different say, in the last 90 days?

And how do you think about that pricing playing a role as we are going through this dynamic time of technology transition. And then my follow-up to Drew sort of related is Drew, the net retention rate was a little lower than at least I was thinking. How does that it is a backward looking, number, but how do you think that trend plays out for the year? that is it for me. Many thanks.

Sanjay Beri: Yep, great question. So I think a couple of things. 1, when I step back, and you look at the networking and security and AI market, I have never been a believer there is 1 platform for all of that. And nor do I believe that CIOs and CSOs want 1. They do not want a hundred. But they do not want 1. They want a few core platforms that are open And I think I have seen that when I talk to CIOs and CSOs. For us, we are 1 of those core platforms.

We consolidate over 20-plus different point areas, and we become the new inner-- the new highway and the new on ramp to the Internet for agents and for users, and for apps and beyond. that is really what we do. And when you step back a second, for us, we measure ourselves very closely on our POC win rates. And I mentioned those, are consistently above 80%. And so you think about pricing as within that, we are not the company that is, gonna win because of pricing. We are gonna win because of the value and the technology we bring. And then the operational savings, because we are, not a price list integrated platform.

Where we put a bunch of things on a price list, But, no, everything we ship, we have a rule. It must be same console, same network, same client, same policies, so it is operationally easier. And so for us, where we went on the cost side is, well, it is easier to operate these guys. Right? And what I have seen yeah. You are right. In the pricing, sometimes you will see some competitors try to lowball on pricing once they know they have lost. But I think we have learned, and I think customers have learned, that does not work. You there is a reason you pick in this case, that win rate of over 80%.

So that is what we have seen And then as far as net retention, I will let, you know, Drew take that question. As well. But I think 1 thing to just think about in net retention before I give it to Drew is we are seeing, right now, in this Q1, historically high GRR. We have always been in the above the mid-90s. But our customers, they really like us. And I think for us, NRR fluctuates. Right, quarter to quarter. We would always said we will be in this range. We were obviously following a tough comp. Right, where 180% or so. And so it is definitely a tough comp.

And from a upsell perspective, what we are very bullish about and what we are focused on is that AI pipeline is strong. Right? Customers really want, on the platform we have, the ability to secure and accelerate their AI usage and we feel very great about delivering some amazing products to them in that realm.

Andrew H. Del Matto: Yeah, Keith. As Sanjay said, look, GRRs are record high, so that is we certainly have strength. On the customer retention side. Look. The mix of deals can vary quarter to quarter. Q1 of last year, we had upsell grew 116% on the heels of multiple 7 figure deals. Right? So very strong upsell quarter, and it can vary quarter to quarter. The next quarter, it was sort of half and half, half upsell. The growth came half upsell. Half new business. And this quarter, we saw strength in new logos. And so, you know, the new logo growth was 59%, for instance. So it is gonna it is gonna vary quarter to quarter, as we have said before.

When you think about it in terms of the long term, we really think mid teens is the right way to think about where NRR should be. I think we are probably at the lower end of that right now, but, you know, obviously, with the strong AI pipeline and the reps ramping, we think we have an opportunity to go up from there.

Analyst: Okay. Great. Thanks, Drew.

Operator: Our next question comes from the line of Robbie Owens with Piper Sandler.

Analyst (Robbie Owens): Wonderful. Hey, thanks for taking my question. Would love to get a sense of how customer conversations have changed over the past couple months. Obviously, tremendous amount of activity. And I guess from a couple of perspectives. Number 1, the strategic positioning of SASE and what are the different types of problems that customers are looking to in Netskope to help them solve at this point.

Sanjay Beri: Yep. it is a good question. So when I look at use cases and the reality is SASE is become broader and broader and broader. Right? More and more things put into it and consolidate it. And so I like the way you think about it, which is, hey, what are those use cases? And so for us, from a use case perspective, 1, customers want to be able to secure and accelerate their broad Internet access for web, first class, for AI. And that could originate from a human, could originate from an agent, could originate from a robot, whatever it is.

They know that, wait a minute, At some point, a user, an agent, a robot, it needs to go hit something and access something to get information. And, well, wait a minute. what is the best way and the best path to get that information? what is the best network? that is for us, New Edge. Right? 2, is, okay. When I am doing that, how do I know what data is transacting? How do I know this is valid? How do I know this AI agent is supposed to be making a tool call and supposed to be getting that information from Slack or OneDrive or my private app. And so, really, it comes down to, hey.

What is the best path as information flows and what is the best way to govern what data those things that are requesting that transaction should have access to. That is 1 of our top use cases. And that really speaks to this notion of you know, distributed security and networking for this you know, cloud and AI era. The second, obviously, within that, there is many use cases. The other 1 is, obviously, partners, third-party risk, and contractors, right? This is a big notion in the hyperconnected world. And so how do I enable people and agents who are not part of my organization to still have access to what they need.

And that comes to modernization of what used to be their remote access VPN infrastructure and move to the Zero Trust concept. And then the third is unification. Modernization and unification of data protection. As you know, for us, we use, neural networks and deep learning models and we cover your data no matter where it is. We look at every prompt We look at every response. We look at every MCP transaction. And we say, is this data supposed to be transacting? In this way? And if it is not, we stop it. Right?

And so for us, data protection across the AI ecosystem across your endpoint, across your email, across your on prem apps, private apps, and, your data stores. and data lakes, right? We bring unification to that. With a modern way of classifying it and protecting it. So that is another big use case. And then the fourth is what for many of our customers, they are consolidating and converging their network infrastructure. And taking a lot of cost out of what they used to spend on dedicated network infrastructure and leveraging New Edge for that. So those are some of the top use cases. Thanks.

Operator: Thank you. Our next question comes from the line of Richard Poland with Wells Fargo.

Analyst (Richard Poland): Your line is open. Hey, guys. Thanks for taking my question. I guess for AI products specifically, AI command center AgentScope, Agentic Broker, are there any early signals on maybe how those sales cycles compare to core SaaS sales cycles? And when we think about AI, are you seeing an established budget owner yet on the other side of the table? Is it coming out of, you know, existing security budgets, or is this, like, a net new area of spend in security?

Sanjay Beri: Yeah. So I think when you look at the most enterprises, right, they are trying to figure out how do I secure this unstoppable usage of AI. And 90% of AI usage is shadow or end user. Business unit led. And so I think they are in the infancy, and we are in the early days of AI security. We have obviously seen, you know, fastest growing pipeline we have ever had for a product with AI security. And I think that budget is a mix. Some of it comes from a net new budget.

As they roll out AI programs. there is generally just like you roll out an app, there is generally a percentage of that attached to security. And then some of that will come from your app budget. Some of that will come from your infrastructure and security. But I think people are generally figuring that out. And so, anyways, that is how we have seen it. I think AI command center, for example, product we released this week, we developed that with many of our customers. Because they wanted unification of how they could view AI. And so for us, usually, when we release something, we generally know it will hit the mark.

Because we had a lot of customer involvement as we built it.

Analyst (Richard Poland): Great. Thank you.

Operator: Our next question comes from the line of Catharine Trebnick with Rosenblatt. Your line is open.

Analyst: Hello. Thanks for fitting me in. Much appreciate it. I wanna go back and ask you about the 80% win rate you are seeing with the POCs. Are you seeing any change in who is initiating them? POCs? Or is it more displacement or greenfield? And any change in the competitive shortlist changing. Thank you.

Sanjay Beri: Great question. When you look at the POCs, generally, if you look at the buyer for us, it crosses the CSO the head of infrastructure and ops, and the CIO. And often, the CIO has these people reporting to them. Right? And he or she, in addition, may have a peer now called the head of AI. Right? And the head of AI is in your role. Does not necessarily have a large group. But is, I would say, an influencer as they drive AI security. So that would probably be the 1 change. That you have this new role that some companies have, which is head of AI.

Otherwise, you have the common cast of folks who are often, making these decisions. From a competitive perspective, a win rate perspective, we do not see a difference because we are broad now. We have over 25 plus products. Depending on the area, you may see some different folks. You may see for example, when you are looking at modernizing remote access, you would have seen what I would call 2 generations ago incumbents. You know? You may see, you know, the traditional VPN vendors from the past. When you look at AI security, nobody has anything. it is all greenfield. Right? And so, really, when you think about the use case, some is greenfield.

Some is, I would say, like, 2 generations ago replacements. And then is some is what I call first gen replacements, which are know, first generation SASEs where people get frustrated. Because they let them put the business policies they want. They do not let them protect their data and beyond. And so it is a mix.

Analyst: Right. Thank you. And, Drew, sorry I will not get to work with you much. I came on the stock too late.

Operator: Thank you. Our next question comes from the line of Eric Heath with KeyBanc Capital Markets.

Analyst (Eric Heath): Hey. This is Eshaan on for Eric. Thanks for taking the question. Sanjay, expectations were that security budgets would start to expand ahead of Mythos-like models becoming available yet Pearson and numbers seem to not be seeing that clear infection inflection yet. It fair to say that maybe rather than urgency, customers are still more of an in an evaluation phase? And if so, when do you expect to see that shift And demand for security budgets to meaningfully inflect? Thanks for the question.

Sanjay Beri: Yep. Gregg. Appreciate it. I think when you in reality, you know, I have a rule. I talk to, you know, generally 2 CXOs at least a day. Obviously, I have a big event to talk to hundreds, but 1 to 1, I try to talk to 2 CXOs a day. And when I talk to them about AI, the reality is they know they need something. They know they need to secure it. They need to what we say is, hey. You need to enable it. And you need to secure it.

Now how they do that The reality is there is no, like, you know, there is no article or book or text that they read to say, how do I do this? This is hitting them too to say, well, wait a minute. How do I do this? what is the best practice? And so for us, just you know, for example, we are running something called AI Fastlane in cities across the world. And we literally do this. We show them what to do. We bring in a customer who is done it. And beyond.

And so I think what you are seeing is that as I mentioned, the pipeline that we have seen for AI security fastest growing we have ever seen, are in the infancy. And we do see adoption starting, least in our case, more in the second half. And, I think over time, over the years, people will definitely mature and, AI security will be you know, here's the way to do it. Right now, they are learning. Thank you. Our next question comes from the line of Shrenik Kothari with Baird.

Analyst (Shrenik Kothari): Gregg. Thanks, guys. This is Zack on for Shrenik. Thanks for taking the question. So you have highlighted stronger engagement with large GSEs GSIs and strategic partners, including some major enterprise transformation work. I guess the question is, are partners mostly helping with implementation still, or are they becoming, maybe a real source of pipeline for you guys Thanks.

Sanjay Beri: Yeah. it is a it is a great question. So I think the answer is really both. The reality is when you look at partners, you can segment them. You could have alliance partners. And, you know, obviously, we have strong alliance partners, folks like Okta. We were named, you know, Microsoft Security Partner of the Year last year. CrowdStrike others. And you work with them in the field and beyond. And you wanna make sure you integrate and they have great products and platforms and beyond. And then no, you will generate and share off in the pipeline. And then you have what I would call resellers, and distributors and so on. Gregg. For procurement, and also for sourcing.

Right? You wanna have, portion of your deals where they are sourcing it, and we do see that. Then you have, of course, the system integrators. Where their focus is implementation services, managed services, consulting services. Right? Less so, hey. I want to resell what you do. Or beyond. And theirs were I mentioned, you know, for example, on the earnings call, the managed SASE offerings with Deloitte. And other system integrators. And so, really, for us, we think about it that way. Implementation services partners, partners who, can source and sell and make procurement easy, And then in the mid market, managed service providers. Who really do the whole thing. They sell. They implement. And they manage.

And our focus is really, all of those. To make sure that we cover the different needs of enterprises. Great. Thank you.

Operator: Thank you. Next question comes from the line of Trevor Rambo with BTIG.

Analyst (Trevor Walsh): Your line is open. Hey, great. This is Trevor on for Gray Powell. Thanks for taking my questions, squeezing me in. Just 1 for me. Maybe for Sanjay. Was there a demand or attach rate of the networking products like an SD WAN? Looking like a new deal today versus a year ago, And is the network inside the equation gaining more traction this year, or is it still more predominantly on the security side? Thanks.

Sanjay Beri: Yeah. it is it is a good question. So when we think about what we do, we always think about it as security and networking. And the reason is that if you think about our customers, like, you know, we have customers who have hundreds and thousands of employees. They have now tons of AI agents. All that traffic goes through us. And 1 of the first things they, do from a security side is obviously they do what I said, which is test the data protection and make sure the policies work and so on. But in parallel, the infrastructure and network person they need to make sure that, wait a minute, what is my end user experience?

Right, or my end AI agent experience? And they are validating that And so we kind of do view, like, every sale of ours as a security and a networking sell. Because New Edge is becoming their new network. Right? And so that is how I would think about it. From a specific product perspective, while we do not break out SD WAN, 1 of the things that we have seen is that our SD WAN is really a integration of security and networking functionality together. To modernize the edge Right? You are you want as little as possible on prem. At the branch edge or factory edge. And that is really what that is meant to do.

Put as little as possible and as much as you can in the cloud And we have seen good uptick in that, and we mentioned some great wins and as well. Folks, you know, wanting single vendor SASE, We are 1 of the vendors who truly can deliver it in a unified way.

Operator: Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Michelle for closing remarks.

Michelle Spolver: Thank you, everyone. I am As we wrap up, Sandy, Drew and I want to say we thank you for joining us today and especially staying over a bit longer. We are pleased with our Q1 results and the momentum we are seeing across the business, and we remain focused on helping customers with their cloud and AI transformation journey. We appreciate your continued support, and we look forward to speaking with many of you over the coming months and With that, we can close the call.

Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

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